From: Reuters
Published October 8, 2008 09:02 AM

Electric cars to dominate green car race

SAN FRANCISCO (Reuters) - It will be years before demand for hybrid cars in the United States and Europe is big enough for battery manufacturers to make money from that business, but electric cars are nevertheless poised to dominate the market for greener vehicles, the world's largest car battery maker said on Tuesday.

Johnson Controls Inc's hybrid battery business will be profitable "within five years," according to its president, Alex Molinaroli. He added that demand for fuel-sipping hybrid cars, while strong, must get much bigger before the company's investment in the technology will pay off.

"It's very expensive to be in this," Molinaroli said at the Reuters Global Environment Summit. "It's the opportunity to spend money, not make money today."

The premium consumers must pay for hybrid cars has prevented them from gaining a bigger share of the overall auto market, and Molinaroli said global financial turmoil would weaken demand for both traditional and hybrid vehicles.

"If you are a consumer and you are going to buy a vehicle -- hybrid or non-hybrid -- you are going to delay your purchase," Molinaroli said.

Last year, Johnson Controls reported revenue of about $4.3 billion from batteries, though very little of that has come from the developing hybrid battery business. Johnson Controls' Power Solutions unit's plan for profitability assumes that hybrid electric cars will make up 6 percent of the U.S. and Western European auto markets by 2020.

Automakers from Detroit's General Motors Corp to Japan's Toyota Motor Corp are developing electric cars for the United States, where soaring pump prices have increased consumer demand for cleaner, gas-sipping vehicles such as Toyota's popular Prius hybrid.

GOING ELECTRIC

They are also, however, pursuing other technologies that would reduce dependence on gasoline, including increased efficiency for traditional combustion engines, alternative fuels such as ethanol and hydrogen fuel cells.

According to Molinaroli, however, automakers already hard-hit by a weak global economy and declining auto sales will not be able to keep funding all of those technologies.

"The automobile manufacturers are not going to be able to afford to keep investing in all these different technologies," he said. "You see the long-term R&D effort focused on the electric car. People talk about fuel cells, but I don't really see the kind of energy and effort around that that I see around the electric power train."

Through its joint venture with French battery maker Saft, Johnson Controls is supplying next-generation lithium-ion batteries to Daimler for its Mercedes S-class hybrid sedans due out next year and is also working with Ford Motor on a pilot fleet of plug-in sport utility vehicles.

About 90 percent of Power Solutions' research and development spending is going toward lithium-ion batteries, Molinaroli said. Those are lighter, smaller and longer-lasting than the nickel-metal hydride batteries that power the current generation of hybrids, including the Prius.

Given the promise of lithium-ion batteries, many companies are investing heavily in that technology, and Molinaroli said he expects the industry to consolidate.

In particular, he said newer companies without other battery or automotive businesses to support the high cost of developing an emerging technology would likely be swallowed up by established players such as Johnson Controls.

"We don't have an approach today that we are going to invent everything ourselves," Molinaroli said. "We're going to always be looking."

Despite its focus on hybrid growth in the world's biggest auto markets, Molinaroli said electric car growth could be faster in China, where electric vehicles akin to golf carts will replace transportation such as bicycles and scooters rather than SUVs.

"They can't go everywhere on a bicycle, and they all can't afford a $20,000 to $30,000 vehicle, but they have to move people around," Molinaroli said. "The next step up from that is going to be some sort of vehicle, (but) it may not be a vehicle that would be acceptable in both Western Europe and the U.S."

Speedy growth of electric cars in China would be an added benefit to the company's business plan, Molinaroli said.

"Anything that we do in China -- even though it's in our business plan -- would really be kind of upside to what our current plan is," Molinaroli said.

Johnson Controls' joint venture with French battery maker Saft already has supply deals with Chinese automakers SAIC Motor Corp and Chery Automobile Co.

Johnson Controls shares fell $1.15, or 4.4 percent, to close at $24.99 on the New York Stock Exchange.

(For summit blog: summitnotebook.reuters.com/)

(Additional reporting by Braden Reddall and Peter Henderson in San Francisco and Poornima Gupta and Soyoung Kim in Detroit; editing by Gerald E. McCormick, Phil Berlowitz)

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