Transportation Deployment Casebook/An Analysis of the Life Cycle of Hybrid Electric Cars

The personally owned automobile has become a symbol of power, convenience, and economic well being in the industrialized world since its creation. Despite its popularity, growing environmental concerns over automobiles and their reliance on internal combustion engine (ICE) platforms has provoked researchers and manufacturers alike, to seek alternatives modes of transport. One alternative, the hybrid electric vehicle (HEV), has garnered notable support in the United States since being first introduced in 1999 (Heffner et al, 2005).

HEVs differ from conventional vehicles by utilizing a combination of electric and ICE components. More specifically, HEVs use batteries, electric motors, regenerative breaking and reduction of engine idling time to enhance a conventional internal combustion engine (Reynold and Kandlikar 2007). The parallel use of conventional and alternative technologies utilized in HEVs make them fuel efficient and desirable for those consumers seeking an environmentally friendly vehicle. When compared to conventional vehicles, HEVs have lower emissions of pollutants and greenhouse gases (Bitsche and Gutmann, 2004).

The perceived positive environmental impact of owning a HEV has created a growing consumer market in the United States (Heffner et al, 2005). How large this market becomes is a point of significant debate within the automobile industry (Keefe et al 2008). By looking at the annual new HEV sales in America, a clear life cycle of birth, growth, and maturation emerges. Unless significant changes are made in what is currently the period of maturation for this mode, HEVs will remain a niche vehicle, eclipsed by the conventional automobile.

Sales Data
The annual new HEV sales and total passenger vehicle sales data for the United States was obtained from the Bureau of Transportation Statistics (BTS) and is depicted below in Table and Figure 1.





The substantial growth of HEV sales at the turn of the 21st century lead some experts to predict that HEV would capture 4% of the total vehicle market by 2012 (Haan et al, 2006). However, current trending solidifies the belief the HEV's market share is minuscule when compared to the total vehicle sold in the United States (Jones, 2003).

Saturation Calculations
Proceeding calculations adapted from Levinson UM Twin Cities PA 5232 Assignment.

The data obtained from the BTS was utilized to estimate a three-parameter logistic function of the form:

S(t) = K/[1+exp(-b(t-to)], where S(t) is the predicted number of HEV sales.

In the equation, K represents the saturation point (maturity in the life cycle). To determine which value of K would best fit the S-curve of HEV’s life cycle, the following formula was used:

Y = LN(Sales/(K - Sales)), where “Sales” is the data represented in column 3 of Table 1.



The K estimates displayed in Table 2 were inputted into the StatPlus regression analysis tool for Microsoft Excel to determine the slope (b) and tnought (to) for the equation:

S(t) = K/[1+exp(-b(t-to)].

Table 3: Regression Statistics for Predicted HEV Sales



The K value of 370,000 had the highest correlation coefficient and R^2 of the values tested from Table 2.

Table 4: ANOVA Results for Predicted HEV Sales



Table 5: Statistical Results for the Predicted HEV Sales



Table 6: S(t) calculated for HEV Sales



Life Cycle
Figure 2: Life Cycle of HEVs



With all the variables found to solve for S(t),predicting HEV sales rates became possible. The resulting calculations are plotted in blue in Figure 2. The predicted values fit the S-curve of the modes life cycle quite well.

Before the Modern HEV
The United States has a storied transportation history that has significantly shaped the urban and rural landscapes of today. Today’s American urban centers offer a variety of bus, rail, and air travel services for its travelers. However, the extent to which public transportation systems are available varies drastically throughout the United States. As a result, many Americans rely on the internal combustion engine vehicle (ICEV) and the nation's mature road infrastructure for their transportation needs. The demand for this travel mode is substantial: roughly 17 million 'light-duty' vehicles are sold annually in the United States (Keefe et al, 2008).

The conventional ICEV is powered by the burning of fuel to create the energy needed to propel the car forward (Reynolds and Kandikar, 2007). This process is hardly efficient: only 15% of the energy burned is used for moving the vehicle forward, the rest is lost in idling and engine inefficiencies (Berensteanu and Li, 2011). The environmental ramifications associated with ICEVs range from carbon dioxide emissions to a greater dependence on foreign oil imports (Demirdoven and Deutch, 2004).

The excessive inefficiencies in fuel consumption and energy transfer has created a demand for an alternative energy platform to propel the automobile into the future. However, one only needs to look to the past for inspiration for alternative vehicle platforms. The electric vehicle (EV) was invented in 1834 and was widely deployed throughout England, America, and France by the late 1800s (Chan et al, 2002). However, with the birth of the ICEV and its extended range and dependability, EVs largely disappeared as a mode of transport by the 1830s (Chan et al, 2002). But, with renewed vigor towards producing more efficient vehicles, EVs were redeployed to the American market again in the mid-to-late 1990s (Jones, 2003). However, the historical range and dependability limitations of the EV continue to plague its use in the automobile market.

Invention
Despite the EV's failure to capture a large consumer base, manufacturers were determined to offer a technologically advanced yet fuel-efficient vehicle. This determination led to the creation of the modern HEV. It is important to note, that like EV technologies, the concept and creation HEV automobiles has been around since the late 19th century. In addition, HEV technologies have been utilized by varying degrees via public bus services throughout the past century. But for the purposes of this project, the author's reference to HEV is directed to the privately owned and operated, modern HEV.

HEVs vary from EV and ICEV technologies by utilizing a rechargeable battery that captures energy loss typical in ICEVs and provides that energy for propulsion whenever the ICE proves to be inefficient (Beresteanu and Li, 2011). While in motion, the ICE recharges the car's battery, successfully extending its range while maintaining fuel efficiency (Demirdoven and Deutch, 2004). The hybrid motor's ability to alternate between the ICE and the electric motor, creates an operating sweet spot that cuts emissions while maintaining fuel efficiencies (Jones, 2003).

The HEV's batteries are the key technological component and are essential for the HEVs long term success (Chalk et al, 2006). The way in which the ICE and the battery system is arranged within the vehicle platform can be broken into four categories. According to Chan et al:


 * Series Hybrid System: Simplest of the four and generally the least efficient.  ICE mechanical output is converted into electricity using a generator (2002).
 * Parallel Hybrid System: Allows the ICE and the electric motor to deliver power together or individually to propel the vehicle forward (2002).
 * Parallel hybrid systems are the most common and cost-efficient of the HEV arrangements (Bitsche and Gutmann, 2004).
 * Series-Parallel Hybrid System: Combination of the Series and Parallel systems with an added mechanical link (2002).
 * Complex Hybrid System: More complex then the other three systems and is characterized by the bidirectional power flow of the electric motor (2002).

Early Markets
The first successful mass produced HEV in the world, the Toyota Prius, was first deployed in Japan in 1997 (Jones, 2003). Two years later, the Honda Insight became the first HEV sold in America. That subsequent year, the first shipments of the Toyota Prius arrived in limited quantities to the United States (See Table 1 & Table 7). The limited production runs of these HEVs did not deter consumer interest. In particular, the Prius developed a culture niche by offering early consumers the ability to 'make a statement' of social responsibility and healthy living via their ownership of the vehicle (Heffner et al, 2005). Despite its increase in pop culture identification, by the turn of the 21st century, consumers remained limited on their HEV model options. From 2000 to 2003, only two vehicles, the Toyota Prius and the Honda Insight, were offered for sale in the United States (Reynolds and Kandikar, 2007).

Role of Policy
Despite the environmental and fuel efficiency advantages offered by the mode, the HEV market had two notable challenges to overcome. First, the cost of the HEV is more expensive than ICEVs of comparable size and class. Secondly, a pattern of slow growth is typically observed when new technologies are introduced into a mature system. Thus, consumer confidence was needed to spur the growth of HEV sales in America. Starting in 2000, federal, state, and local governments implemented a wide set of incentives used to offset the higher cost of the HEV and instill consumer confidence in the new technology (Keefe et al, 2008). Although the incentives were generous, they did not fully offset the cost of the price differential between HEVs and ICEVs of comparable size and class.

The federal government incentive for encouraging HEV purchases was in the form of a tax deduction. Starting with the Honda Insight, the government offered a $2,000 tax deduction for any newly purchased HEV (Beresteanu and Li, 2011). This incentive would stand until being converted into a tax credit under the Energy Policy Act of 2005 (Ghallagher and Muehlegger, 2007).

State purchase incentives varied in generosity, duration, and creativity. Ghallagher and Muehlegger observed that:


 * Nine states offered single rider occupant access to HOV lanes during peak traffic hours (2007)
 * Eight states offered their own income tax credits of varying amounts (2007).
 * Four states offered registration, excise tax exemption, or rebate (2007).
 * Numerous major metropolitan areas offered parking fee reductions or exemptions (2007).

Growth of the HEV, 2003-2007
With the aid in consumer confidence, purchasing incentives, and overall popularity, HEV sales continued to rise in America. To meet that growing demand and to capture a larger market, auto manufacturers began diversifying their product lines. Ford expanded the HEV market by introducing the first SUV in 2004 and brought the total number HEV models for sale in the United States to four (Keefe et al (2008). In subsequent years, six more models from added to the market.  By 2007, a total fifteen HEV models from manufacturers ranging from Saturn to Lexus were available on the U.S. market (Bernesteanu and Li, 2011).  This substantial growth caused some analysts to predict that the total HEV market share of the passenger vehicles would top 4% by 2012 (Haan et al, 2006).

Federal, state, and local incentives continued but with some notable changes.

In 2006, the federal income tax deduction of $2,000 was converted into a tax credit of up to $3,400 for HEVs purchased after December 31, 2005 (Beresteanu and Li, 2011). This tax credit varied upon model, fuel efficiency, and the number of vehicles sold by the manufacturer (Beresteanu and Li, 2011). Additionally, on a case-by-case basis, state and local HEV incentives were assessed, discontinued, or improved during the time. These fiscal incentives and regulatory pressures continued to spur HEV market growth (Keefe et al, 2008).

The federal, state, and local incentives were not the only fiscal influence that spurred HEV growth, from 2003-2007, gas prices rose considerably in the United States. Gallagher and Muehlegger suggest that high gas prices played a larger role in HEV purchases then the state and federal incentives did (2007). Beresteanu and Li go further by hypothesizing that without the increase in gas prices witnessed during this period, that HEV purchases would have been reduced by nearly one-third in their case study area (2011).

Maturation of the HEV, 2007-present
The HEV market in the United States is the largest in the world with cumulative sales topping two million units. Despite the impressive growth over the past decade, the HEV market remains a niche that has fully matured. Despite diversifying the number of HEV models to dozens of models, consumers are  not adopting this mode at the rates that experts were hoping for. According to researchers, HEVs cost too much to be worth the initial investment (Lave and MacLean, 2001). Others suggest that barring the invention of a more cost efficient battery (Chan et al, 2002) or a more lucrative federal rebate program (Beresteanu and Li, 2011), HEV sales will not reach the levels once predicted.

The author maintains that HEVs sales will continue to mature and decline for the following reasons:


 * ICEVs are becoming more fuel efficient and as a result, are becoming more attractive to fuel conscious consumers.
 * The initial capital investment is not recouped over the span of ownership.
 * Reliability and maintenance concerns continue to deter buyers.
 * Gas prices have continued to lower since 2007.