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[Episode #15] – The Outlook for Electric Vehicles

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Electric vehicles are all the rage right now, and hopes are high that we might finally be able to transition off of oil and on to electric cars…preferably, cars powered by clean renewable electricity and not by coal-fired grid power. But they’re still less than 1% of the new vehicle market, and they still face real challenges in consumer acceptance, a lack of charging infrastructure, and a dearth of options at the dealership. So what should we really expect from EVs in the near- and medium-term, and how realistic are the high hopes for switching a nation like the US, with nearly 260 million conventional light vehicles on the road today, over to EVs? We talk to EV expert Matthew Klippenstein to find out.

Geek rating: 2

Guest: Matthew Klippenstein, an engineer with a renewable energy consultancy, a writer for Green Car Reports and co-host of the EV-centric Cleantech Talk podcast.

On Twitter: @EclecticLip

On the Web:
tinyurl.com/CanadaEVSales
greencarreports.com/writer/10039832_matthew-klippenstein

Recording date: April 1, 2016

Air date: April 20, 2016

Chris Nelder: Welcome Matthew to the Energy Transition Show.

Matthew Klippenstein: Thank you very much Chris.

Chris Nelder: So we're taping this actually on April 1st. And yesterday was the big unveiling of the Tesla Model 3 which is Tesla's first car priced for the mass market at around $35,000 for the list price. And apparently it went very well indeed. Elon Musk tweeted today that the company got 180,000 preorders for the Model 3 in 24 hours which is far more than all the cars it has sold to date. And he also tweeted that they went for an average selling price including options of around $42,000 and that the company made around $7.5 billion in sales in one day. So that's not too bad. So as a close watcher of the EV sector, what are your expectations for the Model 3 particularly considering that as Liam Denning recently pointed out in an article for Bloomberg there are actually already some 35 EVs on the market from all the major manufacturers including a whole raft of new models in the same price range as the Model 3. And that that number would almost certainly double by the end of next year.

Matthew Klippenstein: Sure. I think the first thing to do would be to just draw back a little bit of Elon Musk's enthusiasm there just to clarify that reservations aren't sales. In Tesla's case, I'm sure that many many of those will become sales as Tesla has had the foresight and the canny business plan to develop an enviable perhaps unsurpassed caché. But those aren't quite sales yet. I do expect that there would be some people who are putting money down to get their place in line who may decide to go for a different electric vehicle, particularly if their timeline for delivery stretches out a little bit further than they'd like. But certainly it would take a very special vehicle indeed to beat what Tesla has unveiled and is promising for their buyers. I would expect that instead of so much taking away buyers from other vehicles I would kind of think that the Tesla reserver, or reservation holder might have already had their hearts set on a Tesla. So I'm not sure if that would necessarily cut away at other automakers sales but it is true that if another automaker is out with a vehicle, perhaps the GM with the Volt or Nissan with next generation Leaf, some of the reservers might revert back to the more main line automakers.

Chris Nelder: So you don't think all these new models that are coming for EVs over the next year or so are really going to materially hurt Tesla's sales?

Matthew Klippenstein: I don't think that they would materially hurt Tesla's sales. I do think that Tesla has created a niche for itself as the perceived to be the Apple, the top of the line electric vehicles for the people who they're targeting and not everyone has, you know cars are an extraordinary broad market, a thousand different models are sold around the world each year. Most of those with different trim levels, colors, options and so forth. So I think that you know both the other manufacturers as well as Tesla will benefit. If Tesla sees delays as it has had with its previous vehicles than I could imagine some people would decide, not for me. If they are able to maintain a schedule and things look good with the first vehicles that come out I'm sure they'd be able to convert many of those reservation holders.

Chris Nelder: Yeah. Well long term I am pretty bullish on EVs. Couple of years ago I did an analysis for the state of Maryland which showed that because EVs cost about a third as much to operate as a ICE vehicle, an internal combustion engine vehicle, which is mainly because the electricity is a lot cheaper than gasoline, but also for other reasons, that they're on the verge of being at cost parity with ICE vehicles on a total cost of ownership basis and that if you actually priced in carbon emissions and considered that gasoline prices could be higher in the future that they're probably already at price parity. So what's your sense of the trends in terms of the total cost of ownership?

Matthew Klippenstein: I largely agree there. It's indisputable that on account of the efficiency and the lower price of electricity that electric vehicles are much more cost effective to run. The only question is how big is your upfront extra cost relative to the savings that you accrue over time. There may be a challenge later on, not today or tomorrow but perhaps in the 10 or 20 year timeframe when we will have the marginal cost say of an apartment dweller wanting to add a plug in electric vehicle into the garage where you would have the building strata, or the building council might say hey we don't want to spend X amount increasing the power to the building with utilities possibly crowding into the conversation as well. However, that's one of these things which is so far away that I don't think it needs to be worried about particularly much at this point.

Chris Nelder: OK. Now just to be clear, the analysis that I did a couple of years ago included the upfront cost of the vehicle so even though the vehicle cost twice as much to buy up front as an ICE vehicle I found that the total cost of ownership, if you included that and you included all your fuel costs, all your maintenance costs, a reasonable discount rate and preferably priced in carbon that over 10 years or 15 years it would be actually cheaper in some cases to own a EV.

Matthew Klippenstein: I fully agree with that. Certainly at the moment for most earlier adopters, or the early majority even of electric vehicle owners the installation of a charger at home might add a small amount. The chargers are declining in price just as batteries are. The point I was trying to make earlier was that at some point when that 20th driver in a large apartment tower wants to plug in their vehicle or wants to get a level 2 charger at that stage the cost of expanding infrastructure at home for that nth buyer will be somewhat higher than for the average homeowner who has say their own garage, and has the ability to draw power there.

Chris Nelder: Sure. Another thing that ought to work in favor of EVs are they just have a lot fewer moving parts so the cost of maintenance should be lower over time. But when I actually tried to get data on that back in late 2013 I really couldn't find much because the vehicles were just too new and what I did find was that the maintenance cost estimates being put out by the usual companies like Edmunds for example were obviously wrong. So back in December you looked at the owner reported reliability data on Tesla's Model S and found that some of it wasn't so good. What did you find?

Matthew Klippenstein: I found some information on the Plug-in America website, Plug-in America is one of the leading, possibly the leading plug-in electric vehicle community or nonprofit that has been trying to raise awareness since before there were commercially available plug-in electric vehicles and they had a owner data submission form where owners could record whether they had issues with say for a Nissan Leaf their battery or for a Chevy Volt battery as well. And they also had for the Tesla a field where owners could indicate whether they had anything relating to their drive train replaced. And whereas there were only a small number, I think five of the few hundred Nissan Leaf owners had reported issues with their battery, issues that mapped consistently with known challenges their early batteries had in hot temperatures. A lot of the the early Tesla Model S vehicles which had accrued say 40, 50, 60 thousand miles. A lot of those owners had reported that Tesla had replaced the vehicle. So from a reliability engineering perspective we used a Weibull analysis and you'd expect that for those early Teslas about two-thirds of the drive trains would fail within about 60,000 miles. You know to be very clear I'm absolutely sure that Tesla has improved its quality since then. Elon Musk has made note of it in recent quarterly conference calls, but for the earlier models it would appear they had some teething issues that they had to get used to as they transitioned into you know a bonafide volume manufacturer.

Chris Nelder: Okay. So there's no reason to think that these kind of issues would still persist with the Model 3?

Matthew Klippenstein: It would be very surprising if Tesla had not solved this issue by the time the Model 3 rolled out and it would even be surprising if they hadn't solved it with the Model X's release.

Chris Nelder: OK. So apart from these Tesla models, what have you discovered in terms of you know typical EV maintenance costs because that's the data that I couldn't find.

Matthew Klippenstein: I have not seen a much quantitative data on EV maintenance costs although Consumer Reports had prior to the Tesla, Tesla being its top rated car, the Chevy Volt had that title for two years, and the Nissan Leaf also leads its segment in mid-sized cars like this. In terms of customer satisfaction. So from that I would infer that the ongoing maintenance costs are slim and that owners enjoy this fact but like yourself I haven't had the ability to find quantitative data on that.

Chris Nelder: All right. Fair enough. So perhaps we're just going to have to wait a little bit for the data to come in and see where were we really stand on that. You know my biggest reservation about EVs is actually that they just still have such a small market share. It's still less than 1 percent of new vehicles sold in the U.S. roughly the same I think worldwide, in the U.S. they're not even close to being 1 percent of the fleet that's already on the road. But you've actually argued that market share is sort of a flawed metric for EV sales, why is that?

Matthew Klippenstein: So in this early stage of the game where we're still in the first generation, just Chevy, I guess a couple of people have started to introduce their second generation vehicles, we don't actually have a full spectrum of market offerings, to use the old expression from Alfred Sloan when he was head of GM they want to make a car for every person purpose and there's not yet a plug-in for every person purpose. Until recent months there hadn't been an SUV, a real SUV offered in North America at least. Mitsubishi had its Outlander. Tesla of course has come through, and Porsche and BMW now have some luxury SUVs on offer. And there are no trucks, and trucks and SUVs are a pretty sizable proportion of the overall vehicle market.

Chris Nelder: Certainly are, the Ford F-150 is still the best selling vehicle in America.

Matthew Klippenstein: By a country mile. And so to compare the EV sub-segment in terms of where plug-in electric vehicles play compared to the whole market isn't really fair.

Chris Nelder: That's true, that's true but I mean we don't expect Bubba the contractor to go out and buy an EV.

Matthew Klippenstein: Not a sedan EV for sure. Perhaps a Ford plug-in electric vehicle if he can you know plug in to run some tools or whatnot. If he's you know out on a remote site or something like that. So one suggestion I had was to look at the plug-in electric vehicle market share by approximate price point. And as you would expect the market share increases as you go up in the numbers I crunched a few years ago. You had perhaps 3 percent of the market for vehicles whose base model MSRP started about. $35,000 not quite 5 percent if you went up to $40,000, and thanks to Tesla you had 8-9 percent of the vehicles whose base MSRP started about $50,000.

Chris Nelder: That's an interesting observation.

Matthew Klippenstein: So if you use the right metric, the right unit of measure then you can really see where the promising parts are. To riff on hybrids for example, you know Toyota's both the only car maker who has really gone into hybrids heavy duty hardcore in the past 15 years partly because they own all the IP and it's kind of embarrassing if you have to license your IP from them. And so while worldwide hybrid sales are maybe 2 percent, maybe 3 percent a couple of years ago of worldwide sales, they were about 12 percent of Toyota's sales in recent years. And so in terms of foreseeing how the electric vehicle market could grow, I could certainly imagine that with several automakers following with determination on electric vehicles maybe you can see, maybe you know 10-15 years from day one when they sell their first, first generation model. Maybe some of them can get to that 10 percent mark perhaps more if they're luxury makers.

Chris Nelder: Right. So when we're talking about market share we really ought to segment the market and then talk about it that way.

Matthew Klippenstein: Yeah, it's a bit like talking about say the cost of oil versus a marginal barrel cost. The latter gives you a lot more nuance and perspective as to how to see the rest of the data.

Chris Nelder: Yeah, OK that's fair. You know I don't think many people realize that Norway actually has the highest share of EV sales of any country on Earth. Their EVs take more than a fifth of the market and have for several years now, and this is primarily as I understand it because Norway's very high vehicle taxes are waived for plug-in electric vehicles which makes them effectively cheaper than many ICE alternatives. Now you noted in an article two years ago that EVs had reached 1 percent of the total fleet of passenger cars in Norway and speculated that they might reach 2 percent by January of this year. So did they?

Matthew Klippenstein: They hit 3 percent in December. So yeah they kind of overachieved on that. Admittedly Norway is a rare case where everything comes together properly. But perhaps speaking to the total cost of ownership figures that you noted, there will certainly be a wave one expects where there will be a much faster say S-curve kind of an adoption for a plug in electric vehicles. I imagine it's a sticker price parity issue where humans aren't really good at discounting and so on so forth. But as soon as the cost upfront begins to approach the comparable internal combustion vehicle I could imagine that many many people would start to vote with their dollar.

Chris Nelder: Yeah, that's an important observation there, working with the discount rate was an important part of the cost parity analysis that I did a couple of years ago for Maryland and it's not something that most people understand unfortunately. So last year you reported on a 2015 study by researchers at Simon Fraser University in Vancouver which surveyed mainstream buyers in 2013 and found that about a third of them would be willing to buy a plug-in hybrid but that when you considered the lack of a home charger, the lack of a selection of EVs or the certain models that they liked at dealerships, the lack of an option with their preferred manufacturer if they're loyal to a particular brand and a general lack of familiarity with EVs on the whole actually took that number of people who would be willing to buy an EV all the way down to 1 percent, since EVs have become significantly more common now over the last couple years, do you think those numbers have changed and is the potential market finally growing?

Matthew Klippenstein: I am absolutely sure those numbers have increased radically and rapidly, and the SFU study is intended to be a part of a longitudinal study spanning years and decades so it will be so very cool for a data feind like myself, like yourself and probably for many listeners to see how this latent demand evolves from 30 percent back in 2013, you know the Tesla Model S had just come out to the figure it is now I would be surprised if it wasn't about 50 percent just in terms of random conversations they have with colleagues, coworkers, friends and so on so forth. I think that in terms of bringing the sales up, there will be as I noted earlier, that question of home charging access. In British Columbia we have perhaps a third of residents live in multi-unit housing which means it may not always be possible to do your own thing without asking others permission with respect to a battery, but looking at the U.S. Census data for example it would seem like only about 20 percent of people perhaps live in buildings with five or more dwellings. And if you're in townhouses or single unit housing then that's almost an exact Pareto, the first 80 percent take 20 percent of the effort in terms of hey you know I've got a garage or I've got a parking spot, I should be able to wire myself up to do some charging at home.

Chris Nelder: Yeah. And among the various initiatives that I'm seeing now coming out of various public utility commissions they're really focusing in on that specific issue of having chargers available at multi-unit dwellings.

Matthew Klippenstein: In my home province of British Columbia the government did recently announce a rebate of up to $4,500, up to 75 percent I think of the cost of charges for multi-unit dwellings in the realization that yes foresight now will be important to ensure that we don't lose those people who want to buy a plug-in hybrid electric vehicle but are worried about having to petition fellow condo owners to have the permission to do so. So I think it's a very good step and hopefully we'll see that then proportion of people constrained by home charging decreases over time.

Chris Nelder: Yeah. In September 2014 you published a little study showing that when a $5,000 subsidy for EVs expired in British Columbia sales fell relative to other Canadian provinces where subsidies were still in force, and you speculated that B.C. might have sold twice as many EVs if the subsidy had remained in place, so given that all the major EV manufacturers including Tesla are now looking to introduce vehicles in the 30 to 35 thousand dollar range, competitive with conventional ICE vehicles, how much longer do you think subsidies will be needed to sustain EV sales?

Matthew Klippenstein: Sure. So just before heading to the answer on that question, just as a side note, British Columbia did recently return the incentives. And if we lump the Volt and Leaf numbers together the sales rose back to their earlier proportion relative to these other two provinces Ontario and Quebec.

Chris Nelder: Well that's interesting in and of itself.

Matthew Klippenstein: Yes, so it gives us this sort of demand elasticity of what does $5000 do for the number of people who are buying these vehicles. And these data sets, I think there's like 13 months here, 13 months without, and then like 8 months with the incentives back, and then more interestingly especially on the data side, British Columbia just this past month announced that electric vehicle owners would get access to HOV lanes. So I'm hoping that in perhaps six months time we'll be able to tease out at least for British Columbia what is the value that $5000 equals in terms of electric vehicle sales and what is the incremental or additional value you get from HOV lane access. I'm sure that wouldn't necessarily apply elsewhere but it would be so exciting to see just what the ratio of those drivers is.

Chris Nelder: Absolutely. I mean I would be really interesting to be able to just have a very discrete number for each one of those things.

Matthew Klippenstein: Getting to your question now, I don't think that subsidies will be needed to sustain electric vehicle sales as we get the pure battery electric vehicles with the 200 mile, 300 kilometer range in the approximate price parity with your midrange combustion vehicle. At the same time, I'm not trying to say that we shouldn't have subsidies, I think societies do have the have the right to try to correct for market distortions if they so choose. But I do think that having a three in front of the car sticker price as opposed to a four, I think it is a psychological enabler for many purchasers.

Chris Nelder: Yeah, I think you're right about that. I mean it's pretty clear that it needs to be in that range if it's going to work. So in sharp contrast to B.C. you detailed in an article you wrote in February that a quite generous program of subsidies is available in Ontario, that province is now going to pay rebates that scale with the size of the battery and the cost of the car from $6,000 rebate for a five kilowatt hour battery to $10,000 rebate for a 16 hour battery. And then there's additional incentives on top of that, so the incentive for the new Tesla Model 3 would actually be $14,000 which would basically cut the cost of the car in half, or close to it if you went for a base model. So this is a lot of money where is it coming from to pay these rebates in Ontario, and what leads Ontario to be so progressive about supporting EVs while B.C. is offering so little?

Matthew Klippenstein: Yeah that's just as a quick note, thanks to the Canadian peso as we like to refer to it over here, the $35,000 Tesla could be somewhere approaching $50,000 in Canadian terms. Still $14,000 on that you're easily looking at something in the one quarter the price, 25-30 percent range. So it would definitely help and it would definitely position the Tesla in that sweet spot that we think is necessary for expansive quick adoption. In terms of Ontario's budgetary priorities, I can't speak for the leadership of the province but the Premier was the transport minister at the time the initial rebates were allotted in Ontario several years ago. And so she may have a particular interest in the file. Ontario has decided, I think the governing party did make a very determined decision to embrace clean energy, clean technology as its path for economic growth. Closing its coal plants did have the impact emissions wise of something on the order of a $100 to $130 per tonne carbon tax. And if we very roughly ballpark the kinds of emissions reductions you might expect you're probably you know somewhat modestly above that in terms of avoided tons of CO2 emissions. But then you have fewer dollars leaving the provincial borders for oil from other provinces and elsewhere. I'm delighted that they've made that a priority and I'm modest enough to realise they can't go the full Norway.

Chris Nelder: The full Norway. Yeah yeah. OK. So basically it's the've just got some very progressive leadership there in Ontario.

Matthew Klippenstein: Yes, I think both Ontario and the new Canadian federal government seem to have decided that they want to try to do what they think is the right thing. They have decided to do what they think is the right thing and not obsess over annual sort of budgetary fluctuations, which is kind of admirable at least if you happen to agree with their determined priorities.

Chris Nelder: So, for at least a decade now I've heard various market watchers worry that there might not be sufficient lithium supplies to build a very large number of electric vehicles as hoped. But that concern seems a bit muted now. And I think it's because people are realizing there's just more lithium supply at an acceptable price than we once thought. In a recent Bloomberg article which we'll link to in the show notes Liam Denning noted that a Nissan Leaf with a 24 kilowatt hour battery contains the equivalent of 45 pounds of lithium carbonate, and that at that average price last year of $6,800 per ton the Leaf's lithium cost is only about $140 bucks or half a percent of the sticker price of the car. So he said that the cheapest supplies today in which lithium was extracted from evaporated seawater in the giant salt flats of Chile's Atacama Desert are less than a half of that at $2,000 to $3,000 dollars per ton and that prices could rise to $9,000 a ton next year as EV sales tick up. So all in all, we've got a ripe opportunity for investors it seems but maybe not a material shortage that would inhibit the deployment of EVs. Does that match up with what your understanding is?

Matthew Klippenstein: Yeah, I would categorize concerns about the availability of lithium as the kind of 10-20 year from now problems that we can worry about if we reach those bridges. When I was growing up I would occasionally hear people saying well there's not enough copper in the world to give a landline to everyone in China. And lithium is for the time being and for the foreseeable future it will be the dominant cation in battery technology. But I would not foresee this being some sort of a material shortage issue, it's one of the most abundant elements in the Earth's crust for crying out loud.

Chris Nelder: Sounds like it's relatively affordable if you consider it as a percentage of the vehicle's cost.

Matthew Klippenstein: Oh absolutely. If it came to a price war I'm sure that the automakers could well afford to squeeze out other users who might be more flexible in terms of finding substitute materials. I would add perhaps one note that the availability of reasonably large quantities of lithium does appear to be tight. Some friends who are working on lithium ion batteries themselves have reported difficulties finding a decent supply because LG and Samsung have wrapped up all the vendors that they've approached with long-term supply contracts, so again one of these investor opportunities, not so much worry and depression slash psychologist kind of a business opportunity.

Chris Nelder: It's good to know. Let's talk about Toyota. Toyota was the first car manufacturer to launch a successful gasoline hybrid vehicle and the Prius quickly became the category leader. But the company has now lagged behind other manufacturers in the pure EV category. Why do you think that is?

Matthew Klippenstein: I think the hybrid leadership aspect, and being the leader in hybrids but not in battery electric vehicles, you could think of that as the innovator's dilemma kind of situation where Toyota has done so well with hybrids that why would it divert attention and time towards a battery technology. The other aspect is that Toyota is absolutely in love with fuel cells. I can imagine perhaps a few reasons why that might be the case. But in doing so they've made quite strong and inflammatory in the mind of the electric vehicle community, statements about their preference for fuel cells. So those two reasons I would imagine would explain their laggard status.

Chris Nelder: Interesting. Because something also that I wanted to talk about, you know up until recently the hydrogen fuel cell vehicle was considered to be the big next alternative to ICE vehicles. That's all that we ever heard about from elected officials. I'm sure you remember California Governor Arnold Schwarzenegger's hydrogen highway plan and President George W. Bush's hydrogen economy initiative. And you know everybody's talking about fuel cell vehicles. Nobody talked about EVs until just well really probably until Tesla came around. Why do you think hydrogen fuel cells were so much more heavily favored by officials and policy makers and and Toyota for that matter. And why have EVs actually turned out to be more successful in the market?

Matthew Klippenstein: I think and this is interesting to me because I worked at a hydrogen fuel cell manufacturer during those those heady years when one year's worth of stock options erased my student debt and I was just happy enough to have that off my back. I think the appeal of hydrogen vehicles to lawmakers at the time and also to Toyota today relates to the fact that as long as there's infrastructure there's no behavioral change required. It is often easy to assume that what you're willing to undergo in terms of behavior change that others will easily follow. Perhaps the best example I can give from my personal life is you know I was a vegetarian for a number of years. I married a non-vegetarian. I am no longer a vegetarian and people would ask me about it and I'd say well it's not really a big deal you just you know just eat these things. Not these other things. I wasn't vegan.

Chris Nelder: Was it the bacon. Was it the bacon that did it?

Matthew Klippenstein: It wasn't the bacon actually. Curiously enough I've lost my taste for red meat. I've tried to eat like really nice steaks and stuff like that and I can eat a few bites and then somehow I've lost my taste for it. It is very bizarre.

Chris Nelder: Well from what I hear bacon is the gateway of meat.

Matthew Klippenstein: I'm sure it is. I am. I'm sure it is. They make sure that tofu based imitation sausage and bacon has that kind of a fatty smell. That's for sure. But anyway you often have advocates of a particular endeavor saying hey it's totally easy to change. And often they're surprised that other people won't change. In the case of electric vehicles I think it's pretty easy given the, as you mentioned the running costs advantages of simply plugging your car in at night as opposed to occasionally going to filling station or if you have a plug-in hybrid vehicle, you know plugging in at night and then very rarely going to a gasoline stand.

Chris Nelder: So you feel it was really about behavioral modifications that would be required to drive a vehicle with a shorter range?

Matthew Klippenstein: That would explain why the advisers to Bush and Schwarzenegger would have embraced hydrogen because it's relatively rare for consumers to en masse change their preferences and behavior choice. The iPhone with without the keyboard without the physical keyboard is the perfect example of a case where people did transition to a different behavior. I would imagine that with electric vehicles people will also transition to that other behavior. But nowadays I think that there could be other reasons for Toyota's preference for fuel cells. One of them relating to the fact that for example Japan is an island, and the grid is actually a network of sort of little grid fiefdoms and there could be historical reasons for Japan not wanting to tie itself too closely to China or South Korea and vice versa. So for an energy importer then I could imagine that having the ability to store massive tanks of hydrogen however inefficient that is, the piece of mind that it would give would allow Japanese engineers and planners to think hey hydrogen way to go. Broadly speaking I don't think those circumstances arise in the rest of the world. So while I do think that there are niches and areas where hydrogen could be and I guess eventually will be a supporting role player to battery electric vehicles. It's hard to see that being the dominant case, seeing as they're being outsold by a factor of like a thousand or something like that.

Chris Nelder: But by the same token the infrastructure to deliver electricity to any place where a vehicle might be has already been in place for a very long time, and the infrastructure to deliver well probably natural gas to some place where there might have to be installed a reformer that would then give you a hydrogen supply that you could use to charge up your vehicle is not nearly as ubiquitous as electricity so basically you're making the argument that at least in the minds of policymakers the behavioral advantage was so much bigger than the fact that you'd have to actually build all this additional infrastructure for refueling.

Matthew Klippenstein: That and the fact that 12 years ago, 15 years ago, the likelihood of a battery electric vehicle having the range that we see today would have probably been the other factor there. So if you're thinking of the EV One I mean I would probably have bought the vehicle if my wife would have let me but it had I think what 60 to 80 miles of range, it didn't use lithium ion technology. Lithium ion batteries were at the time phenomenally expensive, thanks to learning curve effects they're far far cheaper now. I think the behavior change of accepting a vehicle with less than 100 miles range or possibly less than 100 mile range is probably the other factor that would have said hey if we actually scale this hydrogen stuff you get the same range and you just fuel up at a station somehow magically oil companies will see the light and install you know something to expand their markets presto. As it turns out it's as is so often the case slow and steady wins the race. So these slow steady improvements that lithium ion batteries have had over the years combined with the ubiquitous charging infrastructure that just exists everywhere in society have kind of pulled far ahead of the moonshot hydrogen vision that some some espoused.

Chris Nelder: Yeah and it really speaks to how much progress we've actually managed to make in battery costs in just a decade. Pretty remarkable actually.

Matthew Klippenstein: Yes yes it is. I would note that Toyota would probably argue that it's seeing faster fuel cell production cost declines. That's partly a factor of the fact that fuel cells are such a small market that for example the Mirai 700 units probably roughly doubled the size of the entire fuel cell industry in terms of square meters of PEM fuel cells last year. And that's if they actually hit those 700 units. But yes for many reasons the lithium ion has become the dominant paradigm.

Chris Nelder: Do you think there's still a role for hydrogen vehicles?

Matthew Klippenstein: I do and I'm sure that people will say oh he used to work in hydrogen, so he's sentimental or something of that sort. I do think that until you get building stock turnover, seeing as you're building stock tends to be the longest lasting stock in society lasting 30-50 years something of that sort. It would take a very long time to go from the point where all new buildings have charger infrastructure available for every person, parkings in multi-unit dwellings to the point where everyone would have the ability to charge up at home. For that reason, I think that there's a medium term opportunity for fuel cells not just in the heavy trucking side where the weight of a battery might prove somewhat difficult to justify for an 18 wheeler, but also in the multi-unit housing segment where in Norway for example this will be a very interesting thing to watch is that will there be a point where Norwegian buildings which generally don't have underground parking lots, will there be a point where the growth of the electric vehicle market starts to get constrained by the ability of people to secure on street parking with chargers. Again that could be many years away it's not really worth worrying about but that's the niche that I can see that fuel cells would dominate. That plus the fact that people have any number of reasons for buying vehicles and I could imagine that some people who just don't like Elon Musk for example might decide just to buy a fuel cell just to spite him.

Chris Nelder: OK. Well it seems to me that that still leaves open the possibility at least for fuel cells that there might be a real market in like fleet vehicles, delivery vehicles or other sorts of fleet vehicles where you've got total control over when they're used, how they're used, how far they go, where they refuel, where they all park at night. That kind of thing. But then at the same time I see a lot of opportunity for EVs in that very same fleet vehicle market. What are your thoughts about that?

Matthew Klippenstein: Yeah so again I'd just like to emphasize I'm not trying to secretly say that fuel cells will will stage an improbable come from behind victory or anything of that sort. But I would imagine that just as every driver is unique, and so I would imagine there would be use cases where fuel cells could fill a niche. One example is the fact that Wal-Mart and a variety of other big box retailers are using a fuel cell powered forklifts at their warehouses. And the reason for that is that the space it takes to maintain a battery bay might be perhaps 10 percent of your floor space, the space required to put in some refueling is maybe 2 percent. So effectively you can make each of your warehouses 8 percent bigger, sum of that effect. And that means you have far less to spend in terms of capital costs when you do expansion. I could imagine that for a Wal-Mart, for a Home Depot, for another big box retailer, perhaps even an Amazon, that if you had hydrogen stored on site at your distribution center then your truck which is delivering from your distribution center to your store, which is probably not all that different, you could refuel that using the same hydrogen, you could kind of take advantage of the infrastructure there, and then at perhaps the store, if the fuel cells were able to get to the cost where the stores could use them for pallet jacks and whatnot. In the case I guess where time equals money then I could imagine that the increased cost of the fuel and the infrastructure could be offset by the perceived or real increase in the productivity gain. So I would see that that would be a way that fuel cells could emerge in corporate fleets where there's already some sort of advantage that they enjoy. Certainly for most corporate company fleets, electric vehicles are an absolute no brainer. You rarely drive long distances, the vehicles can be charged. Nice slow rates overnight. You might not even need a Level 2 charger for that matter because you can take advantage of the weekend and certainly for most corporate fleets, organizational fleets, I could imagine that electric vehicles would have an easy win.

Chris Nelder: You know I've been thinking a lot about the pace of change in technology and in consumer devices, you know if you think about how rapidly the cell phone market has evolved, how rapidly the entertainment market has evolved from going from VHS tapes, to DVDs, to on-demand stuff streaming over the Internet, Netflix and so on. If you think about the pace of innovation of just sort of other consumer appliances, washing machines and so on, this stuff can actually all change pretty darn quickly if you've got a good value proposition. But it seems like cars just don't change that quickly. I mean it's really been a very slow process to get consumers to think about giving up their ICE vehicles and switching to EVs, the design of the car hasn't changed very much, the way it works, the way that they work together. I mean even this really promising concept of autonomous vehicles and all the things that you can do with that seems like it's got a really slow tough path ahead of it to get traction. Why do you think cars change so much more slowly than other consumer devices?

Matthew Klippenstein: For that I would have to riff in biology and reference Cleaver's Law, might be mispronouncing, might be 'Kleiber's' since the guy was Swiss I think. And what Kleiber noticed is that the larger a mammal gets the slower its heart rate is. And so you have these phenomenon where you know a mouse might have like a couple year lifespan whereas the gestation period for a whale or an elephant is a year or more. And unlike smartphones, unlike most consumer electronics, cars are an order of magnitude more expensive, possibly more. And so I think there's this similar effect where everything slows down, the cost of development of a vehicle is easily in the billions of dollars. The timeframes are long. You typically have a five or six year models or refresh rate or redesign rate. And so relative to so many things that we experience now with electronics, there's an almost geological timeframe that the automotive sector seems to go through. So I think that is ultimately why I think that if cars cost a thousand dollars each then well people would buy more of them more frequently and you'd have the kinds of profits that carmakers could then plow into radically new designs, radically improve specs and so on so forth. With the auto industry as it is though with vehicles probably costing on average $30,000 or more with a fleet average age of about 10-11 years which typically means your average car is going be on the road for maybe 20 years. Then time slows down. You know it's kind of an Einsteinian thing perhaps. And so as much as we would love to see change, then there is a bit of patience necessary or an understanding. It's good to be impatient but there's an understanding necessary that the amount of change is going to be more frustrating to us advocates and enthusiasts than we'd like. If we count in terms of car generations though, I think that gives a nicer perspective in that we have say Nissan for example have this Leaf come out. They then put together an electric version of their delivery vehicle. They're now rumored to be doing a crossover as well as next generation Leaf. Tesla is moving forward generationally with the S/X and then onto the Model 3. And when we think of it in terms of these generations then the further along you get in the time line the more vehicles the automotive company is able to slot that technology into. And thus the more sales you can get the more ubiquitous you can get electric vehicle technology. So yeah it's a thing which tests one's patience and we shouldn't be too patient. But one must understand the rate of change in an industry where the product is just so expensive.

Chris Nelder: You know it's a really interesting thought. Hadn't really thought about it that way but it could very well be that as we proceed into this energy transition broadly speaking that we should expect the large systems to change slowly. Well, this has been a really interesting conversation. Thank you Matthew.

Matthew Klippenstein: You're very welcome. Thank you.

Chris Nelder: We'll have to have you back on the show as the market evolves and give us a little update on what you think things look like a couple of years from now.

Matthew Klippenstein: I would love to.