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In electric-car stakes, automakers spread their bets

The auto industry move to electrification has begun in earnest, bringing consumers a menu of all-electric cars and different hybrid types.

DEARBORN, Mich.--Electrification is the biggest change to hit the auto industry in decades. But with little clarity on how the technology will play out in the future, automakers are laying down multiple billion-dollar bets.

After years of talking about plug-in electric vehicles, automakers can finally point to actual products, actual customers, and the beginnings of a charging infrastructure.

Yet automakers still don't know which products will resonate with consumers. The result is a spate of all-electric cars and a spectrum of hybrids built around different-size batteries.

What combination of battery and gas engine will be most popular with consumers depends on multiple factors which are inherently unpredictable, including oil and gasoline prices, government policies, and the technical progress of batteries.

"All of these strategies are dependent on things we can't control and we don't know," said Ken Laberteaux, senior principal scientist at Toyota North America's Research Institute, at the Business of Plugging In conference here yesterday. "We think there will be a broad spectrum of what car buyers are looking for and what exactly that price elasticity is."

Newcomers, such as Tesla Motors, Fisker, and Think, are taking more aggressive bets with all-electric or extended-range electric vehicles. But the incumbent automakers can afford a menu approach, ranging from all-electric down to micro hybrids.

General Motors' first gambit in electric cars is the Chevy Volt which has a smaller battery than the all-electric Nissan Leaf but is still large enough to do 35 miles of electric driving before a gas generator kicks in. Yesterday, GM announced an all-electric addition to its lineup, the electric 2013 Chevy Spark, to fill out its portfolio and serve different customers.

Paying a premium
Even though there's a lot of consumer buzz around plug-in electric vehicles, many analysts expect the uptake to follow that of hybrids, which took about 10 years to reach 2 percent of U.S. market share. Sales of hybrids in the U.S. picked up when gasoline prices rose but tend to slow as gas prices go down.

If gasoline and diesel prices rise in coming years while battery prices go down, there could be a "major disruption" toward EVs by the end of the decade, said Daron Gifford, managing director of research company Stellar Alliance, during a presentation here. Analysts predict that the cost of lithium ion batteries will fall by about 50 percent in the next five to eight years.

"In 2011, it's very difficult to make the economic case for these vehicles. It's for people who can afford to do it, who want to do it because of their environmental consciousness," he said. "The trick for the automakers is how to get beyond the higher-income people and early adopters."

Gifford predicts that plug-in electric vehicles sales will remain a very small portion of total car sales, with about 1.5 million sold worldwide by 2015 and then a jump to seven million in 2020. Even with that optimistic scenario, plug-in electrics would represent only seven percent of total volume in 10 years, he noted.

Demand will likely be strongest in Europe where gasoline taxes have driven demand for fuel-efficient vehicles and in China because there are aggressive government policies to reduce oil imports and develop the industry for electric vehicles and components, Gifford said.

In the U.S., plug-in electric vehicles are facing tougher competition from gasoline-powered cars since automakers need to meet more stringent fuel economy standards.

Automakers are expected to invest in changes to internal combustion engines and hybrids because the efficiency gains come cheaper than plug-in electric technology, said Mike Omotoso, senior manager global powertrain forecasting at J.D. Power.

Some industry observers fear that the there will be a surplus of batteries and electric-vehicle components because the demand will not meet the burst in production in the U.S. and Asia over the past few years. "We expect some companies to go out of business and smaller companies to be gobbled. Fisker and Tesla could be subsidiaries of larger OEM (automakers) in the future," Omotoso said.

Changing the economics
Regardless of the (widely varying) forecasts, the move to electrification has begun in earnest, even if it's a longer-term bet. Ford's associate director of electric vehicle infrastructure, Mike Tinskey, said yesterday that the auto industry has only begun to scratch the surface in terms of the benefits electric vehicles can offer beyond better fuel economy.

Working with other companies, automakers will develop the ability to use electric vehicles to supply power to homes during black-outs, buy renewable energy during charging, and earn drivers money by providing services for stabilizing the grid. The convenience for consumers will improve too with faster charging stations and inductive charging, so plug-in drivers don't even need to plug cars in when they get home, he said.

In terms of bringing costs down for plug-in vehicles, it really comes down to scale, said Mark Perry, director of product planning and strategy for Nissan North America. Car programs cost automakers $1 billion and they need to make 500,000 or a 1 million before these investments pay off, he said.

Plug-in electric vehicles are already far cheaper to drive per mile than gasoline cars and enjoyable to drive. As the industry reaches larger scale, product costs will come down and make EVs more compelling to the "pragmatic majority" of consumers, rather than a niche of early technology adopters and environmentally conscious drivers, Perry said.

"This is really about changing the economics not only of the individual but of the country. It's a billion dollars a day we spend on foreign oil. This is an attempt to get us off that drug," he said.