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www.ricardo.com

Ricardo plc 2010RD.10/194705.3

xEV Benchmarking and AssessmentPrepared for McKinley Motors

Final Report

July 28, 2010


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2Ricardo plc 2010RD.10/194705.3

Agenda

OEM Benchmarking & Value Chain Analysis

Technology Roadmap

Scenarios & Demand Forecast

Interview Summaries


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3Ricardo plc 2010RD.10/194705.3

The OEM battery strategies mirror their cultural bias and view of xEV

market certaintyCurrent OEM xEV Battery Make / Buy Strategies

OEM Battery Strategy Benchmarking - Overview

OEM European OEM 1 European OEM 2 US OEM 2 Japanese OEM US OEM 2

Design

Vehicleintegration

In-house In-house In-house In-house In-house and JV

BMSControls

In-house In-house In-house In-house In-house

Pack Outsource or JVOutsource (NiMH)

Mixed (Li-ion)Outsource (NiMH)

Mixed (Li-ion)JV orOutsource JV

Cells Outsource or JV Outsource Outsource JV orOutsource JV

Manu

facturing

Vehicle/PT In-house Mixed In-house In-house In-house and JV

BMSHardware

Outsource Outsource Outsource JV orOutsource JV orOutsource

Pack OutsourceOutsourced (NiMH)

Mixed (Li-ion)Outsourced (NiMH)

Mixed (Li-ion)In-house JV

Cells Outsource Outsource Outsource JV orOutsource JV

Battery Strategy

Rationale

Efficient battery market

will develop

Minimize investment,

remain flexible

Prepare for Li-ion cell

commoditization

Leverage economies of

scale

Vertically integrated


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OEMs are pursuing a variety of commercial relationships with cellsuppliers and Tier 1's

OEM Battery Strategy Benchmarking - Overview

Source: Ricardo Analysis

OEM supply base relationships

1) Panasonic EV Energy has been renamed Primearth EV Energy after Toyota has taken a controlling share in the JV

OEM

JointVenture

Supplier

EV EnergyAESC

Development

US OEM 1s early investments inbattery makers Enerdel and Cobasys

bound them to outdated technology,now they seek to be cell agnostic

The 18-month development cycletimes of consumer electronicsrequires a culture of rapid innovationto remain competitive

Consumer cell makers can supportthe R&D overhead and infrastructurerequired to push Li-ion technologyforward

Consumer products battery makershave a proven track record indelivering production scale

economies which are key componentof anticipated future cost reductions

A cell-agnostic strategy provides anOEM opportunities to adapt touncertainties about form factor, cellchemistry, technology, and efficientmanufacturing

EU OEM 1 US OEM 1 US OEM 2 EU OEM 2 JP OEM


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EU OEM 2 battery strategy is driven around utilizing economies ofscale to drive down costs

EU OEM 2's Battery Strategy (to 2020)

OEM market view

Use BEVs to establish positivebrand identity

End product, not battery technologyis the differentiator; build scale thruglobal volumes generated by 3OEMs

Underlying thinking / rationale /motivation

Leap frog Japanese OEM by beingxEVs image leader

Local assembly of battery packs to

lower logistics costs & provide 2nd

life reprocessing centers

Potential evolution

Extend technology sharing to moreOEMs

EV proliferation and/or refocus on

plug-ins

Key element/features of OEM strategy

Leap frog, high volume EVs (also considering extended range EV)

Economies of scale

Global volumes (via technology sharing agreement)

Pack production capacity 20% to 30% over matching vehiclecapacity; extra battery capacity to supply other OEMs

Retain used battery pack ownership to yield second life revenue EU OEM 2 positioned as global xEV center of excellence; vertically

integrated in a typical keiretsu arrangement

Key actions underway in terms of value chain integration

EU OEM 2 deeply involved in battery engineering down to cell level;

battery JV (AESC) with NEC Tonkin EU OEM 2 EV integration proceeding, but slowly

EU OEM 2 to provide swappable battery EV to Project Better Place

Japan/US/UK BEV production. Local pack assembly by EU OEM 2

Ricardo's Interpretation

July 2010

OEM Battery Strategy Benchmarking


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7Ricardo plc 2010RD.10/194705.3

US OEM 1's prior experience with non-consumer product batteryventures has shaped their current strategy to be cell agnostic

US OEM 1 Battery Strategy (to 2020) Ricardo's Interpretation

OEM market view

Cell commoditization isinevitable

Moonshot product needed torebuild leadership

Underlying rationale / motivation Battery integration is a product

differentiator

Enerdel and Cobasysexperience made OEM wary ofequity investments

Potential evolution US OEM 1 willing to share cells

with other OEMs to improvescale economies

Move from image building tocommercially viable xEVs

Key element/features of OEM strategy

High visibility EREV drives strategy to internalize core competencies(BMS and pack integration)

History of investments in Enerdel and Cobasys, now looking to avoidlong term commitment to specific cell chemistry

Li-ion battery packs for EREV, PHEV, and some future US OEM 1hybrids assembled in owned US manufacturing site using LG Chemand other suppliers cells

Key actions underway in terms of value chain integration

Us OEM 1 invested $31 million in 63,000 sq. ft. battery laboratory totest battery and cell performance and abuse tolerance

Local battery pack assembly driven by operational considerations andfunding availability

OEM auditioning new cells to develop a bullpen of potential suppliers

LG Chem plant under construction has higher capacity than PHEVbattery plant can consume

July 2010



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8Ricardo plc 2010RD.10/194705.3

EU OEM 1s battery hedging strategy reflects reluctance towardxEVs and belief that technology and capabilities can be acquired

EU OEM 1 Battery Strategy (to 2020) Ricardo's Interpretation

OEM market view xEVs will not represent asignificant share of the market inthe short term but are animportant future element

Diesels are better carbon

reduction technology in the nearterm (Euro-centric)

Underlying thinking / rationale /motivation

Fast follower electrification

The capabilities and technologies

can be acquired Ambitious goal to produce the

electric car for everyone

Potential evolution

If xEVs become important will belooking to acquire competitivetechnology

Key element/features of OEM strategy "We are witnessing an electro-hype Electric cars will have a global

market share of 1 to 1.5% in 2020. Johan Euro July 2009

"We aim to boost the share of e-vehicles in our annual sales to 3percent by 2018. In urban centers, this share could be a lot higher. -CEO Johan Euro, July 2010

Plans to introduce full electric versions of minicar, compact and the sedan in the United Statesby 2013.

Plans to sell the gasoline-electric hybrid version of its crossover large premium SUV in the USlater this year; this version is already on sale in Europe.

A hybrid version of the sedan is due in 2012

Batteries to be manufactured by suppliers

Key actions under way in terms of value chain integration

Recruited ex-Tesla CEO to run their battery research lab

Alliance with Sanyo to supply xEV batteries made in Japan

Alliance with BYD for Li-ion batteries from China

Varta JV in Germany to develop large Li-ion batteries

July 2010



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US OEM 2s strategy to make HEVs a core business while hedging onPHEVs / BEVs mirrors the project recommendation

US OEM 2 Battery Strategy (to 2020) Ricardo's Interpretation

OEM market view Li-ion cells are a commodity

HEVs will be profitable coreproducts before 2020

OEM xEVs are powertrainderivatives of ICE vehicles

Flexible assembly is a hedgefor uncertain demand; nichevehicles are outsourced

Underlying rationale / motivation

Minimize OEM investment byleveraging government, Tier 1s

OEM value add in internalengineering for P/HEVs

Key element/features of OEM strategy Developing HEV and PHEV and battery internal core

competencies while utilizing partners for niche (BEV) vehicles

2020 forecast sales mix 7 - 18% Hybrid, 2 - 6% PHEV, and 0.5 2.5% BEV

Michigan Assembly Plant will run ICE, BEV, HEV, and PHEV C-

car on a single line Key actions underway in terms of value chain integration

Building capability to engineer HEVs and PHEVs internally

BEV outsourced Azure Dynamics (integration, assembly) andcontain JC Saft designed/assembled battery packs

In-sourcing electric transaxle and Li-ion pack assembly to UAWplants for HEVs "[Labor agreements require OEM] to provide jobsto the surplus labor that we have VP Marketing

Still working with JC-Saft, Sanyo, Compact Power, and otherbattery makers for future cells



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Agenda


Technology Roadmap


Interview Summaries


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11Ricardo plc 2010RD.10/194705.3

EV 5k, Anderman

PHEV High, DOE

EV 50k, Anderman

PHEV 100k, ANL

PHEV High, TiaxPHEV/EV Time, Avicenne

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Year of Production

PackSpecific

Cost($/kwhr)

Ricardo estimates pack levels costs will fall to ~$450/kwhr forPHEVs and ~$375/kwhr for EVs in 2020

Technology Roadmapping

Pack Specific Cost Projections PHEV / EV's (Li-ion)

CommercialgradeLi-ion

Sources: Ricardo Analysis, Anderman "Can Li-ion Batteries Support the Proliferation of Plug-in and Electric Vehicles? Status and prospects" from AABC 2010, Avicenne "Present and Future MarketSituations for Batteries" from 2nd International Congress Advanced Battery Technologies 2009, DoE "Annual Merti Review - Energy Storage R&D and ARRA Overview" from DoE Annual Merit Review,June 2010, TIAX, LLC "PHEV Battery Cost Assessment" from DoE Annual Merit Review, June 2010, ANL "Factors Determining the Manufacturing Costs of Lithium Ion Batteries for PHEVs" from EVS24,May 2009, IHS Global Insight "Advanced Automotive Energy Storage Report", McKinsey "Electrifying cars: How three industries will evolve" from AABC, 2010

PHEV/EVHISGIPHEV/EVMcKinsey

PHEV 10 USABC Goal

PHEV 40 USABC Goal

Current costestimates vary widely

based onassumptions used

Ricardo PHEV Estimate, 100k~$450/kwhr

Ricardo EV Estimate, 100k~$375/kwhr

Commercial grade Lio-ionbatteries expected tocontinue historical 5%YoY reduction trend

Ricardo expectsautomotive Li-ion

batteries to follow thecommercial battery cost

reduction trend withoffsets for technology

and pack costs

IndustryTargets


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12Ricardo plc 2010RD.10/194705.3

Ricardo projects Li-ion HEV pack level costs will fall below NiMH in

the 2018 time frame, reaching ~$15/kw in 2020

NiMH,Deutsche Bank

DB (LiFe) Li-ion,100k, ANL

DB (NCA, LMO/LTO, LMO/C)

NiMH, Ricardo internal data

$0

$10

$20

$30

$40

$50

$60

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Year of Production

PackSpecific

Cost($/kw)


NiMH,Avicenne

USABC HEV Goal

Pack Specific Cost Projections HEV (NiMH & Li-ion)

Source: Ricardo Analysis, Avicenne "Present and Future Market Situations for Batteries" from 2nd International Congress Advanced Battery Technologies2009, ANL "Factors Determining the Manufacturing Costs of Lithium Ion Batteries for PHEVs" from EVS24, May 2009, Deutsche Bank "North America,Consumer Auto's & Auto Parts" March 2010

Ricardo Li-Ion HEV Estimate~$15/kW in 2020

IndustryTargets

Ricardo Assumptions

Volume production (> 100k/year) 40% cost premium for power cell relative to EV cell Power cell in 2010 has 30 PE 0.5 PE/year improvement due to technology

improvement for no cost In 2010, EV cell costs represent 80% of pack cost In 2020, EV cell costs represent 60% of pack costs In 2010, HEV cell costs represent 50% of pack costs In 2020, HEV cell costs represent 45% of pack costs

Current data onHEV battery packs(specifically NiMh)

is not widelyavailable

Based in extrapolation ofAvicenne and Ricardo cost

projections we expect Li-ionto overtake NiMH cost in the2018 time frame


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Several key factors contribute to the complex, rapidly evolvingnature of the automotive battery technology landscape

RapidlyChanging CellTechnologies

There are 50+ press releases per week announcing technology advancements

Highly sensitive community focusing on protecting IP and know how

Difficult for OEMs to obtain clear view of technology landscape

OEMs implement robust evaluation and development process prior to committing to productionprogram

Many new battery technologies will need to undergo the same development process that currenttechnology is going through. Likely to slow development times down

Relatively small number of suppliers that can meet quality standards for a production program

Manufacturing quality is a key element for battery pack suppliers, but generally not captured on specsheets

New technologies generally presents new manufacturing process issues to be addressed which takestime, thus new technologies must show significant promise in order to be pursued

Long LeadTimes

Development times are 2-3 years from button cell to cell, and 2-3 years from cell to battery pack

Button cells in development now, have the potential of being in production battery packs in 5 years

With 10 year time frame, one and no more than two generations of technologies are possible

LittleStandardization

Very little standardization in large format automotive battery cell or pack designs

Very sensitive subject to battery cell suppliers as this is a step towards commoditization.

Currently industry has a wide range of cell capacities, cell P/E ratio, cell form factor, and cell mechanicalsize

Industry BestPractices not

Defined

Very little industry consensus on best practices for designing a battery pack

Ricardo has reviewed ~10 battery pack designs, and there is little in common across the packs

Modularity currently limited to unit cell concepts and some modules

It is unclear if lack of commonality is due to lack of industry experience or IP issues

Automotive Battery Technology Complicating Factors




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Industry has not yet converged on best practices related to cell andmodule designs; Multiple approaches will likely be taken

Source: Ricardo Analysis 2010 20202015

Li-ion CellTechnology

Milestones

ModuleConsiderations

2016-2020CAFE

2020+CAFE

2012CAFE

2012-2015CAFE

EU 130 g/km EU 120 g/km EU 95 g/km

DOE funding 1M PHEV Goal

NCA, LFP, NCM, LMS, LTO

Cylindrical Form Factor

Prismatic Form Factor

Pouch Form Factor

Advanced Electrolyte

Advanced Separator

Air cooled modules

Liquid cooled modules

Cell Size Standardization

Plastic Cell Mechanical Retention

Advanced Manufacturing

Collection of relatively well defined chemistries underdevelopment. Next generation of chemistries likely to be wellhidden and protected IP.

Cylindrical and prismatic form factors are both relatively wellaccepted in the industry. Industry likely to be cautious on use ofpouch form factor before it is proven. Installed manufacturing baselikely to result in continuation of all form factors.

Advanced Separator & Electrolyte development may be eitherrevolutionary or evolutionary; advancements may impact justperformance and/or safety.

Manufacturing cells based on coating technology may be replacedwith revolutionary methods either with current cell technology orconcurrent with the next generation chemistries.

Timing of establishment of standard cell sizes difficult to anticipate,but will be OEM priority as number of electrified vehicles increases

Air and liquid cooled modules likely to continue due to various packthermal design points and lack of consensus on criticality oftemperature on pack life. Only field experience will help mature.

Plastic cell mechanical retention likely to remain due to ability tomass produce and established practices. Methods of mechanical

retention likely to be area of IP.

Initial Battery Technology Roadmap (1/2)


Next Generation Chemistry


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Battery management system and pack hardware are likely to evolvewith cell technology, but converge more quickly


2010 20202015

Pack Hardware

Milestones

BatteryManagement

Systems

DOE funding 1M PHEV

Master Slave Architectures

Integrated Board Architectures

1st generation algorithms

2nd generation algorithms

Passive Charge Balancing

Active Charge Balancing

Stand alone Fans / contactors / shunts / disconnects etc.

Custom Pack hardware & component integration.

Master / slave architecture and single board solutions likely to beused in near term on case by case basis. Cost vs Performancetrade off likely to result in multiple approaches.

Fully Integrated specialist chipsCost reduction pressures & increased field experience will result inspecially design chips with integrated functions for BMS systems.Production volumes will be required to make this happen.

Field experience will enable improved SOC, SOH algorithms. More

advanced algorithms may be either software or hardware changes.

Improved energy efficiency demands will make active chargebalancing more appealing. Cost vs Performance trade offs maylimit use of active charging strategies.

Pack hardware likely to be heavily leveraged from industrialapplications and most likely to be commoditized first. With volume,custom pack hardware and integration of multiple components intosingle assembly is likely.

Initial Battery Technology Roadmap (2/2)

2016-2020CAFE

2020+CAFE

2012CAFE

2012-2015CAFE

EU 130 g/km EU 120 g/km EU 95 g/km



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Both NiMH and Li-ion performance and cost metrics improvedsignificantly during their first decade of significant sales

0%

50%

100%

150%

200%

250%

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Energy Density (W-hr/L)

Cost ($/kW-hr)

EnergyDensity andCost Trends

OverallPerformance/$

0%

50%

100%

150%

200%

250%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

0%

100%

200%

300%

400%

500%

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Energy Density (W-hr/L)

0%200%400%

600%800%

1000%1200%

1400%1600%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Historical Trend Analysis

NiMH Li-ion

Volumetric energy density improved nearly 100% duringthe same time that costs dropped by nearly 60%

Overall performance improved nearly 4 fold whenperformance per $ is evaluated

Much broader design space which adds complexity butalso increases opportunity

Costs for consumer grade cells continue to decline at5% to 10% per year

Price points for automotive cells are not well establisheddue to minimal production volumes

Price and performance comparisons across

manufacturers and chemistries are difficult due to lack ofstandardization


Source: Avicenne "Present and Future Market Situations for Batteries" presented at 2nd International CongressAdvanced Battery Technologies 2009


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Li-Ion is expected to slowly replace NiMH for xEV applications dueto price decreases & specific energy and power improvements

Price

Li-Ion high power forecast

to drop in price significantlyin the near term

At least on a par with NiMHforecast prices, potentiallylower

Energy and Power

With higher voltage and

energy density, Li-Ion issuperior to NiMH inapplications that requirehigher energy, lighterweight, and smallerpackaging

Expectations are that

specific power ratings willimprove at a faster rate thanNiMH

Cost equation for specificenergy and powersignificantly in Li-Ionsfavour

Raw Material Costs

Nickel prices have been at a

all time low Expected to climb with

global economicrecovery

10-15% annual priceincreases forecast until2015

Lithium supply is forecast toout-strip demand in themedium-long term

Lack of scarcity valuemoderates price rises

Although almost all automotive market energy storage development is focused on Li-ion technology, butindustry data indicates that it will account for no more than 30-40% of xEV market by 2015

This is largely a function of the pace of continued performance and cost improvements for Li-ion vs. NiMH

Price Sensitivity

Nickel is a much higher

proportion of NiMH batterycosts than lithium is for Li-ion

As such NiMH costs are~10 times more sensitive torises in nickel prices than Li-Ion is to lithium prices due

to higher metal content




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Time

For HEVs, the transition between NiMH and Li-ion technology willbe primarily based on cost

Invest in Li-ion to learn, and gear up

Invest per current mfg contractsor installed mfg capability

Invest per the long term

Relative Battery Costs Trends


ILLUSTRATIVE

Source: Supplier Business Advanced Automotive Energy Storage Report


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Li-ion battery pack cost estimates are a strong function of pack P/Eratio, production volume & pack size

Source: EPRI, Batteries for Electric drive vehicles status 2005, Anderman 2010 AABC conference, Ricardo Analysis

To reduce cell cost, future cell designs likely to be adjustedto match required vehicle attributes

Drive to customize cells will be balanced with need forestablishing production volume

Volume cost reduction appears to be achieved at >100k/year

~$1500/kwhr

~$750/kwhr

~$470/kwhr

1.5kwhrP/E=30-40

6kwhrP/E=15-25

24kwhrP/E=5-10

HEV battery package much more sensitive to cost ofpack hardware than PHEV and HEV battery packages.

Increased pack sizes (PHEV to EV) makes pack$/kwhr approach cell cost.

0%

20%40%

60%

80%

100%

120%

0 5 10 15 20

Power to Energy Ratio (kW/kWhr)

RelativeCosts

Performance and Volume Costs Sensitivity Pack Size Cost Sensitivity

100% = $/kWhr P/E 15 cell

0%

20%

40%

60%80%

100%

120%

0k 20k 40k 60k 80k 100k 120k

Production rate (packs/year)

RelativeCo

sts

100%= 5k/year production $/kwhr

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

HEV PHEV EV

%o

fFullEVcostin2010

Cell

Pack

Li-ion Technology50k/year production volume



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21Ricardo plc 2010RD.10/194705.3

Successful implementation of well-understood high-level roadmapfor Li-Ion cell cost reduction will be the key industry differentiator


35%

15%

10%5%

100%

35%

2010 Production

Optimization

Advanced

Materials

Cell

Standardization

Material Prices 2020

Li-ion Cost Reduction Levers

Economies of scale,improving manufacture

yield

Increased materialperformance requires

less material

Standard cells enables crosssupplier volume & standard

manufacturing equipment

Higher volumes enable,increased purchasing power,

and reduced advancedtechnology cost premium

Source: Supplier Business Advanced Automotive Energy Storage Report


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Li-ion pack cost reductions are dependent on a combination ofvolume and product/process maturation over time

Factors that contribute to Li-ion pack costreductions

Volumedependent

factor

Timedependent

factor

Synergy between EV /PHEV / HEV battery

technologies

Increased pack / cell economies of scale ModerateReduced R&D recovery costs per cell/pack HighReduced material costs (buying in bulk) ModerateCell standardization (buying in bulk) HighReduced markup (making profit by volume) Moderate

Manufacturing equipment standardization HighExpansion of supply base to increase competition HighReduced pack / cell scrap rate HighReduced warranty costs HighImprove materials (higher performance /kg) High

Improved cell / pack designs for lower costs HighReduced technology image cost premium Highclosed source to open source supply base Moderate

Li-ion Cost reductions within one xEV application are likely to have significant effect on

cost reductions associated with other xEV applications




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Legend

EV/PHEV and HEV energy storage system cost breakdowns differdue to pack composition; over time pack element content increases

0% 20% 40% 60% 80% 100%

2010

2020

2010

2020

Cell Module / Pack

HEV

PHEV/ EV

~50% of cost in cells ~50% of cost in pack Cell costs split uniformly between material,

manufacture, and overhead Pack cost dominated by material costs

Cell costs drop faster than pack costs, resultingin lower % of total system costs.

Pack cost dominated by material costs

70%-80% of cost in cells 20%-30% of cost in pack Cell costs split uniformly between material,

manufacture, and overhead Pack cost dominated by material costs

Cell costs drop faster than pack costs, resultingin lower % of total system costs for pack

Pack material costs still dominate pack costs

Material

Mfg. (labor, depreciation, )

Overhead (R&D, profit, warranty, )

Battery Pack Cost Breakdown (100k/yr volume)


Source: Ricardo Analysis of various published sources


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Agenda


Technology Roadmap


Interview Summaries


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25Ricardo plc 2010RD.10/194705.3

Scenario

Detailed scenario assumptions have been developed to ensure anintellectual rigour in predicting the potential xEV uptake

False Start

Consumers lose confidence in the xEV solution due to bad press during the earlyproduct adoption phase (i.e. negative TV news features and Consumer Reports ratings)

Average pump oil prices rise at the historical inflation rate per year over the next 10years thus discouraging any switch to the potential lower cost fuel for xEVs

Business

as Usual

Limited initial choice and high cost premiums for xEVs together with little perceivedbenefits for consumers cause slow start to sales

Average pump oil prices rise more than the historical inflation rate plus one-major geo-political crisis which causes a ~ 12-month period of volatility and elevated fuel prices

UrbanUtopia

Average pump oil prices rise faster than historical inflation rate with further energysecurity/conservation legislation

Government incentivizes megacity developments and rolls out charging infrastructure,creating new urban environments to stimulate adoption and growth of xEVs

CommuterConvenience

Oil prices rise faster than historical inflation rate motivating the trend to xEVs

Government/CARB/Caf rules take more aggressive stance on energy conservationand vehicle legislation such that OEMs need more xEVs to meet tougher fleet targets

Limited incentives for availability of charging infrastructure cause HEV and PHEV to

predominate for commute distances as a reliable economic alternative to ICE vehicles


Scenario Development


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Consumers lose confidence in the xEV solution due to bad pressand failure of technology to meet expectations on range/reliability

Vehicles and

Technology

Early PHEV and EV vehicles fail to meet consumer expectations on range and reliability

Battery development disappoints both in terms of weight and cost improvement

Limited xEV availability as large OEM technology investments do not pay off in the short runand fewer manufacturers are willing to invest in the dedicated platforms required

Costs

Average pump oil prices rise at the historical inflation rate per year over the next 10 years thusdiscouraging any switch to the potential lower cost fuel for xEVs

Consumers are reluctant to purchase xEVs due to their performance limitations and theunattractive total costs of ownership (high purchase price, uncertain resale market)

xEV perceived as not value for money and the lifetime economy is not being realised; highcosts will be incurred to re-establish the market

Infrastructure andCharging

Complications persist in the convenience of charging EV's from slow infrastructure roll-out;availability of private charging (on site, e.g. private car park) remains key decision criteria forpotential EV buyers

Additional costs required to install/update wiring at domestic locations to enable EV chargingdeters consumers

Legislation andEnvironment

OEMs invest in development of advanced ICE platforms over xEV platforms to meet theCARB/Caf targets in 2016 due to high costs and slow take up of the xEV vehicles

"Dirty" power generation slows "green" adopters where the overall lifecycle carbon effects arenot perceived to be as ecologically beneficial as promoted


False Start Scenario



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Limited initial choice and high cost premiums for xEVs togetherwith little perceived benefits for consumers cause slow start to sales

Vehicles and

Technology

Alternative technologies (advanced SI/drive-train, diesel, etc.) provide most of the sameperformance (mileage) benefits as xEV at a significant discount

Fewer xEV vehicle programmes are started leading to limited vehicle choice

Due to size, load and range restrictions, xEVs are taken up by a very small niche segment ofearly adopters, predominantly in urban & sub-urban areas

Costs

Average pump oil prices rise more than historical inflation rate together with one-major geo-political crisis which causes a ~ 12-month period of volatility

Purchase prices are more expensive than ICE versions which, combined with uncertainty aboutresidual value limit sales potential to affluent early adopters

The economic business case for EVs is only viable after several years (estimated at 5-9 years,depending on purchase price differential, driving pattern, fuel price etc.)


Infrastructure is able to ramp up to support demand profile as the number of xEV do not createsignificant challenges for the existing power generation supply

Electricity remains comparatively cheap and most PHEV charging will be done at home overnight promoting sales predominantly to people with suitable facilities on site

Availability of private charging opportunity (on site, e.g. private car park) remains key decisioncriteria for potential EV buyers


xEVs are not perceived as a suitable answer to the dependence on oil-based fuels andgreenhouse gas emissions; OEMs continue to develop ICE platforms to meet CARB/Caf target

Government incentives fail to significantly close the xEV price premium gap in the early years

PHEVs are perceived as "green" toy with no significant environmental benefit


Business as Usual Scenario



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Government/CARB/CAFE take more aggressive stance on energyconservation; HEV and PHEV predominate for commute distances

Vehicles andTechnology

HEV and PHEV predominate for commute distances as a reliable economic alternative to ICEvehicles, assisted by improved energy density technology towards the end of the decade

Limited availability of PHEVs until ~2013 where most activity in the short term is expected in theB/C/D vehicle segment plus limited numbers in the luxury segment (e.g. Mercedes, Audi)

Early PHEV expected to have a limited EV only range of 10-20 miles, increasing to ~20-30miles by 2020; EREV equivalent figures are 40-60 miles, remaining at 60 miles until circa 2020

Costs Average pump oil prices rise at a higher than historical inflation rate which accelerates the

switch to xEVs as fuel costs more than triple over the decade

Retail prices for HEV, PHEV are initially expected are more expensive than ICE versions


PHEV functionality does not restrict driving range which reduces the initial infrastructure need todomestic and final destination locations only with the anticipated A2B consumer use

EREVs are limited to very few models due to the required investment and dedicated vehicleplatform, but provide a good option for customers with limited access to charging infrastructure

Demand for fast charging as PHEVs and EVs proliferate sees more widespread adoption ofpublic charge infrastructure


OEMs focus on xEVs to meet more aggressive energy security/conservation vehicle legislationas CARB/Caf rules become more stringent and Government incentives and directives respondto a less stable oil supply

PHEVs and EREVs build on "green" image of first hybrid models and offer compromise

between ICE and EV in addressing range anxietySource: Ricardo Analysis

Commuter Convenience scenario



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29Ricardo plc 2010RD.10/194705.3

Government incentivizes megacity developments creating newurban environments to stimulate adoption and growth of xEVs

Vehicles andTechnology

EVs are promoted as 2nd use vehicles mostly in the small city-car (A & B) segment which areprogressively introduced from ~2012

EVs in the lower medium segments will be introduced in the form of the Nissan Leaf

First generation EVs are expected to have an EV only range between 80-100 miles, lowerbattery costs support an increase to about 100-150 miles range at the end of the decade

Costs

Average pump oil prices rise faster her than historical inflation rate with further energysecurity/conservation legislation

EVs are substantially more expensive than equivalent city cars; battery leasing schemes mayevolve spreading the acquisition costs over a longer time period

High uncertainty about residual value leads to affluent early adopters as the initial target


Megacity redevelopments create new urbanizations targeted at the EV and support a serviceinfrastructure beyond the dealership

Buyers may experience some infrastructure inconveniences in the early years but infrastructuredevelopment is mostly in line with xEV growth

Availability of private charging opportunities remove consumer anxiety and encourage faster EVadoption and sales further benefit from local traffic initiatives for convenience and ease of use


EVs are perceived as the new benchmark; "Green" conscious consumers increasingly focus onlifecycle carbon effects and grid de-carbonization efforts

Government incentives support the infrastructure roll out to promote EV adoption

Infrastructure initiatives for EVs remain in place for majority of decade supporting the supply

push from the OEM side; these may be reconsidered as market penetration growsSource: Ricardo Analysis

Urban Utopia scenario



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Our forecasts for 2020 xEV penetration range from 8% to 45%market share compared to a current 2010 level of 3%

2020

16%

share

8%share

Source: Ricardo xEV Market Penetration model

False Start

McKinleyBaseline

12%share

Businessas Usual

27%share

Commuter

Convenience

Urban Utopia

45%share

Forecasting

1

2

3

4

5


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31Ricardo plc 2010RD.10/194705.3

Scenario

Inputs to the forecasting model have been developed for eachscenario

False Start

Businessas Usual

CommuterConvenience

UrbanUtopia

Source: Ricardo Analysis, Chris Tuckfield

Forecasting

Fuel prices Govt purchase subsidiesGovernment

mandatesTechnology

cost

Remain flat at $3 /gal

$2500 PHEV-10 $7500 PHEV-40 / BEV Expire end-2011

CAFE levels off after2016

Battery packcosts decline by3 to 4% YOY

$2.36/gal in 2010rising to $3.34 in2020

$2500 PHEV-10 $7500 PHEV-40 / BEV Incentives expire for OEM model

achieving 100k volume Consumers discount benefits by 75%

CAFE levels off after2016


$3 / gal rising to $5/ gal by 2015, thentailing off to ~$4 /gal by 2020


CAFE continues toincrease, but at reducedlevels (~2% YOY) after2016


Steady increase to$6.50 / gal by 2020


CAFE continues toincrease rapidly andhigh credit provided for

PHEVs and BEVs


Steady increase to$6.50 / gal by 2020

$2500 PHEV-10 $7500 PHEV-40 / BEV Charging infrastructure heavily

subsidized (less range anxiety forBEVs)

Credits extended through 2020

CAFE continues toincrease, but marketdemand for efficientvehicles out-pacesrequirements


McKinleyBaseline

F ti


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Under difficult economic conditions, BEVs fail to penetrate themarket, HEVs grow, and PHEVs remain viable

0%

5%

10%

15%

20%

25%

30%

35%

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Calendar Year

xEVU.S.

MarketShare

xEV TotalHEVs

PHEVs

BEVs

U.S. xEV Forecast False Start Scenario

PHEV market sharegrows faster than HEVs

did 1999 - 2005PHEV and BEV demand fall

dramatically as incentives expire

Government BEV and PHEV purchase incentives expire in 2011, CAF requirements remain flat after 2016

Retail gasoline prices remain steady at $3 dollars (in constant 2010 dollars)

Battery pack and xEV hardware costs fall at 3-4% YOY

Forecasting

BEV market share is very low andnot growing

Actual Forecast

HEVs continue to grow marketshare, achieving 6.6% in 2020

7.9%

6.6%

1.3%0.05%

Forecasting


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The McKinley baseline future scenario enables a small but growingBEV market late in the decade

0%

5%

10%

15%

20%

25%

30%

35%

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Calendar Year

xEVU.S.

MarketShare

xEV Total

HEVs

PHEVs

BEVs

U.S. xEV Forecast McKinley Baseline Scenario

PHEV/BEV Demandrises rapidly when

incentives are available

HEV market share continuesto grow as the result of anexpanding product lineup

Government PHEV and BEV incentives are not considered at face value and expire after 100k units per OEM

Real retail gasoline prices rise slightly to $3.34 / gallon in 2020 in line with the EIA forecast

Battery pack and xEV hardware costs fall at 5-6% YOY

Forecasting

PHEV growth stalls after theincentives expire, but startgrowing again at the end of

the decade as costreductions are realized

Actual Forecast

BEVs remain a niche vehicle atbest, with some growth

12.1%

9.7%

2.1%0.2%

Forecasting


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In the Business as Usual scenario, regulation and external eventsmaintain a growing xEV market after incentives expire

0%

5%

10%

15%

20%

25%

30%

35%

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Calendar Year

xEVU.S.

MarketShare

xEV Total

HEVs

PHEVs

BEVs

U.S. xEV Forecast Business As Usual Scenario

PHEV/BEV Purchase incentivesexpire resulting in a dramatic

drop in sales

HEV popularity growth flattensas fuel prices retreat

Government BEV and PHEV purchase incentives expire in 2013, CAF requirements increase slowly after 2016

An oil shock in 2015 causes gas prices to spike at $5, but then slowly settle down to $4 in 2020

Battery and xEV hardware costs fall at 4 5% YOY

Forecasting

Increasing CAF requirements and thefuel price spike restart PHEV sales

growth after incentives expireActual Forecast

BEVs establish a toe hold in theUS market, but Leaf fails toachieve its target volumes

15.5%

12.0%

3.3%

0.3%


35/45

Forecasting


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Under the most favorable economic conditions, xEVs could accountfor more than 45% of the US market by 2020

0%

5%

10%

15%

20%

25%

30%

35%

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Calendar Year

xEVU

.S.

MarketShare

xEV Total

HEVs

PHEVs

BEVs

U.S. xEV Forecast Urban Utopia Scenario

Government incentives and costreductions overcome the cost

advantage of HEV over PHEVs

xEVs begin to dominate theUS Market

Actual

Government BEV and PHEV incentives continue through 2020; CAF targets increase aggressively

Fuel prices increase at a steady rate up to $6.50 / gallon in 2020

Battery pack and xEV hardware costs fall at 6 to 7% throughout the decade

g

Forecast

BEV becomes the predominatepowertrain among sub-compact cars

45.2%

24.2%

16.8%

4.1%

Forecasting


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Sustained BEV adoption in the US market during the next decadedepends on purchase incentives and high fuel prices

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Calendar Year

BEVU.S.

Ma

rketShare

False Start

McKinley Baseline

Business as Usual

Commuter Convenience

Urban Utopia

U.S. BEV Forecast

g

Expiration of incentives causesan immediate drop in demand

Steadily rising fuel prices lead tocontinued sales growth

Without incentives or high fuel

prices BEVs fail to achieve viability

Scenario

Temporary fuel price spike inBusiness as Usual scenario


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38Ricardo plc 2010RD.10/194705.3

Agenda

Process & Timeline

Recommended Battery Strategy

PHEV / BEV Implementation Actions

HEV Implementation Actions Supporting Findings


Technology Roadmap

Scenarios & Demand Forecast Interview Summaries

Interview summaries


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The long-term outlook for Li-ion is positive, but the industry faces anoversupply challenge as it looks to realize its full potential

Improvements will happen first in safety and reliability; during the next decade,Li-Ion cell chemistry performance will evolve in steps led by consumer cells

Executive summary from selected interviews

Investment andExclusivity

Market Forces

Impact ofChemistry andChina

Costs andCommoditization

TechnologyBreakthroughsand Timing

Timing varies widely for costs to fall below $300/kWh; components willcommoditize first, followed by whole cells, finally modules of multiple cells

The benefits of exclusive (cell) supplier relationships are reduced as make/buyopportunities in battery pack design/assembly develop

There is disagreement where pack assembly lies on the value chain; if not anOEM then suppliers will need to be robust to carry the warranty liability

There will be overcapacity and falling prices for Li-Ion batteries in the next 5

years as the xEV market growth is slower than expected

SupplierRelationships

Li-Ion is expected to displace NiMH in the next decade for xEVs and its supplycould become dominated by Chinese cell manufacturers

Interview Summaries


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There will be overcapacity and falling prices for Li-Ion batteries inthe next 5 years as the xEV market growth is slower than expected

What will drive thedemand for automotivebattery packs?

Li-Ion battery packs have not penetrated conventional hybrids as quickly as expected

1kWh NiMH packs are too expensive and oversized; there is opportunity to move to smallerhigher power Li-Ion packs for parallel hybrid systems to realize potential cost benefits

Despite high reliability of HEVs, market perception is that they remain unreliable; thus markettake up will remain slower than expected

There is much greater uncertainty for PHEV's as consumers have not yet considered the "whichtype of EV/PHEV/HEV suits my needs" question. Consumers are confused and do not want tomake an expensive and wrong choice; PHEV market will stay smaller than expected

Anticipating cost reductions, CARB and EPA standards for 2017 to 2025 are likely to

incorporate tougher targets that will reflect HEVs performance to push the xEV market

What will the supply

and demand balancefor vehicle tractionbatteries look like in thenext ten years?

The vehicle battery industry will go through a quick growth cycle, similar to the solar cellindustry. Capacity will be built, supply will outstrip demand and prices will fall.

One cycle of supply overcapacity and falling prices are expected within the next 5 years

Announced Plug-In vehicles are unlikely to hit the markets in the tens of thousands soon Most OEMs will want to diversify across different cells, however there will be suppliers who

fall short of technical and automotive requirements

There will be consolidation of cell suppliers within the next 5 years

OEM's are investing in-house rather than investing in Tier 1 plant for battery pack assembly, asskills are not yet sufficiently present in the supply base to do battery integration

Source: Ricardo interviews

Market forces

Interview Summaries


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Timing varies widely for costs to fall below $300/kWh; modularitywithin packs will commoditise with cell form factor standardisation

Where do you seebattery costs falling toover the next 10 years?

Below $300/kWh is achievable; views on timing vary between 3 and 7 years depending where

the volume occurs e.g. Chinese sources may be first to this target

One interview subject felt Li-ion batteries could achieve $200/kWh of useable energy before2020. Others felt this is less likely

There is a lot of opportunity for cost reduction once production increases; huge improvementsremain in cycle times, scrap rates, and automation

What parts of thebattery pack will becommoditized first andlast?

The pack is unlikely to be a fully commoditized item, however the components within the pack(connectors, transducers, etc) will quickly achieve sufficient scale for commoditization

Component parts of the cell (e.g. separator film, electrode sheet) will quickly move tocommodities once a dominant chemistry for automotive cells is determined

BMS electronics hardware well understood technology and not unique to automotive

When cell form factors become standardized, then modules within the packs could becommoditized

Source: Ricardo Interviews

Costs and Commoditization

Interview Summaries


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The benefits of exclusive (cell) supplier relationships are reducedas make/buy opportunities in battery pack design/assembly develop

Where on the valuechain are the bestopportunities forinvestment in thetraction batteryindustry?

There are more opportunities in the package and structure of the battery to increase power andenergy density without compromising on lifetime and reliability

Stars will emerge in the market from those with a strong brand for the supply of turn-key batterypacks and ease of integration for the OEM

It is not easy to have a long term competitive advantage in component technology (anode,cathode, separator) because you cant build a strong enough IP position

Greater investment is needed in pack simulation and analytical capability; most of this activity iscurrently taking place within OEMs. Scale economies could create opportunities here

How important are

exclusive supplyarrangements in thedevelopment of tractionbatteries?

Battery suppliers and OEMs formed exclusive arrangements due to uncertainty and to securethe IP, however exclusive relationships may be detrimental in future

An exclusive deal with a battery company protects the supply but becomes a liability when

oversupply hits the market. OEMs and suppliers will develop many-to-many relationships; the OEMs will have a primary

source and a back up, where the supply base is likely to standardise at the pack level

Exclusive arrangements are not just about securing quantity, but also quality in this market toensure performance, lifetime, safety; in the longer term, exclusive arrangements are less likelyto be beneficial or necessary


Investment and exclusivity

Interview Summaries


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Li-Ion is expected to displace NiMH in the next decade for xEVs andits supply could become dominated by Chinese cell manufacturers

Where are investmentsin new NiMHdevelopment forforward model HEV useoccurring?

NiMH is not regarded as a technology for the future, although it is taking Li-Ion longer thanexpected to displace NiMH as the chemistry of choice for hybrids, due in part to the lower thanexpected pricing of NiMH cells

Manufacturers are trying to establish which chemistry offers the greater benefit and are thusintroducing Li-ion on low volume applications

Investment in Li-Ion is very high such that soon it will be difficult for NiMH to compete on powerand (future) price

Lead Acid batteries will still be used as they have advantages in power, cost and lowtemperature performance for some applications with low energy storage needs

How does China fit in tothe future state of thebattery industry?

China sees batteries as very strategic; comparing the automotive battery market to the solarmarket, it took Chinese suppliers 5 years to demote to #3 a major European supplier that hadtaken a decade to reach #1 in the market

China suppliers will move faster for EV batteries because they start with a strong consumerLi-ion battery industry

China will be a big player in electric mobility; so far they have concentrated on developingproven technology; within the next three years, more new technology is expected from China

Most of the capacity deployments have been in China and they will be hard to beat on cost

Chinese suppliers dont have a history of quality control which may impact life and may damageexport credibility; however as the solar industry, Chinese suppliers will ramp quality to rival thebest US/EU suppliers

Sophistication of Chinese battery system solutions is lagging US and EU implementationsSource: Ricardo interviews

Impact of Chemistry and China

N i l k bl if OEM

Interview Summaries


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No consensus on optimal pack assembly strategy; if not an OEMthen suppliers will need to be robust to carry the warranty liability

What arrangements doyou expect to seebetween OEMs andsuppliers to share costsavings and warrantyliabilities?

It is not clear yet what the business model looks like between OEMs and suppliers to share costsavings and warranty liabilities; cell suppliers wont be able to handle the liability

It is also not yet clear who is the battery maker; a solution provider has certain advantages withsmart battery controls, these can guarantee a certain battery lifetime.

Warranty liability is the driving force; suppliers will need to be strong enough to back thewarranty.

Dominant battery companies in the next decade will be established names and some newplayers; new smaller players may be acquired by a larger company to gain the financial securityto fund development and cover the warranty exposure

How do you see thebattery supply marketevolving - open sourcevs. exclusive supply?

As Li-ion technology matures, it will develop as NiMH has, with only one global supplier havingenough scale to remain profitable

Battery suppliers will need to be robust to ensure lifetime to an OEM, thus technology andfinancial strength could make consolidation happen sooner than expected

Batteries either become a commodity with several suppliers in the market, or if there is a cleardifferentiation then an exclusive arrangement will be preferred with battery makers who can takecare of warranties and liabilities

Source: Ricardo interviews

Supplier relationships

I t ill h fi t i f t d li bilit d i th

Interview Summaries


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Improvements will happen first in safety and reliability; during thenext decade, Li-Ion cell chemistry performance will evolve in steps

Where do you see themajor breakthroughscoming (performance,useful capacity, mfgprocess, etc.)?

System optimisation to maintain durability with a simpler design and reduction of complexity

New battery pack architectures to increase energy and power density to maximise output

Battery management is a true driver of differentiation and will make big differences in capacityand lifecycle management

Improvements will happen first in safety and reliability rather than technology

Recognition and emergence of good chemistries which become cost competitive will beadopted first

Suppliers like A123 are not unassailable, however what they have is not easily replicated; they

may not be vulnerable but they will need to keep innovating

What is the timeframe

that new chemistriesand cell standardizationbecome unavoidablefor cell suppliers?

There will be no fundamental change of chemistry in the next 10 years; Li-Ion chemistries willconsolidate and form factors will simplify

Evolutionary improvements will appear first; nano structures, ceramics, and silicon will debutfirst in consumer cells if at all

Standardisation will be driven by volume from HEV demand and the first formats to achievehigh volume in the field will be de facto standards

In the next 3 years OEMs will begin sharing common cells in high volume, this will driveeconomies of scale and create standard commodity cells with or without industry specs


Technology breakthroughs and timing

Documents

100728 McKinley Motors Report