Transportation Deployment Casebook/Hybrid Electric Vehicles

Hybrid Electric Vehicles
Hybrid Electric Vehicles (HEVs) are a cross between an electric car and an internal-combustion car. They combine the electric motor and battery of an electric car with a small internal-combustion engine. The electric motor receives power from the batteries which are charged by the internal-combustion engine batteries as needed. The Hybrid separates itself from electric vehicles by its much greater range. Unlike electric vehicles, which are typically limited to 130 km between charges, HEVs can run until both the batteries and gasoline are depleted, giving it a substantially greater range. The electric motor tends to run at lower speeds, while the internal combustion engine is used at higher speeds and to charge the batteries when they are depleted. Also, because the internal-combustion engine charges the batteries, HEVs don't need to be plugged in as electric vehicles do.

Compared to a typical internal-combustion vehicle, the main advantage an HEV provides is increased fuel efficiency. This leads to fewer emissions and fuel savings. In particular, HEVs excel in their fuel efficiency over internal-combustion vehicles in city driving. The electric motor tends to be more efficient in dealing with the frequent acceleration and deceleration. This is partly because HEVs are able to capture some of the power lost during breaking. This is done by reversing the engine and charging the batteries. This leads to even greater fuel savings over internal-combustion vehicles. When stopped completely, HEVs can shut off their engine automatically, conserving energy, while internal-combustion vehicles (ICVs) continue to run unless the driver manually switches them off.

One feature of HEVs and EVs which is both advantageous and, at the same time, a safety concern is their lack of noise. When operating their electric motor (typically at low speeds), HEVs are much quieter than their ICV counterparts. Quieter vehicles are typically desirable because they reduce noise pollution, an expensive transportation externality. The problem is that pedestrians are accustomed to the noise of internal-combustion vehicles. Pedestrians rely on the noise generated by vehicles to warn them that they are nearby. The lack of noise generated by slow moving HEVs presents a concern for pedestrian safety. The U.S. Congress enacted the Pedestrian Safety Enhancement Act which includes a minimum sound requirement for motor vehicles. Manufacturers have begun adding vehicle noise and warning sounds to help protect pedestrians.

The primary market for HEVs includes economically and environmentally conscious consumers who are looking to reduce emissions and save on fuel but do not want to be confined to the limitations of electric vehicles. Most HEVs are smaller vehicles and so the market revolves around drivers willing to drive compact cars. This trend has been changing, however, with the development of hybrid SUVs. Due to the higher cost of HEVs over ICVs, the market tends to include higher income drivers. Also, because HEVs are relatively new, fewer used HEVs are available on the market. This restricts the market further to those willing to purchase new, or nearly new, vehicles.

The success of HEVs in the market is largely dependent on the price of gasoline and the prevalence of environmental concerns. This can be seen by looking at the history of HEVs sales in comparison to gasoline prices. As oil prices rise, the fuel savings from driving HEVs also increases. As seen in the 1970s however, a sustained period of high oil prices is needed for HEVs to capture sufficient market share. In  Encyclopedia of Energy, German discusses new vehicle purchasers lack of concern for the cost of fuel. Often, the short term savings of ICVs win out over the possible long term fuel savings of HEVs.

One problem HEVs have encountered in trying to establish their market share is that manufactures continue to make enough improvements to ICVs. The improvements limit the benefits of HEVs. As concerns about fuel efficiency rise, manufactures produce more fuel efficient ICVs. If fuel prices drop, no action is necessary from manufacturers as consumers will continue to purchase ICVs. The internal combustion engine continues to win out because the "incremental advantages [of HEVs] are less than the cost of switching infrastructure."

History
HEVs were not new to the U.S. in 1999 as the sales data seems to suggest. In fact, their origins go back all the way to 1905. At that time, American engineer H. Piper came up with the concept of a hybrid vehicle. His motivation was an increase in performance. His hybrid electric vehicle could accelerate to 40 km/h in 10 seconds while internal-combustion vehicles of the time were requiring 30 seconds. Although this was a drastic improvement, the internal-combustion engine caught up by the time Piper received his patent. A major disadvantage of the gasoline engine was the requirement to start by crank. Once Piper received his patent, this barrier had been overcome and the internal-combustion vehicle went on to dominate the market.

Some electric vehicles had been developed around the same time as Piper with the help of electricity pioneers like Edison and Tesla. Like EVs today, the major drawback was the battery technology which greatly limited the vehicles' range. However, this originally was less of a concern due to the limited road infrastructure between cities. The range was sufficient for city driving. As roads began to expand, though, the internal-combustion vehicle made its run. The heavy batteries required for EVs weighed them down. Adding additional batteries had diminishing returns because of the extra weight. Hybrid's had to rely on mechanical means of switching between the electric and gas motors. This was complex and less efficient than today's HEVs which have computers optimizing and controlling its operations.

Until the oil crisis in the mid-1970s, the gasoline car went virtually unchallenged by electric vehicles. With gasoline prices relatively low, oil plentiful, and with existing dominance over the market, gasoline cars were not threatened. Improvements in power and efficiency further helped to prevent any potential competitors from entering the market.

In the 1970s, with the oil crises causing gas prices to rise, a brief opening appeared for alternative vehicles. Wouk discusses his own attempts at bringing an HEV during this time. His model was able to achieve much higher fuel efficiency and seemed to be on for manufacturing. However, the crisis was too short-lived and once oil was readily available again, funding for alternative vehicles such as his declined. The oil crises did bring about the Energy Policy and Conservation Act (EPCA) requiring new fuel efficiency standards. HEVs such as Wouk's immediately met these standards but automakers had until 1985 to comply with their ICVs. This allowed them sufficient time to improve ICVs and left little chance for alternative vehicles to enter the market.

Nearly 20 years later, President Clinton makes a deal with major U.S automakers. Instead of raising CAFE (Corporate Average Fuel Economy) standards, the deal requires GM, Ford and Chrysler to establish a "Supercar." The program would combine government and corporate money in the development of an 80 miles per gallon vehicle. The biggest problem with the deal was this somewhat arbitrary milestone of 80mpg. The goal was attainable, but required automakers to use very light, and therefore expensive, materials. The automakers were successful in developing an 80mpg vehicle, but due to its enormous expense, it was simply not marketable to the public. Perhaps a more modest goal would have produced a marketable vehicle which was still drastically more fuel efficient than ICVs of the time. Nevertheless, the Supercar program did help spur innovation in the alternative vehicle industry. Several years later, Toyota and Honda rolled out their hybrid vehicles, first in Japan. Their cars achieved more modest fuel efficiency than the Supercar but still double the average ICV. The Japanese market was also more suited to an HEV. With higher gasoline prices, higher density driving and culture more accustomed to compact cars, Toyota and Honda saw success in their home market. Driver demand for vehicle performance was also less than in the U.S. Both companies worked to adapt their hybrid technology to suit the U.S. market. Beginning as early as 1999, but primarily in 2000, Americans began purchasing HEVs.

Innovation in HEV Technology
Technological innovations in the last 100 years has made all types of vehicles safer, faster, more efficient and cheaper. HEVs are no exception. They have greatly benefited from technological breakthroughs between the Piper HEV of 1905 and Toyota's Prius of the 1990s. A difficulty of early 20th century hybrids was the mechanical method of switching between electric and internal-combustion power. This had to be controlled mechanically, whereas today's hybrids are controlled by tiny microcomputers. In fact, even ICV's systems are computer controlled. The implementation of computers into HEVs allows for optimal control between the two power sources.

An area which has seen less advancement and continues to be a limiting factor in HEVs is battery technology. Although batteries in today's hybrids are certainly an improvement over previous models, they have improved at a much slower pace than other vehicle technologies. The batteries continue to add substantial weight to the vehicles and are greatly limited in their capacity. As mentioned earlier, the great weight of the batteries means a non-trivial amount of energy must be taken from all the batteries to transport the weight of the additional battery.

Policy and Market in the Birth of HEVs
Initially, HEVs served a niche market, appealing to the economically and environmentally conscious community. As the technology has improved and HEVs have become more popular, the market has expanded. Initially, HEVs were compact cars in order to be as fuel efficient as possible. However, as HEVs have looked to expand and gain more of the market share from ICVs, manufacturers have begun developing larger HEV models. One can now buy SUV hybrids, proving that the hybrid is no longer restricted its initial niche market. EVs on the other hand, are limited in their range and require charging stations. Although they pose some advantages of HEVs, their limitations cause them to primarily serve a niche market where electricity is cheap, readily available and distances are short. Drivers in this market must have a high value on reduced emissions and smaller need for driving long distances. Additionally, EVs require extra infrastructure such as charging stations to be readily available. In contrast, HEVs are able to capture some of the ICV market because they don't require additional infrastructure and have fewer limitations.

The Energy Policy and Conservation Act of 1975 was legislation during the oil crisis of the 1970s which contained new requirements aimed at improving fuel economy. The act imposed new fuel efficiency standards on automakers, but allowed manufacturers 10 years to comply. Similar policies such as the Corporate Average Fuel Economy standards would appear to be helpful in encouraging alternative vehicles. By creating stricter fuel efficiency standards, new vehicle types may be able to capture a share of the market if gasoline cars cannot keep up. Car manufacturers may decide to invest additional capital in alternative vehicles. On the other hand, the policies require car manufacturers to improve the fuel economy of their ICVs or to stop producing them. Demand for ICVs is not affected by the policies and therefore, manufacturers go ahead with improving the fuel efficiency. This has the effect of reducing the net benefit which HEVs provide over ICVs. With more efficient ICVs on the market, the fuel savings provided by HEVs is reduced. It's possible that the cost of ICVs could rise as well if manufacturers passed on this additional cost. However, policy such as CAFE causes a reduction in price for high efficiency vehicles as manufacturers encourage their sales to offset the low efficiency vehicles. This further hurts the market for HEVs.

President Clinton took alternative approach to increasing fuel economy standards by agreeing to a deal with major American automakers to develop an 80mpg Supercar. The program had some benefits but ultimately, didn't directly lead to the development of a domestic HEV due to the high cost of the Supercar materials.

Growth and Maturity of HEVs
As can been seen in the quantitative analysis below, hybrid electric vehicle sales in the US experienced a very rapid lifecycle. If we consider 1999 the birth of HEV sales in the US, maturity occurred just 8 years later. The birthing years encompass roughly the first 4 years.

Most government tax incentives occurred during the rapid grown between 2004 and 2007. During this time, various tax deductions were available at a national and state level. The monetary incentives, however, seem to have played little role in the growth of HEVs. One possible explanation including that dealers may have factored these incentives into their prices, leaving the consumer with little or no net benefit. More likely, was the influence of the economy, especially fuel prices. The rise in fuel prices around the country between 2004 and 2008 likely played a significant role in the growth of HEVs. The decline of fuel prices between 2008 and 2009 and the recession correspond to the decline in HEV sales. However, HEV sales continued to decline even as fuel prices steadily rose between 2010 and 2012. Perhaps this suggests that HEVs matured in 2007? Although fuel prices rose between 2009 and 2012, the American economy was still in recession, influencing sales of all vehicles. Consumers that absolutely need a vehicle will continue to buy, but will be less likely to pay the additional upfront cost necessary to purchase a HEV.

The infrastructure for HEVs is certainly not going away. Unlike past transportation modes which have seen rapid decline after their maturity, HEVs will likely experience slower decline after maturity. This can be seen in the data since 2007. Modes such as railroads, which saw their tracks being removed and highways built instead, experienced rapid decline. As long as highways continue to be used and energy is of concern, HEVs will likely remain an alternative to the internal-combustion vehicle. The most likely scenario to contribute to a more rapid decline of HEVs, would be improvements to electric vehicles or discovery of a new energy source. Battery technology has seen little improvement in 100 years. If that were to change, EVs may experience growth, leading to the further decline of HEVs. In any case, the last 100 years are a pretty clear indication that the internal-combustion vehicle is not going away anytime soon.

U.S. Hybrid Electric Vehicle Sales
Data Source: National Transportation Statistics





Data Source: National Transportation Statistics

Analysis
The following model was used to predict HEV sales

S(t) = K/[1+exp(-b(t-t0)]

where:

S(t) is the status measure, (HEV sales traveled)

t is time (years),

t0 is the inflection time (year in which 1/2 K is achieved),

K is saturation status level, b is a coefficient. K and b are to be estimated

The regression equation derived is:

Y=LN(Sales/(K-Sales))

In completing the regression, a K value of 352863 was used. This value represents the HEV market maturing in 2007. Whether this is the case or not is difficult to determine. Since 2007, HEV sales in the U.S. have been on the decline. The recession certainly has been a factor in this. What remains in question is whether HEV will begin to climb again and reach a higher peak, or whether 2007 will remain the peak. Factors such as the economy and gas prices will certainly influence this. Since no one can say with certainty where future gas prices will go, it's difficult to say with certainty that the HEV market has peaked. If gas prices skyrocket, HEV sales will certainly increase, but their decline may also be sped up by a drop in fuel prices. The trend now puts HEV sales on a slow, but steady decline. This regression model assumes that 2007 was the peak of HEV sales in the U.S.. Alternative vehicles as a whole are still in the birthing phase. If HEVs continue to decline, other alternative vehicles are likely to step up and experience growth. Due to the relatively slow decline since 2007, however, HEVs may make a comeback. Only time will tell.

The regression resulted in an R-squared value of 0.9708 and t-statistic of 19.125. An R-squared value close to 1.0 and t-statistic as high as possible are desirable. A b-value was estimated in order to achieve the most desirable fit, and therefore, the best R-squared and t-statistic values. Analysis of the curve shows that the model originally underestimates sales, then overestimates during the growth period before tapering off in 2007 for the mature phase. Unlike the real data, the model does not predict the decline after the peak in 2007. Also, the t-naught value was chosen based on the 2007 peak and the slope between years 2004 and 2005. T-naught represents half of the peak which occurs between '04 and '05.

Although HEV sales can be volatile due to the various influencing factors such as fuel prices, tax credits, regulations and the economy all changing, the data between birth in 1999 and maturity in 2007 represents a fairly consistent S-curve of transportation modes. Since 2007, the decline has been somewhat different and HEVs may reach a higher peak in years to come which would greatly influence the model. However, due to the nature of growth between 1999 and 2007, the model was able to generate a fairly good fit. As data from future years comes out, the model will continue to be modified.