All about green tech
Pike Research analysts discuss why Korean battery makers beat Chinese, what challenges fuel cell cars and how EVs can take off
By Kim Da-ye
Hyundai Motor Group will unveil its first mass-produced electric vehicle (EV), the Kia Ray, this week.
Hyundai Motor manufactured and sold about 250 of its first EV model, BlueOn, but that may not qualify as mass production. With Kia Motors planning to produce 2,500 Rays, Korea is making a significant step toward the electrification of passenger cars.
Ahead of the launch, Business Focus met with analysts from Pike Research, a U.S. research and consulting firm focusing on global clean technology markets with over 50 analysts across the world.
Pike Research President Clint Wheelock, Research Director John Gartner, Senior Analyst Andy Bae and Editorial Director Richard Martin joined the roundtable discussion on Korea’s smart transportation market during a research trip to Seoul and Jeju in November.
The discussion that provides a rarely candid view on Korea’s EV industry has been abridged and edited by Business Focus.
Korea’s strength in EV batteries
Business Focus (BF): How competitive is Korea’s electric vehicle industry compared to other advanced countries such as the U.S. and Japan?
John Gartner: There are three major areas to look at — vehicles, batteries and charging infrastructure. Korea’s strength is now on the battery side where you have companies like Samsung SDI and LG Chem. LG Chem, by many accounts, is the industry leader with strong working relationships in the U.S.
BF: How about the actual vehicles?
Gartner: Hyundai is a little bit late to the game in terms of electric vehicles. They haven’t adopted the technology as rapidly as some of other automakers. Japan’s Mitsubishi Motors and Nissan had early interests in getting the technology commercialized and having the vehicles out on the road.
BF: Compared to China, how far has Korea progressed in terms of charging infrastructure?
Gartner: The Korean government has its goals, but they are not as ambitious as others. They find electrification important and see it as the future.
China is able to direct the economy at a much greater degree than other free markets in the rest of Asia. The Chinese government has set broad, ambitious goals, saying “We want to be a major player in the global EV market.” They want to sort of leap frog.
Reality hasn’t quite caught up with the goals. Major manufacturers haven’t seen the consumer demand matching their plans so far. BYD introduced an EV last year, but achieved very small sales. But China is really focused on becoming the world’s No. 1 producer and consumer of EVs.
BF: What are Korea’s advantages and disadvantages in the EV industry compared to China?
Gartner: LG Chem and Samsung all have experience in delivering vehicle-quality batteries.
The automotive industry is very careful and cautious in choosing battery makers as manufacturers want their vehicles to be the safest possible. If you talk to automakers around the world outside China, they would say, “China is not there yet.” So there are opportunities for other battery manufacturers across Asia to fill that globally.
Japan has a long history in cells and consumer electronics, and companies there have moved onto the EV area earlier. Companies like Sanyo, Panasonic and Hitachi have been producing batteries for the longest time, and have a good reputation for quality and innovation.
Korea is trying to match the Japanese quality possibly at a lower price. North America tries to compete, but the region is behind in terms of deploying batteries in a large scale. LG Chem sells batteries to the North American market because there were no battery makers ready at that time when GM was the first to introduce their electric vehicle.
Richard Martin: Could you elaborate on what Korean manufacturers’ advantages might be?
Clint Wheelock: Samsung and LG have a real advantage in economies of scale. They are such strong players in providing lithium-ion batteries not just to this industry but in all other industries such as consumer electronic goods, mobile phones and computers. Their production capacity, expertise and R&D capability are stronger than other start-up battery makers that do not have a strong consumer base in other categories.
Gartner: I think it is their ability to scale up quickly for mass production and tackle the cost structure. The domestic market isn’t as large as Japan or China, so they have to look internationally to grow the volume. So far they have shown the ability to reduce the cost by continuing to innovate and producing batteries by large volume by working with automakers outside Korea.
And they are very vertically integrated. They are used to handling big projects, in which many teams work together. Companies like Samsung have experience in electronics and understand all facets of electrification. We go back all the way to the parent company which can play a role throughout the EV industry from vehicles and buildings to electronics.
Fuel cell vehicles face many challenges
BF: Changing the topic, Hyundai Motor Group’s vice chairman in charge of research and development told journalists at this year’s Frankfurt Motor Show that Hyundai will focus on hybrids and fuel cell vehicles (FCVs) while Kia will work on electric vehicles.
A few weeks later, the automotive group corrected that Hyundai will also work on electric vehicles and expand its EV lineup to the compact segment. Which technology — fuel cell or electric — do you think has a better future? Which one is more realistic for commercialization?
Wheelock: That’s the subject of much debate within Pike Research because we have both EV and FCV analysts. Most of the public policy and global automotive manufacturers are behind electricfied vehicles now.
Gartner: All the big automakers have been interested in fuel cell and have always had it as part of the plan.
The automakers will start commercialization of fuel cell vehicles in 2015 while that for modern electric vehicles began in 2010. Fuel cell vehicles are automatically five years behind.
The biggest difference is the infrastructure cost. That for fuel cell vehicle that use hydrogen is monumental.
Electric grids are available everywhere, and it’s not expensive to put an electric outlet. For example in London, they put electricity outlets on the light posts. For fuel cell, however, you are talking about a multi-trillion dollar investment to have a global hydrogen network.
In the U.S., there was a talk about a hydrogen highway from Canada to Mexico. Several years ago, the governor of California said we were going to see this by 2015, but that hasn’t happened yet. All the money dried up because of the expense.
One advantage of the fuel cell vehicles are lower range limitations. You can go 120 kilometers per charge with a full electric vehicle while a hydrogen car can go for 350 kilometers today.
There is some interest in looking at fuel cells as a range extending technology — you have a battery and the fuel cell that generate electricity. Vehicles like the Chevrolet Volt use a gasoline engine to extend the range.
BF: By the way, Pike Research ranked Hyundai Motor Group the fourth among 10 original equipment manufacturers of fuel cell vehicles after Daimler, Honda and Toyota. Why?
Andy Bae: Hyundai has a good relationship with fuel cell suppliers here. Actually, Korea is a very advanced country in terms of fuel cell development. This country has invested in it for a long time, and along with Japan, has a strong fundamental in the sector.
In addition, Hyundai achieved a good power density in fuel cell. Were you surprised Hyundai was ranked fourth?
BF: Not really. If you go to motor shows, Hyundai have displayed well-designed fuel cell concept vehicles.
Gartner: Unfortunately, a lot of automakers had really nice concept cars for more than 10 years. I took my first test drive in a fuel cell vehicle 10 years ago.
Commercialization of FCVs is on the horizon. It’s going to be not easy but expensive. But there are applications for it.
The military potentially has strong demand for it because of fuel costs for remote sites like army bases. The gasoline costs of moving tactical fleets are extremely high. As EVs’ range is not good, FCVs make much sense — they can travel further.
You can use wind and solar power to electrolyze water to make hydrogen or natural gas to produce hydrogen. It’s expensive, but in certain cases, it can be competitive compared to other types of fossil fuel.
Wheelock: Other applications that make sense include delivery vans, government fleets and corporate fleets. Reducing carbon footprints is a key goal for some government agencies and companies.
Vitalizing EV market
BF: In which segment do you see a better future for EVs — city cars or compact cars?
Gartner: It depends on the region. For a city with a high population, short driving range and little parking space, small EVs with two passengers would be okay. Where people drive further distances, they would have drive range issues. There would be demand for city cars in Europe and Asia, but not so much in North America.
BF: Several Korean small and medium enterprises (SME) manufacture low-speed EVs. The government doesn’t allow those neighborhood electric vehicles (NEVs) on the 80-kilometer-per-hour speed zone, so there is hardly any demand for those vehicles.
CT&T, for instance, is on the verge of bankruptcy with its stock price plummeting badly. What do you think about the policy?
Gartner: That’s pretty uniform around the world for reasons of safety as well as impracticality. It does significantly limit the market for the vehicles, but you don’t want a truck driving 80 kilometers per hour hitting an NEV. If you were to operate NEVs at high speed, the battery would run out very quickly. That’s not practical.
Wheelock: We have done a fair amount of research on the NEV segment. We anticipate a strong growth but still a small number. The growth rate should be good for the next five to 10 years, but it will remain a small niche market.
The vehicles certainly have applications — they are very good for universities, hospitals and military bases. If focused on the niche market, they can certainly be successful.
BF: The Ministry of Knowledge Economy recently decided that EV buyers will be exempted from taxes worth up to 4.2 million won ($3,600). Experts said that’s inadequate to spark the public’s interests in green transportation. Do you think the government needs to give out subsidies in addition to tax exemption?
Gartner: There can be other ways to subsidize EV buyers without direct financial subsidies. Giving parking privileges and allowing them to drive on certain lanes can all be strong incentives.
For example in California, Toyota Prius hybrids were sold much more than in any other parts of the country because in the initial stage, the buyers were allowed to drive on certain lanes and get through traffic. Those who weren’t necessarily interested in EV and fuel costs bought the Prius because they could drive on those lanes.
Also in Amsterdam, the price of parking a car in downtown can be $10,000 a year. That would be waved when you buy an EV. That’s not a direct financial incentive, but can motivate drivers without having an impact on the federal budget.
Wheelock: Great points. With multiple means to encourage purchases of EVs including the government subsidies, the production cost of batteries could be reduced faster because there is a direct relationship between the price and the real interest in purchasing EVs.
BF: Korea has favored the direct current (DC) charging for fast charging method whereas European automakers are lobbying for the adoption of the alternating current (AC) method. What are the advantages of the DC charging method?
Gartner: A DC charger is much faster, fully charging a vehicle in five to 15 minutes. But the charging equipment is extremely expensive. In the U.S., installing an AC charger costs around $1,000 while a DC charger costs from $20,000 to 50,000 plus the expenses of installation.
To support DC chargers, you need a lot of vehicles coming very frequently and drivers who are willing to pay a lot more. One big advantage of an EV is that electricity is so much cheaper than gasoline. But if it is expensive to use a DC charger, it would take away some of the incentives.
BF: How far has Korea’s smart grid technology advanced by global standards?
Wheelock: It’s a mixed story on an overall basis. There has been interesting innovation taking place here, as well as the Korean government and companies’ focus on utilizing smart grid technology as a growth area.
One thing we see is that outside the Jeju Island project, Korean companies do not have a large presence in the global smart grid market.
The idea was that they were going to prove technology and innovations in Jeju, expand the focus on the domestic Korean smart grid market and most importantly, export their technology abroad. But that hasn’t happened at all.
The American and European vendors are expanding their presence around the world, and it may become too late for Korean companies to have the kind of impact on the smart grid market that they originally planned.
If you talk to companies here, they think Korea as the smart grid leader on a worldwide basis. Industry players from rest of the world wouldn’t agree with that.