## Deutsche Bank Forecast sees slower transportation electrification and greater gasoline demand near-term; increased confidence in the pace and breadth of long-term shift to efficient transportation systems

##### 01 January 2011
 DB has lowered its advanced lithium-ion battery cost projection by about 30% for 2012. Click to enlarge.

In a December 2010 research note on the 2011 outlook for the oil market, Deutsche Bank (DB) analysts have revised their earlier expectations of the pace of near-term transportation electrification trends (slower) and gasoline demand (greater) but note that the developments in the global transportation sector in 2010 have increased their confidence “in the pace and breadth of the long-term shift to a more efficient transportation system.”

Their analysis is in the context of the “surprising [oil] demand strength of 2010“; 2010 saw absolute incremental demand at around 2.2mb/d of growth—the second highest in 30 years, despite oil prices in the $90/bbl region. Key developments in the transportation sector that they note include: Positive for gasoline demand: • Strong Chinese car growth in 2010, particularly in the first half of the year, with vehicle sales up 30% year-on-year (YoY) through the first eleven months of 2010. In DB’s Fall 2009 note, they had forecast 12% growth. By mid-2Q, the team had increased its estimate to 25%. Deutsche Bank’s China Auto analyst, Vincent Ha, continues to see robust light vehicle sales over the next few years, with a slow to about 11% YoY growth in 2011 (due to a high base from the 2010 surge, and reductions in government stimulus), followed by sustainable low double digit growth in 2012. He also believes that sub-1.6L passenger cars will outgrow larger vehicles due to favorable policies. • Slower than expected sales of hybrids everywhere in the world but Japan in 2010. In the US hybrids fell from about 3% of total sales in 2008-09 to 2.2% in 2010. The DB team attributed the reduction to less concern about gasoline prices, and therefore fuel efficiency, as well as fewer government subsidies for hybrids. As we’ve said before, it may take another$140/bbl+ oil price surge to truly and finally change US transportation behavior and policy.

• Increasing political animus towards the ethanol tax credit, which was “begrudgingly renewed for one year in the lame-duck tax bill.” The team suggests that this may be the last extension for the credit.

 The different shape of future demand for the Middle East and China, as well as the demand trend unfolding in OECD countries, where increasing fuel efficiency, low population growth (in Europe and Japan) and mature economic growth are combining to reduce gasoline demand for the foreseeable future. Click to enlarge.

Developments that were negative for global gasoline demand included:

• Rapidly falling lithium-ion battery prices, and steepening expected cost reduction curves for both batteries and electric drive components.

Based on discussions with industry experts and several automakers, the DB Auto team has lowered its advanced lithium ion battery cost projection by about 30% for 2012. Current prices have fallen from $650/kWh+ in 2009 to about$450/kWh now, and DB’s forecast is the price to fall at about a 7.5% CAGR from 2012 through 2020 to about $250/kWh. The consumer economics of a pure electric start to work without subsidy by about 2020 under this battery price decline scenario. The industry rule of thumb suggests that consumers will consider a 3-4 year payback to be an economic choice. With no subsidy, 2012 electric vehicle models will have a 10+ year payback vs. a typical combustion analog, assuming$3.25/gallon gasoline. With a $7,500/vehicle subsidy in 2012, an electric will have about a 5 year payback. Around 2015, assuming a$4,500/vehicle subsidy, the payback period starts to fall into a range at which consumers will view the economics favorably. By 2020, the economics should be able to more or less stand on their own with subsidy, and a small subsidy would clearly nudge the payback below 3 years.

• Strong indications of commitment by the Chinese government to support the rapid development of both domestic demand for electric vehicles and a competitive domestic electric vehicle industry.

• New US fuel efficiency/emissions standards which will not be achievable without significant penetration of electric vehicles, according to the DB analysis.

• Fuel standards in Europe, Japan and Canada that will require widespread adoption of electrics. There is pressure to make European standards even more aggressive.

• More governmental consumer incentives (rebates or tax credits) to encourage the purchase of new electrics and plug-in electrics.

• An explosion of hybrid sales in Japan. The Toyota Prius became the biggest selling car in Japan in 2009, and has remained in that position throughout 2010. Several other hybrid models also made the leaderboard. Hybrids went from about 8% of sales in 2009 to over 11% in 2010. Honda believes that hybrids will account for 23% of the market by the end of 2011.

• Strong pre-sales of electrics in the US by commercial enterprises. In November General Electric put in a pre-order for 12,000 GM electric cars, and said it planned to buy 25,000 EVs from all manufacturers by 2015 for its corporate fleet. At the consumer level, dealers have put in more 2011 orders than can be produced for both GM’s Chevrolet Volt and Nissan’s Leaf. Volt manufacturing capacity will rise from 10K in 2011 to about 65K in 2012. Nissan is building a 150K capacity plant in Tennessee for the Leaf which will come on line in 2012.

• New business models, combined with government incentives and subsidies, that dramatically lower the entry price for consumers.

• A growing number of xEV options around the world. The DB auto team counts at least 130 models in the global pipeline for 2012.

• Aggressive near-term OEM lease pricing.

• Increasingly micro-hybridization, with a majority of ICE’s being micro-hybrids (e.g., equipped with start-stop and/or some regen functionality) by 2020.

This confirms petrol prices will come up big times again in the following years, and this time we'll be ready with SOLUTIONS to avoïd suffering them. Thanks to the Volt, other Plug In Hybrids, and the full Electric cars. I bet this could accelerate our race away from Foreign Petrol dependance, to full electric alternatives.
I'm just surprised that Battery costs per KWh do not connect with Tesla $200 using smaller celles compared to current Nissan$750 using larger ones, as well as most other Full EVs. May be the average that hides that gap...

DB basically just ignores what Nissan claim, ie price comparability without subsidy in when they reach an output of 500,000 to 1 million vehicles, way before 2020, say by 2015 at the latest.
I do not know what their rationale is for assuming a slower decline in lithium batteries for cars than has been achieved in laptops, as that decline provides a technical base on which to improve costs in the car battery industry.
The production in kwh for car batteries will also dwarf that for laptops, so I can see no reason why price falls should not be at least as rapid.

Their work also focusses excessively on the US, when the heroic growth in car ownership will occur elsewhere.
For instance the figure of 150,000 in US production for Nissan EV's is not the most germane, the relevant figure being the 500,000 EV's Nissan/Renault intend to produce in the next few years worldwide, which is what will drive battery cost reductions almost regardless of events in the US.
How the heck they imagine that petrol prices will only be $3.25/gallon when China alone will add something like the total number of cars in the US fleet in the next few years is beyond me. Oil prices will be higher, battery costs will fall faster, and take-up will be swifter. Davemart, you forget something in you reasoning, you are assuming that only the price of battery has to go down for EV to become main stream, this is not sufficient since performances of batteries are by no mean up for the job. The necessity of improving the performances of battery will slow down price erosion because development cost are significant. You are right that their assumption on oil price is too optimistic and that a Gasoline at 5$ would certainly accelerate the move to EV but battery for Laptop don't requires the same level of reliability and performance than car battery, that's why the analogy is not really relevant.

Batteries performance may very go up while their price goes down.

If in the next 5 years or so, batteries performance goes up 2x and price goes down by almost 50%, PHEVs/BEVs production and sales would go up more than expected.

If the next 10 years or so, batteries performance is up 4x and mass production cost is down another 50% i.e. to about 25% current price, BEVs will be are their way.

Meanwhile, if USA and China would increase fuel taxes by $1/gal to$2/gal (they should) and if crude oil price goes up to $150+/barrel (it could probably go as high as$200), it would also help to get electrified vehicles moving at a much faster rate.

This tells me that for 200 million vehicles in the U.S. we need alternative fuels. Electric cars of all sorts will come along in due course on their own merits, but we will not be able to face the future situation just wishing and hoping.

"Their work also focusses excessively on the US, when the heroic growth in car ownership will occur elsewhere."

It will. But the US is leading the entire field at the moment with Tesla, Volt and Leaf the major EV/PHEVs being sold today.

It is yet to be seen if China will follow through with its claims - their record is poor.

Good news on the whole if somewhat optimistic: "130 models of xEV in 2012??" They must be including E-skateboards and scooters in this estimate.

Wake up.

All the world’s leading scientists support this “slower transportation electrification and greater gasoline (and ICE) demand” scenario, yet some continue to deny it – Um,
Oh,
Wait, I was confusing this with Global Warming.

Sorry, Oh well, same fervent denial of that which we do not like.

I posted here seven years ago that we needed to get with Algae as an alternative to fossil fuel.

There were still too many negatives to BEV's.

Nothing has changed.

Gasoline above $5 will result in a world-wide depression. We didn't learn our lessons in 2008. There is our future. We had our chance but let it slip by. It's unlikely that we can grow our fuel in any significant volume. Treehugger, in what way are the batteries not up to the job? They last thousands of cycles, basically the life of the vehicle, and can give us 300 mile range vehicles right now, they just cost too much. Even with no technological improvement a cost reduction alone makes them viable. DB's projection is obsolete; we're close to$3.25/gallon (US) gasoline now.

I think Nissan has it right. As fuel prices go up, orders for EVs go up and the sales of and cash flow to battery makers go up. The sales justify better automation and more R&D into chemistry and process improvements, and the cash pays for it. This shifts the breakeven point for EVs to lower petroleum prices, leading to accelerating demand destruction.

We had 3 good gasoline price news this morning:

a) + $0.05/gal new general sales tax. b) +$0.05/gal new fuel tax (another $0.05/gal on April 1st 2011) c) +$0.20/gal retailers new year gift for higher crude price.

d) New regular gas price $4.70 Can/gal or about$4.75 USD/gal

It's not $5/gal yet but getting there. The retail price could hit$5/gal as soon as crude goes over $100/barrel, some time in 2011? The next stage may be$6/gal in one or two years time.

Fuel demand destruction or reduction may not come before next decade.

There is a demand for transportation and in most cases personal transportation. One way to "destroy" demand for transportation is to telecommute. This is actually a substitution, but results in a reduction in the demand for transportation.

I think we will see more substitution, perhaps public transit instead of personal, or alternative fuels instead of gasoline. People like cars, they represent the freedom to go where you want when you want. It would be very difficult to destroy a person's will for personal transportation when it represents a form of freedom.

I think we will see more angry people kicking politicians out of office again and again more then anything else.

The comments to this entry are closed.