About Technology - Electric future

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Opel’s new Astra is vital for the company’s future

The global motor industry is gathering in Frankfurt this week for its first jamboree after a crisis that saw the bankruptcy of both General Motors and Chrysler, with rivals slashing production in the face of plunging demand for cars.

Bankruptcy filings in the US and cut-backs elsewhere have been painful, in particular for workers fired from long-held jobs. Many of them have little chance of gaining similar employment in the future.

The pain has been shared by investors, with shares in automotive companies hitting fresh lows during the year. Only the most bullish observers expecting significant recovery of portfolio valuations in the near future.

Yet the crisis has done little to weed out the weak and thus address the industry’s chronic ailment: overcapacity.

"We’ve just passed through one of the best opportunities in over a decade to see real capacity taken out of the industry," says Michael Tyndal of Nomura International.

"Governments have got involved because it’s a politically sensitive sector and we’re coming through the other side of the downturn with the same number of companies, maybe more, and the same number of brands."

Working together

Most of them will be in Frankfurt, but by no means all.

Motor shows are expensive affairs, so some cash-strapped carmakers - such as Nissan, Honda, Mitsubishi, Daihatsu and Cadillac - have opted to stay away.

But the largest players in the industry will still be here, and they all have great ambitions to expand their operations and grab larger chunks of the market.

Rolls-Royce hopes its Ghost will boost sales

"Ford, Toyota and Volkswagen Group are looking to scale globally," observes Erich Merkle of Autoconomy.com.

Others are joining forces with former rivals to share the cost of costly research and development of new technologies or to reach new markets - with Fiat taking control of Chrysler, and with the German carmakers BMW and Daimler increasingly working together, both with each other and with French firms Renault and PSA Peugeot Citroen.

"In terms of the amount of money being spent on technology, it makes sense for companies to work more closely together," says Mr Tyndall.

"My hope, which I suspect will be dashed, is that we see some announcement in terms of alliances."

German dominance

The Frankfurt show will be dominated by the home teams, with German carmakers unveiling 42 out of the show’s 82 world premieres - both concepts for the future and models ready to hit the road.

"Despite the financial crisis the 63rd IAA Cars is stable: 753 exhibitors from 30 countries will be represented at the world’s most important trade fair for mobility, including 62 vehicle manufacturers.

The 82 world premieres will provide the visitors with a glittering display of innovations.

People are hoping we’re coming out of the crisis - but everyone’s still nervous and very much focused on the short-term. Stuart Pearson, Credit Suisse

In particular the models from the German OEMs, whose 42 world premieres make up the lion’s share of the innovations, will show the way forward for future growth and a high level of environmental compatibility," stressed Matthias Wissmann, president of the German Association of the Automotive Industry (VDA).

The sixth generation will be the show’s main attraction, crucial as the model is to the future of Opel and its UK subsidiary Vauxhall.

Chief rival Ford has little to show this year after last year’s new model onslaught, though its C-Max has been redesigned.

Electric vehicles

But arguably, an even more important model than the Astra on the Opel stand will be its Ampera plug-in petrol electric hybrid which points the way towards a future where electric cars are set to become ever more important.

There will be a broad range of electric vehicles in various forms of completion - from pure concepts to ready-for-the-road - on display from the likes of Renault, Hyundai, Toyota and Ford.

Audi is bringing electrics to its supercar, the R8.

There are also clear signs that electric cars and petrol-electric hybrids are becoming desirable for wealthy drivers, with Mercedes launching an S-class hybrid and BMW displaying a similar version of its 7-Series, and Audi bringing electrics to its R8 supercar.

BMW and Mercedes are also displaying diesel-electric hybrids for the first time - a solution that had been dismissed for years as too expensive by hybrid-leader Toyota.

And increasingly the hybrids are kitted out with plugs, marking a shift in terms of consumer spending away from conventional oil companies towards utility firms producing electricity in wind farms and the likes or in more conventional coal fired or nuclear power plants.

Tough times ahead

Upmarket models will include Jaguar’s new XJ, unveiled during summer, and Aston Martin’s four-door Rapide.

Bentley will show its Mulsane which will challenge Rolls-Royce’s current customers, with Rolls-Royce gunning for Bentley buyers with its new Ghost.

Ferrari’s 485 Italia will face stiff competition

Ferrari will be here with its 430 replacement, the 458 Italia which will be challenged by McLaren’s 12C - launched last week in the UK. Porsche will be back with yet another 911 Turbo - its seventh.

But though the industry is clearly ready to steam ahead, concerns remain about the future.

Recent bangers-for-cash schemes that have encouraged people in a number of countries to scrap old cars and replace them with new ones are coming to an end, with few signs of growth in demand from consumers.

Next year is set to be at least as tough as this year, with some estimates suggesting sales to plunge by a fifth.

"People are hoping we’re coming out of the crisis," says Credit Suisse analyst Stuart Pearson.

"But everyone’s still nervous and very much focused on the short-term."

About Science-Nature - Electric future

About Science-Nature -

The committee sees a major UK role for wind, but not for solar

“Welcome to the electric future.”

That was the key message from the Committee on Climate Change, the government’s new advisory body, as it delivered its recommendations on how the UK should meet its target of reducing greenhouse gas emissions by 80% by 2050.

There is a wealth of detail tucked away in its 500-plus page report.

It proposes five-yearly “carbon budgets” that the government should adopt, and suggests a range of policy options for achieving them - among which weaning the nation’s power providers off fossil fuels is clearly the priority.

The targets are incredibly ambitious Jayesh Parmar, energy analyst

“One particularly important development is the de-carbonising of electricity,” the committee’s chairman Lord Turner told reporters.

“Once we de-carbonise generation, we can apply electricity to new areas such as road transport and the heating of buildings.”

By 2020, renewables - principally wind - could generate about 30% of the UK total. Efficiency improvements, nuclear - a “cost-competitive” technology - and carbon capture and storage (CCS) could all play a role.

Or could they?

“The targets are incredibly ambitious,” said Jayesh Parmar, a partner in the energy and utilities practice of Oliver Wyman, the global management consultancy firm.

TAKING THE CARBON OUT OF ELECTRICITY GENERATION The committee sees a rapid rise in the UK’s use of low-carbon electricity

“We’re nowhere near on track to meet a 30% by 2020 target. The pipeline of development would have to be extended significantly and accelerated massively if we’re to meet it.”

Currently, renewables provide about 5% of UK electricity.

Frustrated academics, activists and businessmen have long complained that the government does not have the right raft of economic incentives in place, lauding Germany’s use of preferential, set payments for solar electricity and lamenting the UK’s deployment of Renewable Obligation Certificates (ROCs).

“The government would have to look again at economic incentives, for example for offshore wind, where some of the major investors are beginning to question the economics of the business,” said Dr Parmar.

“Reform of the planning process has constantly been talked about; but despite recent moves we are still not seeing planning consent coming through as quickly as we need it to.”

New horizons

Financial realities mean that by 2020, coal is still likely to be an economically attractive option.

And despite applauding much of the committee’s report, environmental groups think it has not been firm enough in proposing that new coal-fired power stations would have to capture and store their carbon emissions by 2020-25.

“The problem is that CCS is still untried,” said Andy Atkins, executive director of Friends of the Earth UK.

“Even if it does work, that could still leave several years where new stations are belching out CO2, and the science says the timescale of climate change doesn’t allow that.”

And the committee is not talking about just replacing the UK’s existing fossil fuel plants with low-carbon alternatives - it foresees expanding the use of electricity into areas such as transport and heating.

Could electric cars make up nearly half UK sales by 2020?

By 2020, said Lord Turner, “we project that a significant proportion - about 40% - of vehicles sold would be plug-in hybrids or fully electric cars”.

Countries such as Iceland have long held the ambition of replacing all of their fossil fuel consumption with electricity - using some of it to make hydrogen, which can fuel vehicles - and it clearly makes sense when you have more geothermal and hydro-electric capacity than you can shake a stick at.

But a deliberate expansion of electricity generation in order to power cars is a novel choice for a crowded nation that has not embraced wind power like the Danes, solar panels like the Germans or nuclear reactors like the French.

“It does sound ambitious, and it would need considerable support from infrastructure providers and from government,” said Calum MacRae, leader of operations with the PriceWaterhouseCoopers (PwC) Automotive Institute.

“If you look at other markets where they have opted to really do something about it, such as Israel or Denmark, something of a coalition has emerged between the government and the automobile manufacturers and infrastructure providers, and that would have to happen here too.

“Battery costs need to be subsidised at some point in the purchasing chain, and there needs to be some coherent policy around recharging, so you can do it in car parks, for example, and at parking meters.”

The economics still appear heavily weighted against electric cars, even though operating costs may be cheaper.

Recently, as an indicative exercise for the US market, PwC showed that with a purchase subsidy of $15,000 and at a petrol price of $4 per gallon, you have to drive more than 60,000 miles per year to break even over four years compared to a petrol engine.

Twin track

So there are significant technical and financial hurdles that the government must overcome if it accepts the committee’s advice in full.

But there are political obstacles, too. The committee accepts that fuel will become more expensive - perhaps pushing as many as 1.7 million more households into fuel poverty by 2020.

Internationally, the government will want to burnish its image as a green leader without committing to much more than its neighbours and competitors.

The committee has prepared two sets of carbon budgets, each covering the three periods 2008-12, 2013-17 and 2018-22.

Lord Turner said economic concerns should not derail climate action

The first set is designed to fit with the EU’s target of reducing emissions by 20% by 2020 if there is no “global deal” on climate change.

The second set assumes there is a global deal at some point in the next few years, in which case the EU is likely to adopt a higher target of 30%.

The committee says that if the EU does 20%, the UK should do 34% by 2020; if the EU goes for 30%, the UK should go for 42%.

International aviation and shipping will not be included in these budgets - which environmental groups see as a cop-out - although the committee suggests they should be included at some point in the future.

The really important point, though, is not what happens in 2020 or in 2050, but what happens now.

As the report puts it: “The UK has a mixed track record in terms of the ability of its climate change policies to deliver”.

De-coded, that roughly translates as “we’re meeting our Kyoto target, largely thanks to Mrs Thatcher’s ‘dash for gas’; but we dithered for years on nuclear, we may have got the wrong policy options for renewables, we’ve let the building industry off the hook for years and we haven’t had a clue what to do on transport”.

On the surface, the economics of turning this around seem acceptable; implementing the flurry of suggested measures by 2020 would reduce the growth of the UK economy by less than 1%, the committee calculates, and would increase revenue into the public purse.

The government will announce by the middle of next year whether it accepts the carbon budgets, and the signs are that it will.

If it wants to turn them into reality, one suspects it is going to have to start putting some stronger policies in place on buildings, vehicles, and electricity generation, and with similar speed.