Monday, January 07, 2013

(BN) Natural Gas Vies With Electric Hybrids in GE Auto Fleet

(Bloomberg) General Electric Co. (GE)'s commitment to buy 25,000 electric autos, promoted as the largest ever when it was announced more than two years ago, is taking a detour.

The obstacle: Customers of GE's corporate fleet-services unit wanted more options, said Deb Frodl, the division's chief strategy officer. So GE has included natural gas-powered pickups and propane-fueled vehicles among about 11,000 autos -- mostly plug-in hybrids and electric cars -- already acquired from makers including Ford Motor Co. (F) and General Motors Co. (GM)

The shift at GE, whose 2010 pledge was hailed as a catalyst for bulk buying of electric vehicles, shows how businesses are struggling to balance greater fuel efficiency and reduced emissions against higher sticker prices, limited range and lingering doubts about still-infant technology.

"Many companies say they want to think about what their reliance on oil is, but there's a disconnect we've been tracking for a couple of years now" between chief executive officers' goals and their purchasing managers' decisions, said Scott Sarazen, global cleantech practice leader at Ernst & Young.

GE is a large purchaser of fleet vehicles -- it owns 30,000 for its own employees and manages about 1.4 million for lease customers -- and its very name and place in U.S. history made its electric-autos promise particularly notable. The plan's new scope underscores the competition those vehicles face from alternative fuels as well as traditional gasoline engines.

Volt Selection

GE said in November 2010 the Chevrolet Volt would be among 12,000 GM electric vehicles bought by 2015. To meet that target, GM will have to offer new models in the coming years, Frodl said in an interview. The Volt's battery fire days after a crash test wasn't behind the decision to widen GE's approach to include more alternative-fuel autos, Frodl said.

"It's the demand of our customers," she said. "There are so many technologies out there and our customers need a variety of technologies in their fleet today, not just one. We're not picking winners and losers."

CEO Jeffrey Immelt unveiled GE's car-buying plans, with the Volt the only model cited by name, at about the same time the car reached consumers. The wheels on the world's first so-called extended-range hybrid are turned by an electric motor drawing current from a battery that can be recharged at an outlet or on- the-go with a generator running off a gasoline engine.

Retail sales of the four-door sedan ran so slowly to start 2012 that GM cut its global delivery goal by as much as 42 percent, to 35,000. U.S. shipments totaled 23,461.

Fleet Value

While fleet deals are discounted, they are profitable for automakers. Those sales also may help speed consumer acceptance of the vehicles, said Alan Baum, principal of industry researcher Baum & Associates in West Bloomfield, Michigan.

Employees satisfied with their cars are likely to tell friends and family about their experiences, providing a marketing boost, Baum said in a telephone interview.

Companies bought about 8,500 plug-in hybrid autos such as the Volt in 2012 and 18,000 gasoline-electric hybrids like the Prius, said Dave Hurst, an analyst at Pike Research in Berkley, Michigan. That pales in comparison with the roughly 2.7 million vehicles purchased for fleets in 2012, he said.

"Prices have to come down," Hurst said by phone. "We're seeing the same thing on the fleet side as we're seeing with retail. When you start looking at the total cost of ownership, the plug-in hybrids are still more expensive than a battery- electric vehicle or one with a small gasoline engine."

List Prices

GM's suggested retail price for the Volt is $39,145, according to Chevrolet's website, and a 2012 McKinsey & Co. study estimated that the battery itself costs about $8,000. Nissan Motor Co. (7201)'s battery-powered Leaf lists for $35,200, while Toyota Motor Corp. (7203)'s plug-in Prius retails for $32,000, compared with $24,200 for the hybrid's base model.

Diversifying GE's program with vehicles burning natural gas makes sense with the price of that fuel at $3.29 per million British thermal units on Jan. 4, about 76 percent less than the July 2008 record of $13.58, Ernst & Young's Sarazen said.

"You can't have this conversation without talking about the economics of natural gas," he said in a phone interview. "Compared to a battery pack when the fuel is this cheap, it definitely impacts choices."

GE is testing 300 Ford F-250 medium-duty pickups that use compressed natural gas, Frodl said. It's also buying 2,000 of the automaker's plug-in C-Max Energi wagon, which lists for $32,950, to complement the 3,000 Volts it has ordered. GE has acquired an additional 6,000 autos, mostly plug-in hybrids and electric vehicles, for leasing customers, a spokeswoman, Lindsay Lorraine, said in an e-mail.

Charging Stations

Ford agreed to market GE's electric-car charging stations and natural gas fueling infrastructure to commercial customers as part of the agreement, according to a Nov. 20 GE statement. GE signed a two-year research agreement with Nissan to study integrating electric vehicles into the power grid and their impact on energy demand.

GE envisions its 25,000 electric and alternative-fuel vehicles flowing through two channels: 10,000 would be spread among its 65,000 fleet customers, and the rest would go to help the company replace half its of its own 30,000 corporate autos.

GE employees driving its fleet vehicles average about 100 miles (161 kilometers) a day, said Frodl, the company executive. While that's within the reach of the Volt and C-Max, it's beyond the range of the Leaf, which the U.S. Environmental Protection Agency says averages 73 miles on a charge.

Driving Range

The Volt's range is 380 miles, including 38 miles in electric-only mode, while the C-Max averages 620 miles, with 21 miles in electric mode, according to the EPA.

Wider acceptance of such vehicles may also expand the market for GE's charging equipment, Baum said. That may help boost retail sales by easing consumers' concern that they risk exhausting an electric car's battery while on the road, he said.

"If it somehow affects the density of charging stations and get into the psyche of the buyer who's kind of on the fence, but suffering from a touch of range anxiety, then it can help on a broader level," Baum said.

Most of GE's C-Maxes will be deployed in its fleet by February, Frodl said. GE is conducting pilot programs with about 20 of its fleet-services customers testing handfuls of Volts, including utility companies, food and beverage manufacturers and pharmaceutical firms, Frodl said. She declined to name participants, citing non-disclosure agreements.

A "vehicle innovation center" in Minneapolis serves as a hub for demonstrating the vehicles for potential users, she said.

"We're delighted now that more automotive manufacturers come to market with new products for us to deploy," Frodl said. "We've always globally multi-sourced the fleet. It was never the intention to be with just one automotive manufacturer."

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