Now that the novelty has worn off, in order for hybrids to succeed they have to be cheaper. It's all about total cost of ownership
Many of the 'early adopters' of hybrids were more concerned with environmental issues, and in demonstrating that concern, than reducing their fuel bills. However, for hybrids to take a major slice of the mass market, it will require the 'hybrid price premium' to be slashed from it's current $3,000+ level to less than $1,000. Toyota, for one, is focusing on achieving this as soon as practicable.
Now that the hybrid novelty has worn off, the decision to buy a hybrid will be dominated by the same considerations that made Europeans flock to diesel cars. In a phrase, it's all about 'total cost of ownership'. The key questions are:
Can I afford the price premium?
How much of the premium will I recover when I sell it?
What's the value of the fuel I will save?
In 2003, Congressman Zach Wamp (R-Tenn.) pumps the first gallon of Ethanol-85 fuel from the new DOE Oak Ridge Federal Building alternative fueling station. Now, imagine E85 going into a Prius or Civic Hybrid.
Let's consider future hybrids from the same perspective.
Diesel and Hybrid in One Package?
One common suggestion is to combine the benefits of diesels and hybrids by bringing out diesel-fueled hybrids. This makes sense in those countries where the tax on diesel fuel is significantly lower than on gasoline, but not elsewhere. A small car with a diesel engine typically costs at least $1,000 more than its gasoline equivalent, but the latest evidence indicates no worthwhile fuel savings. The London Sunday Times recently discovered that the diesel version of the new small Citroen sedan appears to be no more economical than the gasoline version.
Parity of fuel consumption between diesel and gasoline engines may have come as a surprise to the journalists involved and also to many car owners, but not to most automotive engineers. So forget diesel hybrid cars in the U.S.; they will make no economic sense. (Big hybrid diesel trucks are another matter.)
Then How About Flex-Fuel and Hybrid?
What makes real sense is the upgrading of current hybrid offerings to become 'flexible fuel hybrids', and full support from manufacturers that all new hybrid models will run on any mix of gasoline and E85. Less than $200 is added to the production cost of a conventional gasoline vehicle in upgrading it to handle E85. Congress, realizing that we are confronted by Global Warming, Peak Oil, and Energy Insecurity, has put the necessary ethanol pump-priming into the new Energy Policy Act.
The argument basically runs as follows. Take the current annual U.S. consumption of gasoline. Assume that 'aggressive hybridization' cuts it by a quarter (mainly in city driving), and that a further quarter is cut by better aerodynamics and engine downsizing (enabled by hybridization), mainly in freeway driving. Now take a further slice out for plug-in electric drives, and assume that the U.S can continue to source at least 25 percent of its gasoline internally. That leaves an ethanol target of less than a quarter of current gasoline consumption to make the U.S. 'gasoline independent' again. The United States Departments of Agriculture and Energy have recently produced a joint report which confirms that producing this quantity of ethanol is readily achievable without impinging on the current food producing capacity of the United States.
It is important to distinguish between corn ethanol and so-called cellulosic ethanol. Corn ethanol can be criticized because of the amount of fuel needed to produce it. On the other hand, cellulosic ethanol promises a 'one gets you seven' ratio. This translates to a near perfect CO2 score. For example, in Sweden E85 is all the rage, and Ford Sweden advertises that its flexifuel Ford Focus running on E85 generates only 32 grams per kilometer, against the Toyota Prius on bensin (gasoline) which gets 104 g/km.
Assuming a 2007 Toyota Prius could run on E85, CO2 might get as low as 20 g/km. Still want diesel? A diesel Prius might get 80 g/km. Of course, with E85 you get fewer miles per gallon than with gasoline, but the price per gallon is much lower. It's no longer simply a case of comparing mpg, you need to divide it by the price per gallon of the particular fuel to get an order of merit.
What's the Right Blend?
Biodiesel sounds great, but most car manufacturers void the warranty if you use a blend which has more than five percent true biodiesel in it. So 'B5' does very little, strategically or environmentally, because 95 percent of it comes from oil. Ford endorses a biodiesel blend at, but not above, five percent. And in case you are thinking—'they would say that, wouldn't they?'—in March 2005, Volkswagen announced that they would extend warranty protection for the use of low blends of biodiesel fuel in all of its U.S. market diesel powered automobiles—also only to the five percent mark. Even if 'B20' emerges, it's not that significant.
Battery Price versus E85 Saved
Imagine you've decided to order a 2007 Honda Civic Hybrid, which could get an average of 50 mpg on E85. Do you tick the box for plug-in, assuming it's offered? The problem for plug-in proponents is that cost justification looks a lot weaker if the host hybrid vehicle gets 65 mpg on gasoline, rather than 18 mpg from a V-8.
Assume electricity costs nothing, so it's battery price versus E85 saved. In the three or so years you are going to keep it, how many 'E85 dollars' will you save? Unless you have your own solar panels or wind turbine, how much extra CO2 will be generated by the grid? What would the price of the plug-in battery need to be to encourage most of us to buy one? How many thousand deep-discharges will the battery survive?
If the economics don’t quite yet add up to the ideal (and realistic) automotive formula—the Plug-in Biofuel Hybrid—then the next step is to simplify the approach to an 'E85 hybrid.” E85 is already with us and the Senate has ensured that extra pumps will be deployed fast. And because E85 isn't expensive enough, yet, to justify adding a plug-in battery. (There's little doubt that biofuel hybrids are a much better approach than General Motors’ fuel cell program.)
What's the catch? Essentially, keeping up with the resulting demand for E85. The vehicles are the easy part. The production of sufficient cellulosic feedstocks will be a challenge the farmers of America will tackle with enthusiasm. The bottleneck will be the rate at which America invests in large scale biofuel processing plants.
Over to you, Wall Street.