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Navigant Research report and supply chain sustainability standards point to an evolving auto industry

The roles played by global automakers are continuing to shift in two core areas: what products and services will be delivered and how vehicles will be manufactured. A new study by Navigant Research and revised supply chain sustainability standards agreed upon by leading automakers illustrate the evolving automotive marketplace and the role clean transportation standards will play. As previously mentioned, the identity of automakers is changing from vehicle builders to transportation service providers.

Navigant Research’s new report, “Alternative Revenue Streams for Automakers,” analyzes the push toward a more sustainable transportation system that’s coming through plug-in electric vehicles (PEVs), vehicle-to-grid, vehicle-to-building, home energy management, solar energy, charging, carsharing, and smart parking services. Now that PEVs have been adopted by thousands of consumers, automakers are seeing more opportunities to play a role in home electricity networks, workplaces, and commercial locations that need integration of charging services. Automakers in North America, Europe, and Japan face stringent fuel economy and emissions reduction targets – and mature markets where new vehicle sales are starting to flatten out. Playing an expanded role in sustainability transportation meets their need for additional revenue streams and complying with government mandates.

Another factor behind these trends are growing concerns about increasing urbanization that will lead to increased traffic congestion and air pollution. Greater restrictions on vehicle use are being seen in London, New York, Beijing, Tokyo, and other major cities. Automakers such as BMW are creatively testing out new programs to address urbanization that include carsharing, smart parking, and charging locations connected to mobile devices. The main challenge automakers face is lacking the expertise and experience to move forward in new areas such as home energy management or vehicle-to-grid – so partnerships with suppliers with expertise in these new systems are being tested out.

These alternatives will not replace the manufacturing and marketing of new vehicles, but are expected to generate more than $1 billion in revenue for the auto industry by 2018, according to the report. Carsharing services will play a large part in this revenue, followed by vehicle-to-grid.

Fourteen major automakers have just agreed to the “Automotive Industry Guiding Principles to Enhance Sustainability Performance in the Supply Chain.” Two leading corporate responsibility business associations, AIAG and CSR Europe, have expanded automaker membership for suggested principles for supplier relationships based on sustainability standards that were first adopted in 2009. Now, participants include BMW, Chrysler, Daimler, Fiat, Ford, General Motors, Honda, Jaguar/Land Rover, PSA Peugeot Citroen, Scania, Toyota, Volkswagen, Volvo Cars, and Volvo Group.

This set of broad principles for suppliers addresses environmental issues, working conditions, human rights, and business ethics. The guidelines apply to first-tier suppliers as well as their subcontractors and suppliers. Affected business practices in the new standards include: reducing greenhouse gas emissions, energy, and water consumption; increasing use of renewable energies; improving waste management; and training of employees.

The list of global automaker that have signed on to these standards is missing some of the major companies such as Nissan Renault, Hyundai Kia, Subaru, and Chinese automakers. Yet, it is a significant announcement illustrating, along with the Navigant Research report, how different the auto industry is becoming compared to 10 years ago.

DOE funding more Advanced Technology Vehicle Manufacturing loans

Finding funding sources for manufacturing advanced, clean vehicle technologies had another boost last week. U.S. Department of Energy (DOE) Secretary Ernest Moniz announced that DOE has revised and updated its Advanced Technology Vehicles Manufacturing (ATVM) program, which offers low-interest loans to carmakers and their suppliers. Loans will likely go to auto parts suppliers and not automakers, according to Peter Davidson, executive director of the DOE’s Loan Programs Office.

The program is focused on loans for more fuel-efficient gasoline and diesel engines, along with plug-in electric vehicles and natural gas vehicles. That would include components needed for advanced engines and powertrains, light-weighting materials, advanced electronics, and fuel-efficient tires. The DOE is also open to offering loans to suppliers based outside the US that may be interested in moving production to the US.

The $25 billion lending program was approved by Congress in 2007 and has about $16 billion remaining. In 2009, the ATVM program issued nearly $9 billion in loans to original equipment manufacturers (OEMs) of vehicles and components.

Loans went out to Ford, Nissan, Tesla, and Fisker in 2009 – and it became a target of heated debate in Washington especially during the 2012 presidential election campaign. Losing $139 million to Fisker after its bankruptcy made it worse, along with the $400 million loan to solar power supplier Solyndra that meant another big financial loss for DOE. Ford is paying off its $5.9 billion loan, and Nissan is coming through on its payments for its $1.6 billion loan; Tesla paid off its $465 million loan last year long before the final payment was due.

The DOE is expected to be more cautious this time about the loans given, and has committed to exercising transparency practices for tracking return on investment. Automotive suppliers tend to fly under the radar compared to automakers, which means there will likely be less scrutiny and criticism for the DOE this time around.

The decision was good news for the Natural Resources Defense Council (NRDC). “This is good news for drivers who want cleaner cars, faster and cheaper. A successful restart of the retooling loan program can help clear bottlenecks in the supply chain and ensure that clean energy jobs that might otherwise go overseas, are instead ‘onshored,’” wrote Roland Hwang, Director, Transportation Program, Energy & Transportation Program.

Big Picture: NHTSA drops Tesla battery fire investigation, Honda and UC Davis showing how EV batteries can store solar power

The National Highway Traffic Safety Administration (NHTSA) has ended its four-month investigation into three battery pack fires in the Tesla Model S that occurred last fall. That decision followed Tesla Motors adding a titanium underbody shield to protect the luxury electric car from road debris that can cause battery fires. Tesla CEO Elon Musk announced in an article on Medium.com that all Model S vehicles built after March 6 will have the new shield. Owners of the Model S built before that date can have the titanium shield added by Tesla. NHTSA said that the shield, along with the software upgrade a few months ago that lifted the car’s ride height, have alleviated the agency’s safety concerns with the Model S. Last fall, Tesla’s software upgrade added the ability to raise ground clearance at highway speeds; at that time, Tesla also took steps to prevent overheating of its charging systems, including giving customers upgraded wall adapters and providing charging-software upgrades.

And in other clean transportation news……..

Honda has worked together with University of California, Davis to build the Honda Smart Home in the city of Davis to demonstrate how an electric vehicle’s battery pack can store solar power. The 1,944-square foot home offers the very latest in energy efficient technologies – LED lighting, radiant heating and cooling, a geothermal recovery system, a large solar panel system, and a grey-water filtering and recovery system. The home contains a 10-kilowatt-hour lithium-ion battery pack; it’s a smaller version of the one that powers the electric Honda Fit. As more homes are generating electricity from solar panels, electric vehicle batteries are expected to become storage units when the sun goes down. “It’s a new world in terms of vehicles operating not as isolated artifacts but as being part of a larger energy system, and I think the greatest opportunity for automakers is figuring out how their vehicles become part of that system,” said Daniel Sperling, director of the Institute of Transportation Studies at UC Davis, which provided the building site and the heating and lighting technology for the Honda Smart Home.
New Jersey Assemblyman Tim Eustace has introduced a bill that would permit consumers to buy electric vehicles directly from Tesla Motors. If passed, it would bypass the recent ban by the New Jersey Motor Vehicle Commission (MVC), which is composed of Governor Chris Christie’s cabinet members and appointees, on allowing Tesla cars to be sold outside of a franchised retail dealer network. Next door, in the state of New York, Tesla struck a deal on Friday with Gov. Andrew Cuomo and others that will allow it to keep five existing company-owned stores, as long as it doesn’t open more of them in the state. According to the agreement between Tesla, Cuomo, legislative leaders, and auto dealers, additional Tesla retail locations would need to be established under a “strengthened dealer franchise law.” In return, elected officials agreed to drop language in a bill in the state legislature that would have forced Tesla to close its existing direct-sale operations.
The Tesla “corporate-owned stores vs. franchised dealer stores” debate could be a talking point in the 2016 presidential election. Senator Marco Rubio (R-Fla.), a rising GOP star who’s expected to run for president, says that Tesla has the right to directly sell its electric cars. That will likely put him at odds with another expected Republication candidate, New Jersey Governor Chris Christie. Gov. Christie will probably dispute Rubio’s claim and defend his decision against Tesla’s stores in New Jersey. The politics may also have something to do with what state will get the $5 billion lithium battery “Gigafactory” project. AutoNation CEO Mike Jackson thinks it’s quite ironic that Texas and Arizona – the states with the toughest pro-dealer franchise laws, are now considering lightening up on laws allowing Tesla to have retail stores in those states. Previous attempts to gain exemptions in those states had failed; now state politicians are courting Tesla. These states, along with Nevada and New Mexico, are finalists for the Gigafactory project.
General Motors CEO Mary Barra told lawmakers in Washington yesterday that she’s “deeply sorry” for the error on an ignition switch defect, and will be fully transparent once the company discover what went wrong. It’s part of a large recall that only involves one alternative fuel vehicle – the 2014 Cadillac ELR extended range coupe. The recall will correct a problem with the diagnostic function of the software that controls the electronic stability control (ESC) in about 656 ELRs built between September 26, 2013, and February 14, 2014.
Toyota’s Asset-Backed Green Bond, a $1.75 billion fund announced last week, is part of a much larger global financial trend in green bonds. Unilever, the world’s second-largest consumer goods company, last week issued a $415 million bond for reducing waste, water use, and greenhouse-gas emissions. Bonds used to finance bonds that are friendly to the environment are gaining popularity worldwide, according to Christopher Flensborg of SEB, a Swedish bank; Flensborg is considered to be the inventor of green bonds. Unilever’s issuance was part of $6 billion in green bonds in the first quarter of 2014, which is much higher than in the first quarter of 2013; that year ended with a total of $11 billion in green bonds. World Bank president Jim Kim thinks it will rise above $50 billion next year. Toyota Financial Services’ (TFS) $1.75 billion was upsized from $1.25 as institutional investors have expressed interest in this clean transportation investment opportunity. TFS will use the proceeds from Green Bond toward the purchase of retail finance contracts and lease contracts for Toyota and Lexus vehicles that meet high green standards.
Clean Cities will be offering about $4.5 million more in available funding in three areas of interest: an alternative fuel vehicle demonstration and enhanced driver experience; alternative fuel training for first responders, public safety officials, and critical service providers; and incorporating alternative fuels into emergency response and preparedness operations. On March 24, the Vehicle Technologies Office, Clean Cities’ parent office, issued a Notice of Intent for a potential upcoming Funding Opportunity Announcement, available on Grants.gov (second item in the table) and the EERE Exchange site. Clean Cities also announced last week that it’s rolling out nine new projects with the National Parks Service. The projects will bring alternative fuel and fuel-efficient vehicles to the road, cut vehicle idling, and improve vehicle efficiency. Almost all of the projects involve installing charging equipment for plug-in electric vehicles and many will also add EVs to the National Parks Service’s fleet.
Tesla’s “Gigafactory” lithium battery factory concept is raising a lot enthusiasm with investors and fans of cleantech; however, Tesla Motors’ primary supplier of lithium ion cells for its Model S is still thinking about it. Panasonic Corp. hasn’t committed to investing in the ambitious US battery plant that’s been proposed by Tesla CEO Elon Musk. Joining Tesla’s Gigafactory battery project would raise investment risks, according to Panasonic President Kazuhiro Tsuga. Whoever partners with Tesla on the Gigafactory will be sourcing raw materials within North America, according to Tesla – and that counts for graphite, cobalt, and other materials. “It will enable us to establish a supply chain that is local and focused on minimizing environmental impact while significantly reducing battery cost,” said Liz Jarvis-Shean, a spokeswoman for Tesla.

Breaking through range anxiety and other EV stumbling blocks

For those of you championing the benefits of plug-in electric vehicles, here’s a few points you may want to mention…..

Nissan is sharing real-world experience from Leaf owners on its website. Those interested can submit questions that will be answered by Leaf owners who drive the electric cars every day. Range anxiety continues to be the leading concern; owners say that the Leaf’s EPA rating of 84 miles on a charge is more than adequate for suburban or urban commuting. Two Leaf owners did run out of energy while driving – one of them was stranded by a closed charging station and the other admitted not having learned how to read the car’s range meter.
US electric vehicle owners saved themselves $100 million last year by not having to buy gasoline. The Union of Concerned Scientists said that 160,000 Americans saved that much by not having to go to gas stations and buy 45 million gallons of gasoline last year. Carbon reduction is another point to make; for example, California EV drivers were able to reduce emissions of carbon dioxide by 140,000 tons last year.
A new report from the World Health Organization (WHO) estimates one of every eight deaths around the world can be traced back to exposure to air pollution. WHO estimates that in 2012 about seven million people died as a result of air pollution exposure. Government agencies around the world are expecting EVs (along with other zero emission vehicles such as plug-in hybrids and hydrogen fuel cell vehicles) to play a significant role in reducing air pollution and greenhouse gas emissions.
As I’ve discovered talking to stakeholders in alternative fuel vehicles, being able to effectively answer questions from consumers, fleets, company executives, and regulatory agencies, is essential for growth in adoption of EVs and other fuels and technologies. Education and public awareness programs are very much needed. Some of the issues that typically come up during conversations include:

Where the electricity comes from – coal versus cleaner energy.
Lifecycle ownership costs, price comparisons to similar gasoline-engine cars, maintenance, and resale values.
Safety issues for EV owners and first responders in the event of a crash.
Where the EV battery technology is going – becoming lighter, longer range, and less expensive.
Charging infrastructure – how many charging stations are being installed, how available and reliable are the chargers, and the cost of charging.
What will it take for fast chargers to become more widely available.

Car dealers are getting better, but there’s still a ways to go

Ever since the economic collapse of the auto industry that started in 2008, dealers have been undergoing changes in how they do business. Dealers understand that they’ve got to become stronger in customer service to build loyalty and can’t just stick to old upselling methods. They’re accepting that women make the majority of family car purchase decisions; that young people are holding off purchases longer than Baby Boomers did after first getting their drivers licenses; and that there’s a lot more car shopper interest in green cars such as hybrids and electric vehicles (EVs). There has been a lot of concern expressed that dealer staff haven’t been supportive and informed enough about EVs – mainly because it’s a longer selling process and isn’t as profitable as typical gasoline-engine cars. Those sales reps are very tied into closing sales quickly in how they make their living – and they could use more training and education in answering consumer questions.

As I wrote about not long ago in Green Auto Market (and its then-sibling blog Green Machine Digest), I was one of those green-interested car buyers. Well, a few days ago, I had a painful reminder about what I don’t like about the dealer experience and what does work for me.

Last year, I said yes to an aftermarket car alarm system for my 2013 Toyota Prius. Was I duped into it? Not necessarily – the Prius is an attractive car in California and there’s probably thieves looking for them as profit center, or so I thought. Actually, they’re not appealing to car thieves, according to a study by the National Insurance Crime Bureau – the Prius theft rate is much lower than the typical car. There’s a couple of reasons for that – one is that the Prius has several unique parts that can only be used in other Priuses, which cuts down the stripped parts market potential (and which makes for a big part of the car theft market). Another reason is that the Prius doesn’t have a key – it uses a remote fob to open its doors. That also cuts down the appeal to car thieves who usually don’t get their hands on the Prius key fob.

I discovered the problem with my alarm system while attempting to start the parked Prius on Friday afternoon. As I pushed the start button, the left and right turn indicators simultaneously flashed and the engine wouldn’t start. I attempted to open the door, and the alarm went off – loud enough to get stared at by several people wondering why I had jumped out of the car desperately attempting to stop the alarm by pressing buttons on the key fob. Somehow it did stop, and I tried it again only to find the same thing – flashing lights on the panel and loud honking when I opened the door.

I called the dealer where I’d bought the car and had gone to for routine service a few times. The alarm system guy was gone and wouldn’t be back until sometime Saturday. I explained that I couldn’t start my car and drive home; all I received from the service department staffer was a phone number for the vendor who provides them with the alarm system. Nobody answered the phone at that office. So, I called Toyota corporate roadside assistance. They sent out a tow truck who got me to another Toyota dealer close to where I’d gotten stalled out. My choices were explained to me by the service department – have their service technician dismantle the alarm control box or go to my original dealer and have them deal with it. I told them to unplug the alarm system and I would have it fixed later or just live without it. Strangely enough, after the alarm control box was removed the beeping sound quieted down a bit when locking and unlocking the doors – another annoyance I can live without.

The customer service experience was positive at this Toyota dealer – including offering me a free shuttle trip home so that I wouldn’t have to wait around at the dealership for the repair to be completed. The service department assistant manager was very knowledgeable about the security system and about the Prius overall – which is one of the benefits of working with automakers and their dealer networks who have years of experience to go by.

The original dealer sales rep was very good with me about sitting in the car and answering my questions last year while I was shopping for the car – and giving me all the time needed to make the acquisition decision. The problem started with going to the Finance & Insurance rep and having to sift through the sales tactics. I do regret the alarm system purchase decision, but not the other ones. I do love my Prius and will look at the plug-in hybrid version later on. I do want to own an all-electric or plug-in hybrid EV, but the ownership costs and charging station accessibility need to improve. I would hope that the dealer experience goes in a similar direction.

Big Picture: More actions on Tesla stores in Ohio and Arizona, Toyota Financial Services starts up Asset-Backed Green Bond

In the wake of New Jersey’s decision on Tesla Motors’ right to run corporate retail stores, there are two more states seeing developments. Ohio Gov. John Kasich has received a letter from General Motors expressing concern that the state would allow Tesla to expand beyond the two Ohio stores it currently has in operation. GM thinks the state should oppose legislation allowing Tesla to open more stores, as it would allow Tesla to compete under a different set of rule. “We understand discussions are ongoing over legislation which could provide a broad exemption for a single manufacturer, Tesla Motors Inc., to circumvent long-established legal precedent on how new motor vehicles are marketed, sold and serviced in your state,” Selim Bingol, GM’s senior vice president of global communications and public policy, wrote in the letter.

Arizona may allow Tesla to sell directly to consumers at retail stores within the state – if the company is willing to have a service center in the state to handle repairs and warranty issues. The state’s Senate Commerce, Energy and Military Committee voted three-to-two to push forward this bill in the legislature. Arizona Senate Majority Leader John McComish called the bill a “pre-emptive strike” against future laws that outlaw Tesla’s direct-sale model. The bill will need to go before another committee for review, then would go to the full Senate.

And in other clean transportation news…….

Toyota has a very interesting offer through its Toyota Financial Services (TFS) captive finance arm – the auto industry’s first-ever Asset-Backed Green Bond; the company is outlaying $1.75 billion, which was upsized from $1.25 as institutional investors have expressed interest in this clean transportation investment opportunity. TFS will use the proceeds from Green Bond toward the purchase of retail finance contracts and lease contracts for Toyota and Lexus vehicles that meet high green standards as established by three criteria: gasoline-electric hybrid or alternative fuel powertrain; minimum EPA estimated MPG (or MPG equivalent for alternative fuel vehicles) of 35 city / 35 highway; and California Low-Emission Vehicle II (LEV II) certification of super ultra-low emission vehicles (SULEVs) or higher, which would include partial zero emissions vehicles (PZEVs) and zero emissions vehicles (ZEVs). Qualifying models from Toyota include: Prius, Prius C, Prius V, Prius Plug-in, Camry Hybrid, Avalon Hybrid, and RAV4 EV. From Lexus, qualifying vehicles are CT 200h and ES 300h.
Producing more than 5,000 compressed natural gas (CNG) fueling tanks last year is one of several positive signs that Quantum Fuel Systems is on a turnaround that should continue, according to stock market analyst website Seeking Alpha; that’s more than double the amount of tanks that were produced in 2012. The company was close to collapsing 12 to 18 months ago, but a corporate restructuring has been completed and seems to have a brighter future. Quarterly earnings were reported earlier this month – positive earnings were reported for the first time in quite a while. The company’s share price has increased by more than 250% in the past 12 months. About 10,000 tanks are expected to be delivered in 2014.
The Energy Independence Summit will be taking place in Washington, DC, March 30-April 2. Leaders in clean transportation will be gathering to share best practices and educate federal policy makers about the benefits of the US Dept. of Energy’s Clean Cities program. The need for additional tools and resources to overcome barriers to the widespread use of clean vehicles and fuels will also be discussed. You can contact Ken Brown at Transportation Energy Partners at ken@akbstrategies.com or (202) 674-7777 if you have questions or would like additional information about the Summit.
The CHAdeMO electric vehicle fast charging protocol, which was initially adopted in Japan by domestic automakers, has been officially recognized as an international DC charging standard by electrical standards organization the International Electrotechnical Commission. The final draft international standards were approved by committees in January 2014, and were finally published last week on the IEC website. The number of CHAdeMO fast charging stations doubled in 2012 to more than 2,000 units are expected to grow, the association said last year.
Dish Network unveiled 47 new propane-powered vehicles at an event on Friday in Hawthorne, Calif. Roush CleanTech converted Ford E-Series vans for Dish Network, and the company’s goal is to deploy 200 of these alternative-fuel vehicles that will run on propane autogas.
Volvo Trucks is bringing its full range of alt-fuel vehicles to the 2014 Mid-America Trucking Show in Louisville, Ky. That lineup will include: Volvo VNL 300 CNG with 400-horsepower 11.9-liter Cummins Westport ISX12 G engine; Volvo VNL 300 LNG with 455-horsepower Volvo D13-LNG (compression ignition) engine; and Volvo VNL 300 dimethyl ether (DME) with 435-horsepower Volvo D13-DME engine.
BMW plants to produce more than 100,000 electric vehicles per year to meet tougher European emission standards that reach a key mandate level by 2020. CEO Norbert Reithofer told reporters that BMW will increase production levels of its i3 and i8 in 2018 in anticipation of getting up to 100,000 units annually in order to meet the stricter carbon dioxide emission standards. BMW was pleased to see that its i3 took 10,000 internet orders when it went online last fall.

Telling Your Story: How Tesla builds brand value without spending a dime on marketing

Tesla Motors, which doesn’t have a marketing budget, is benefiting from a creative video spot; the automaker didn’t need to spend one dime on it. In the commercial, “Modern Spaceship,” a little boy imagines himself breaking the speed of light while driving his father’s new car, a Model S. Everdream Pictures, a production company started by recent college graduates, spent $1,500 to make the commercial. So far, Tesla hasn’t paid for it, but may collaborate in the future; Everdream met with Tesla CEO Elon Musk in January to talk about possibilities, and Tesla may hire them for a future project.

As for now, Tesla has been streaming part of the video on its Facebook, Twitter, and Instagram pages; and Musk tweeted about the video recently. Tesla Motors sold 18,650 of its Model S electric luxury sedans in 2013 after launching it in the summer of 2012. The Model S sold less units last year than what Nissan Leaf and Chevrolet Volt each experienced, but for its price range – with monthly lease payments ranging from $1,051 for the 60 kilowatt-hour (kWh) version up to $1,421 for the 85-kWh Performance model – those sales figures are quite impressive – especially for an automaker that really hasn’t been around for very long. Tesla has been promoting a less-expensive lease deal to raise consumer interest (more on that later).

Tesla’s brand value has been surprising to observe (as witnessed by its incredibly strong stock prices) given that the auto industry has historically been dominated by a small number of majors with startups going the way of failed 1940s Tucker sedan. Here’s my take on how Tesla Motors has been effectively telling its story…….

Fine product: While Tesla has been getting a ton of press and social media coverage in the past year (with the Hyperloop, Supercharger, and Model S recall fueling most of it), Tesla would have faded by now if its cars had gone the way of the DeLoreon concept car. The Tesla Roadster, built on a Lotus chassis, was impressive being the first production-scale electric vehicle after it was launched in 2008. It was the Model S that turned heads and managed to impress Toyota and Daimler enough to invest in its electric powertrain components. Driving one of them isn’t easy – you don’t get to show up at a dealership and get behind the wheel with a sales rep answering all your questions. You have to show up at a Tesla ride and drive and wait in line to drive one of them; or have a friend who lets you experience what may be the strongest torque ever in a passenger car – and the unique, double-TV-screen dashboard for navigation and apps. There’s been a lot of buzz about its upcoming Model X crossover with double-hinged doors. It’s more affordable Model E compact is scheduled to roll out in late 2016.

Removing range anxiety: Fear of having an electric vehicle’s battery poop out and being stuck on the side of a road has been the major stumbling block for selling a lot more EVs. Tesla has no plans to roll out a plug-in hybrid to alleviate that range anxiety. There are two factors that seem to be helping – one is impressive per charge range. For example, the US Environmental Protection Agency reported that the Model S Performance can go 265 miles on a single charge. Another step forward is coming through with its Supercharger stations that can recharge a Model S faster than any of the CHAdeMO or SAE Combo adapter fast chargers can deliver.

Creative financing: The Tesla Model S has a sticker price ranging from the low $70Ks to the mid-$90Ks depending on the package you choose. Even with federal and state incentives, it’s much more expensive than other EVs and you can find a lot of other quality luxury cars for a much lower price. Tesla has been working with U.S. Bank and Wells Fargo on a lease program that guarantees the residual value during its three-year contract. Tesla says it will have the top residual value of any high volume premium sedan brand – Audi, BMW, Mercedes, or Lexus. Tesla is also pitching the novel idea that the cost goes down to about $500 per month. The argument goes along the lines that you can save $267 per month in fuel costs compared to the BMW 5-Series, and you can subtract more dollars and save more time by gaining access to carpool lanes while driving solo. So, creative marketing and creative financing are paying off.

Leaders with personality: It certainly helps to have a self-made multi-millionaire celebrity like Elon Musk captain the ship. While competitors like GM and dealer networks likely despise him, Musk probably isn’t losing any sleep over it. It also helps to have JB Straubel serve as chief technical officer and Franz Von Holzhausen as chief designer. They’re getting a lot of media attention and respect from car designers – and Straubel and Von Holzhausen tend to be eloquent and analytical about the Tesla technology.

Guerilla marketing: It is quite strange to see the Tesla brand go viral and ubiquitous in such a short period of time. It’s taken Hyundai a lot longer to reverse its negative image and to start winning accolades. Tesla is benefiting from getting strong ratings from Consumer Reports and NHTSA safety ratings (at least before the battery fires last Fall). Its tactics are paying off – with appointment-only ride and drives helping, attention-grabbing retail stores, and sales maneuvers that probably would have impressed P.T. Barnum. An example of this tactic is how good Tesla is at teasing its audience about the upcoming launch of its Supercharger, Model X, etc. Tesla is taking advantage of the digital media/marketing environment where brand value can be increased for free – if done the right way. Getting an email from Musk explaining how the automaker is dealing with the battery fire problem is a very good example of it.

Problem into opportunity: “When written in Chinese, the word crisis is composed of two characters – one represents danger, and the other represents opportunity.” U.S. Senator John F. Kennedy said in a 1959 speech. I chose this quote from JFK on my LeSage Consulting website because it eloquently states the challenge clean transportation is experiencing right now. For alternative fuels and vehicles, every one of them faces huge challenges to break through consumer and fleet acquisitions and building the essential charging/fueling infrastructure. Elon Musk and his team have so far been masterful at becoming well established in the ultra-capital intensive and challenging car business. It also makes for a colorful story of a company delivering cool new technology in this rapidly changing, global economy.

Boy, was I wrong about KiOR as a biofuels success story

KiOR Inc., which operates a commercial-scale cellulosic biofuel plant, may be closing its shutters very soon. Backed by venture capitalist Vinod Khosla, there’s been a lot of hope in KiOR as a symbol for possibility in advanced biofuels as a clean transportation fuel. Its catalytic process converts woody biomass and non-food crops into gasoline and diesel and can be fueled through the existing US infrastructure. Khosla just made a commitment for near-term financing, but the company needs more additional capital by April 1 to stay in operation. The company needs to meet certain milestones to bring in at least $25 million by the end of this month; part of that milestone performance is bringing its Columbus, Miss., biofuel plant through an upgrade. If additional funding doesn’t come through, it’s likely to default on its debts and may file for bankruptcy. All of this was announced not long after the company reported a $347 million loss for 2013.

In October, this advanced biofuels producer received $100 million from Khosla Ventures LLC and Gates Ventures LLC to expand production at the Columbus plant. As I wrote about back at that time, it looked very promising for KiOR, being the first US company to build its own commercial scale cellulosic biofuel plant – creating jobs, economic growth, and clean transportation fuel. If KiOR goes belly up, it will provide more ammunition for biofuels critics (and there are quite a few out there). The biofuels industry has only produced a small fraction of the level envisioned in 2007 by the renewable fuel standard. Even with the US Environmental Protection Agency’s cutbacks on ethanol blend and advanced biofuels proposed in November, that’s not the real problem. It’s a startup industry that needs more success stories, so this one would hurt. For several months, I had KiOR on the green transportation stock market index that I show monthly in Green Auto Market Extended Edition. The company’s stock has not been performing well lately. The company may need to be removed from the chart.

How the troubles at KiOR will affect the advanced biofuels industry is still unknown. There are a few biofuels companies that are performing very well financially, and are giving hope to investors. One of them, Aemetis, another publicly traded company, also produces advanced biofuels for the US market – and deployed commercial-scale production in the past two years. Aemetis recently announced record quarterly and annual gross profit. It’s used a different business model than KiOR, and there are several other highly profitable domestic biofuels producers, according to Biofuels Digest’s Jim Lane.

Big Picture: Northern California AltCar Expo starts up, Intertek working with DOE on AFV data collection for petroleum use reduction

AltCar Expo is continuing to expand beyond Santa Monica, Calif., with the first Northern California AltCar Expo held at Richmond’s Craneway Pavilion on Friday and Saturday. Plug-in vehicle readiness and deployment of alternative fuel infrastructure tools for local government agencies were explored in speaker panels, and electric vehicles, hybrids, and vehicles powered by hydrogen, natural gas, and propane were available for test drives. AltCar Expo Texas will host its fifth annual meeting March 28-29 at the Irving Convention Center; it’s taking place in coordination with the Propane Engine Fuel Summit on March 27.

The free two-day event in Richmond, Calif., kicked off Friday morning with remarks from Mayor Gayle McLaughlin, Contra Costa County Supervisor John Gioia, and Randall Winston, special assistant to the executive secretary office of Gov. Jerry Brown. Scheduled speakers on Friday included Jon Coleman of Ford, Steve Ellis of Honda, Jeannie Lam of Nissan, and Christine Kehoe of the California Plug-In Electric Vehicle Collaborative. “Plug-In Electric Vehicle Readiness Plan for Local Governments & Industry,” was hosted by the Association of Bay Area Governments, the Bay Area Air Quality Management District, and the Metropolitan Transportation Commission. The session focused on suggested actions elected officials can take in their communities to support electric vehicle deployment. “Best Practices for Deployment of Alternative Fuels Infrastructure-Tools for Local Government Agencies” was hosted by the Bay Area Air Quality Management District, and the San Francisco, East Bay, and Silicon Valley Clean Cities Coalitions. It focused on best practices for the sighting and permitting of natural gas and hydrogen infrastructure.

The daylong Propane Engine Fuel Summit in Texas will feature Texas schools and businesses using propane autogas. Presentations from the City of Fort Worth, CleanFUEL USA, Dallas County Schools, Dallas-Fort Worth Clean Cities, and Northwest Propane Gas Co., will cover topics such as refueling infrastructure, economic and environmental factors, and propane industry equipment. Santa Monica’s flagship AltCar Expo, the ninth annual, will be held September 19-20 at the Santa Monica Civic Center in Santa Monica, Calif.

And in other clean transportation news……..

Intertek is working with US Department of Energy (DOE) and several national laboratories to collect data on alternative fuel vehicle street performance and reduction of petroleum consumption. Testing includes vehicle performance, durability, and operational costs. Intertek has a lot of experience in this space, being a leading provider of global testing, quality, and safety solutions. Most battery electric and plug-in hybrid models have been included in the study, along with hybrids, the Honda Civic Natural Gas, and the Volkswagen Jetta TDI. Vehicle performance data is being collected through Intertek’s data logging systems at a closed course test track. Fleets are also involved in the data collection – as the test models are driven daily for nearly 200,000 miles over three years. Each car is equipped with Intertek’s data loggers, which use Wi-Fi to automatically upload the operational data.

Coda Automotive has gone away, but its new identity – Coda Energy – is up and running. Coda Energy has installed about 20 of its “CODA Core” Tower systems at commercial and industrial sites across California. Fortress Investment Group, which picked up Coda’s assets last year in June for $25 million during Coda Automotive’s bankruptcy, will be providing financial backing for a total of 100 systems over the next few months. Fortress is investing about $64,000 for each 30-kilowatt, 40-kilowatt hour lithium-ion battery based unit. Coda’s new combined system received Underwriters Laboratories (UL) 1973 safety standard certification last month. Coda’s customers for this grid battery system will pay only 50% of whatever savings the systems provide to annual utility bills. Reducing demand charges is the primary economic driver for these battery systems – and these types of battery storage systems are expected to become more important going forward as a way to retain renewable energy for electricity.

Hyundai Motor Co. is entering the battery-powered vehicle market in 2016 through its Kia Motors subsidiary. An electric version of the Soul compact will start being built in Korea next month, eventually ending up at destinations in the US and Europe. The battery electric Soul is expected to run 92 miles per charge; the global sales target for this year is 5,000 Soul EVs. In other news, Hyundai has another MPG problem – the automaker is restating the mileage rating on another one of its vehicles – the 2014 Sonata sees its rating drop from 29.6 mpg to 28.4 mpg. In 2012, Hyundai and Kia had an investigation by the US Environmental Protection Agency and acknowledged that its original stated mileage on cars like the Hyundai Elantra and Kia Soul had been inflated somewhere between one and six miles per gallon.

Biofuels will continue to see growth, but at a much slower pace than originally expected, according to a Lux Research study. The industry is expected to grow to 60.4 billion gallons a year between 2013 and 2017, a 3.2% annual growth rate – but far less than the 19.6% annual growth rate experienced between 2005 and 2013. The “food vs. fuel” debate and imminent blend limits for biodiesel and ethanol by the US Environmental Protection Agency have created impediments. Next-generation feedstocks like waste oils and cellulosic biomass are not tied up in the food supply and could unlock significant economic advantages; and next-gen biofuels – such as renewable diesel and butanol – can offer higher blends, but are not quite mature, according to the report.

Volkswagen is testing out lithium-air battery technology that could triple storage capacity. The new battery could hold much more power than its size would indicate – a 24.2 kWh battery perhaps holding 80 kWh of energy; its range could skyrocket up to 300 miles per charge. VW is keeping it under wraps for now – including when it might be installed in one of its cars.

Walmart is testing out a “WAVE” vehicle in its fleet – Walmart Advanced Vehicle Experience – which will be 20% more aerodynamic than counterparts because it’s being made out of carbon fiber; its micro-turbine hybrid powertrain can run on a variety of fuels. There’s also an electric motor and battery storage system being tested out. The carbon fiber body would cut out 4,000 pounds from the truck; it’s 53 feet long – the first time sheets that large have been manufactured. The goal here for Walmart is to double its fleet fuel efficiency by 2015, which the company says it’s 80% on the way to meeting.

New Jersey’s Tesla decision a watershed for dealer franchise vs. OEM corporate stores

“This [the ban on Tesla] is a disturbing trend and deals a big blow to the future of automotive retailing. It also pushes the US behind the rest of the world. So far the resistance to Tesla and any kind of progressive thinking in auto sales had been relegated to the southern states. New Jersey’s decision could now influence states such as New York and Massachusetts, which have so far been more supportive of Tesla.” – Kumar Saha, senior industry analyst with Frost & Sullivan’s Automotive and Transportation research group.

On March 11, New Jersey Gov. Chris Christie’s cabinet members and appointees voted to block Tesla from direct sales. The administration ruled in favor of a state requirement that new cars must be sold through licensed franchises from a rule proposed last October by the New Jersey Motor Vehicle Commission; that happened around the same time Tesla opened two of its own stores in the state. Tesla CEO Elon Musk took a shot at Gov. Christie, accusing the expected 2016 Republican presidential candidate of making a “backroom deal” to keep Tesla out of the state. Musk put more pressure on Christie, whose administration has been taking heat for alleged bullying of opponents – the most notable event occurring last year when former high-ranking officials faced potential criminal charges after ordering lanes approaching the George Washington Bridge be closed, creating a traffic nightmare.

This dramatic decision by New Jersey follows several state-by-state battles in the direct OEM sales versus state franchise law battle. Auto dealers in Ohio, New York, Minnesota, and Georgia have fought Tesla. Texas dealers successfully backed a law setting the nation’s toughest restrictions on Tesla. Arizona, Colorado and Virginia also imposed limits.

In New Jersey, the New Jersey Coalition of Auto Retailers spent more than $155,000 on lobbying last year. Gov. Christie received about $65,000 in campaign contributions from people associated with the auto industry during last year’s primary and general election campaigns.

There’s a lot at stake in how these lawsuits and lobbying ventures play out. The legal history of state franchise laws protecting dealers are not too clear – that varies by industry with many retail sales transactions being conducted in corporate stores without any franchised operators in these branded networks. The state franchise laws are about a century old now, and other automakers have taken on the fight of breaking them long before Tesla Motors. Dealer networks have been very successful at lobbying in state legislatures and winning court battles.

Ford Motor Co. and General Motors Co. attempted to operate a few company-owned stores in the late 1990s and early 2000s as internet sales became more economically viable. Dealers won that battle – today you can shop for, and spec out, cars on OEM websites, but you have to buy or lease them through a dealership. Truecar.com experienced a similar experience after its 2011 Superbowl commercial promising the best local market price from dealer in their area. Dealers in several states attacked Truecar for allegedly violating laws regulating auto brokering, price advertising, and other legal issues. The onslaught hurt Truecar’s finances, as about 2,600 dealers bailed out of Truecar; it forced the company to spend much of the year overhauling its relations with dealers.

As Frost & Sullivan analyst Kumar Saha said, automotive retailing is changing fast. Dealers may be winning some of the state legal battles with Tesla, but may be losing a lot more business in the future as the business model changes.