Disrupting the Disrupting the business of business of producing producing

automobiles: automobiles: alternative power alternative power

train technologies.train technologies.Clovis Zapata

Research AssociateBRASS Centre

Cardiff University

Presentation StructurePresentation Structure

1.Innovation;1.Innovation;

2. Regulatory innovation;2. Regulatory innovation;

3. Alternative fuels and powertrain 3. Alternative fuels and powertrain technologies: Incremental and technologies: Incremental and radical innovation;radical innovation;

4. Case studies;4. Case studies;

5. Conclusion.5. Conclusion.

1. Innovation1. Innovation Christensen’s effectChristensen’s effect How incumbents fail due to How incumbents fail due to

the introduction of innovation. (Disruptive the introduction of innovation. (Disruptive innovations) – The innovator’s dilemma.innovations) – The innovator’s dilemma.

Radical innovationRadical innovation as a discontinuous change that as a discontinuous change that sweeps away much of the firm’s existing investment sweeps away much of the firm’s existing investment in technical skills and knowledge, designs, in technical skills and knowledge, designs, production techniques, plant and equipment. production techniques, plant and equipment. Utterback (1996). Utterback (1996).

Radical innovationsRadical innovations present both macro level present both macro level innovativeness characteristics ( new to the world, innovativeness characteristics ( new to the world, the market and the industry), and micro level the market and the industry), and micro level characteristics, (novel to the firm and consumer).characteristics, (novel to the firm and consumer). Garcia and Calantone 2002. Garcia and Calantone 2002.

Innovations can be radical in nature but not Innovations can be radical in nature but not disruptive.disruptive.

The radical nature of the innovation is related to the The radical nature of the innovation is related to the technological dimension while the disruptiveness has technological dimension while the disruptiveness has to be related to the market effect to the incumbents. to be related to the market effect to the incumbents.

DisruptivenessDisruptiveness can be technological less-radical or can be technological less-radical or

technological more radical but is necessarily related technological more radical but is necessarily related to the phenomenon of the consumer changing tastes to the phenomenon of the consumer changing tastes and switching from the mainstream product to the and switching from the mainstream product to the new one. The definition is fundamentally influenced new one. The definition is fundamentally influenced by the organizational-level abilities and competences by the organizational-level abilities and competences

Rogers (2003)Rogers (2003)

1. Innovation1. Innovation

It is difficult to clearly provide an It is difficult to clearly provide an ex-ante ex-ante definition of disruptivenessdefinition of disruptiveness, following all , following all the characteristics defined by Christensen. the characteristics defined by Christensen. The definition is fundamentally influenced by The definition is fundamentally influenced by the organizational-level abilities and the organizational-level abilities and competences. competences. Danneels (2004)Danneels (2004)

In this sense, we have opted to conduct the In this sense, we have opted to conduct the analysis on the observable ex-ante analysis on the observable ex-ante characteristics of the nature of the characteristics of the nature of the innovation focusing on the radical innovation focusing on the radical innovation concept. innovation concept.

1.Innovation1.Innovation

2. Regulatory innovation2. Regulatory innovation ““The operation, on an industrial The operation, on an industrial

basis, of a new system or process basis, of a new system or process which, in whole or in part, which, in whole or in part, represents a significant step forward represents a significant step forward for a particular industry in terms of for a particular industry in terms of product quality, cost savings, or the product quality, cost savings, or the safety of the workforce”. safety of the workforce”. (Bhaskar 1988: (Bhaskar 1988: 2). 2).

state aid regulation in the European state aid regulation in the European Community  Community  

The economics of the automotive industry The economics of the automotive industry - If an alternative automotive energy - If an alternative automotive energy source requires either the creation of very source requires either the creation of very high new capital-intensive systems, or the high new capital-intensive systems, or the premature abandonment of existing high premature abandonment of existing high capital-intensive systems, it is likely to capital-intensive systems, it is likely to meet considerable resistance from the meet considerable resistance from the industry. industry.

If an alternative energy source can be If an alternative energy source can be used within the existing capital used within the existing capital investments, its chances of being investments, its chances of being accepted by the industry are so much accepted by the industry are so much higher. higher.

2. Regulatory innovation2. Regulatory innovation

An An alternative fuelalternative fuel is an energy source is an energy source that can be used with no or minimal that can be used with no or minimal modification in existing engines. - modification in existing engines. - Incremental InnovationIncremental Innovation

Alternative powertrainAlternative powertrain replace the replace the existing internal combustion engine with a existing internal combustion engine with a different system, thus rendering existing different system, thus rendering existing sunk investments in internal combustion sunk investments in internal combustion engine technology obsolete and requiring engine technology obsolete and requiring new investments into a different new investments into a different manufacturing system for a different type manufacturing system for a different type of powertrain. - of powertrain. - Radical InnovationRadical Innovation

TechnologyTechnology Incremental Incremental innovationinnovation

Radical innovationRadical innovation

Liquefied petroleum Liquefied petroleum Gas - LPGGas - LPG

**

Compressed Natural Compressed Natural Gas – CNGGas – CNG

**

biodieselbiodiesel **bioethanolbioethanol **Hydrogen ICHydrogen IC **IC-electric hybridIC-electric hybrid **Battery-electricBattery-electric **Fuel cellFuel cell **

““They are prisoners of enormous sunk costs They are prisoners of enormous sunk costs which they treat as unamortized assets, which they treat as unamortized assets, substituting accounting for economic principles…substituting accounting for economic principles…This mindset is a critical obstacle…new ways This mindset is a critical obstacle…new ways cannot diffuse without displacing old ones that cannot diffuse without displacing old ones that resists with distinctive vigour” resists with distinctive vigour” (Lovins et al. 1993: 17). (Lovins et al. 1993: 17).

Safeguarding existing investments until fully Safeguarding existing investments until fully amortised is a key concern of the car industry. amortised is a key concern of the car industry. This explains the industry’s comparative This explains the industry’s comparative willingness to embrace hybrid technology, but willingness to embrace hybrid technology, but also its reluctance to do the same with fuel cell also its reluctance to do the same with fuel cell technology. technology.

4. Case Studies4. Case Studies

4.1 -The Brazilian experience with 4.1 -The Brazilian experience with ethanol;ethanol;

4.2 - The Toyota Hybrid Technology;4.2 - The Toyota Hybrid Technology;

4.3 - Hydrogen Fuel Cells;4.3 - Hydrogen Fuel Cells;

4.1 -Biofuels – The adoption of 4.1 -Biofuels – The adoption of Ethanol in BrazilEthanol in Brazil

1925 – the first experiments1925 – the first experiments 1975 the proalcool program.1975 the proalcool program.

(1975-1979) E20/E25 (1975-1979) E20/E25

(1980- 1986) E100(1980- 1986) E100

(1986-1998) decline(1986-1998) decline 2003 Flexifuel technology2003 Flexifuel technology

0200400600800

100012001400160018002000

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

year

New

Veh

icle

s (

x 1

000)

Gasoline

Ethanol (E100+flexfuel)

4.1 - Biofuels – The adoption of 4.1 - Biofuels – The adoption of Ethanol in BrazilEthanol in Brazil

Little engine development was Little engine development was required.required.

Just some fundamental mechanical Just some fundamental mechanical issues (compression charges, issues (compression charges, carburettor calculation, pre-heating carburettor calculation, pre-heating system that had to operate with system that had to operate with higher temperatures, metal part higher temperatures, metal part corrosion and cold start). corrosion and cold start).

The same rational can be used for The same rational can be used for biodiesel.biodiesel.

4.1 - Biofuels – The adoption of 4.1 - Biofuels – The adoption of Ethanol in BrazilEthanol in Brazil

4.2 - Hybrids – The Toyota 4.2 - Hybrids – The Toyota experience with the Priusexperience with the Prius

A group to forecast the future perspectives in the A group to forecast the future perspectives in the automotive industry for the 21st century was automotive industry for the 21st century was established in 1993, as a response for The established in 1993, as a response for The Partnership for the Next Generation of Vehicles Partnership for the Next Generation of Vehicles (PNGV).(PNGV).

an extremely economical mid-sized family car based an extremely economical mid-sized family car based on new production methods. (47.5 miles per gallon.)on new production methods. (47.5 miles per gallon.)

The group decided to attach an electrical engine.The group decided to attach an electrical engine.

For the 1995 Tokyo Motor Show, Toyota prepared a For the 1995 Tokyo Motor Show, Toyota prepared a concept car with the system, presenting it as the concept car with the system, presenting it as the Toyota’s vision of the future (Taylor 2006). Toyota’s vision of the future (Taylor 2006).

4.2 - Hybrids – The Toyota 4.2 - Hybrids – The Toyota experience with the Priusexperience with the Prius

Prius TypePrius Type Generation IGeneration I Generation IIGeneration II Generation IIIGeneration III

YearYear 1997-19991997-1999 2000- 20032000- 2003 2003-20062003-2006

Petrol Engine Petrol Engine (HP)(HP)

5858 7070 7676

Electric motor Electric motor (Hp)(Hp)

4040 4444 6767

Acceleration Acceleration 0-96 kph 0-96 kph (seconds)(seconds)

14.114.1 12.512.5 10.110.1

Battery-Pack Battery-Pack Energy Energy (W/kg)(W/kg)

600600 900900 12501250

Battery-Pack Battery-Pack Weight Weight (kg)(kg)

5757 5252 4545

4.3 - Hydrogen Fuel Cells4.3 - Hydrogen Fuel Cells

The problems with hydrogen The problems with hydrogen technology appear to be in three technology appear to be in three areas: vehicle integration, areas: vehicle integration, manufacturability and infrastructure manufacturability and infrastructure (cf. Nieuwenhuis and Wells, 2003, 72ff, Vergragt 2006, (cf. Nieuwenhuis and Wells, 2003, 72ff, Vergragt 2006, forthcoming and Van den Hoed & Vergragt 2006, forthcoming and Van den Hoed & Vergragt 2006, forthcoming). forthcoming). 

Practical hydrogen fuel cell vehicles within the Practical hydrogen fuel cell vehicles within the next five years or so and certainly by the much next five years or so and certainly by the much forecast 2012-2015 period. forecast 2012-2015 period. 

In terms of manufacturability, Ballard is now in In terms of manufacturability, Ballard is now in the early phases of setting up a manufacturing the early phases of setting up a manufacturing process for automotive fuel cells. process for automotive fuel cells.

Ballard will be able to produce some half a million Ballard will be able to produce some half a million automotive fuel cell stacks each year. If we automotive fuel cell stacks each year. If we assume that the Japanese – led by Toyota – add a assume that the Japanese – led by Toyota – add a similar annual number, we have an annual similar annual number, we have an annual production capacity of automotive fuel cells of production capacity of automotive fuel cells of around one million by 2015 (Nieuwenhuis 2005a). around one million by 2015 (Nieuwenhuis 2005a).

4.3 - Hydrogen Fuel Cells4.3 - Hydrogen Fuel Cells

‘‘optimistic scenario’ whereby 10,000 optimistic scenario’ whereby 10,000 fuel cell cars would be produced fuel cell cars would be produced between 2005 and 2008 and by 2010 between 2005 and 2008 and by 2010 this figure would be up to 300,000. this figure would be up to 300,000. One million a year would be reached One million a year would be reached before 2020 by which stage the before 2020 by which stage the technology would be cost competitive technology would be cost competitive with conventional cars. Beyond 2020 with conventional cars. Beyond 2020 10 new factories would be built each 10 new factories would be built each year. year. 

4.3 - Hydrogen Fuel Cells4.3 - Hydrogen Fuel Cells

5 . Conclusion5 . Conclusion

The economics of the automotive The economics of the automotive industry must be fully addressed in industry must be fully addressed in order to provide ex-ante definitions order to provide ex-ante definitions of innovation in the automotive of innovation in the automotive industry.industry.

The distinction between incremental The distinction between incremental and radical innovation is and radical innovation is fundamental to understand the fundamental to understand the innovation impact to automakers.innovation impact to automakers.