Tomorrow's cars, today's engines: that fabulous invalid the internal-combustion engine is very far from dead.
But today's internal-combustion engine is far more advanced and efficient than its predecessors. Over the past 20 years, automakers have significantly improved its power, its fuel efficiency, and its emissions, with more changes to come. Not that it will always outperform the alternatives; fuel cells--rapidly gaining market acceptance and slated to be in mass production for some premium markets by 2010--may become the leading technology of the late 21st century. However, given the current economics of the internal-combustion engine, we predict that it will still be installed in 90 percent of all new vehicles sold in developed economies in 2015 and remain dominant in new vehicles for at least another decade after that, both as a standalone technology and as an integral part of hybrids.
Only regulation could facilitate a quicker transition to the fuel cell. Indeed, environmental concerns about greenhouse gas emissions such as carbon dioxide and the geopolitical desire for energy independence may accelerate the demise of the internal-combustion engine, for governments could enact policy reforms to favor the development of alternative technologies (2) and their adoption by the consumer. (3) But until the consumer is ready to embrace them, most governments are unlikely to accept the political risk of radical reform.
The lay of the land
Until the late 1960s, business economics and perceived consumer values shaped the automotive industry's power plant choices. Carmakers could choose from a range of technologies. (4) The value to the consumer of each of them was determined by its fuel and cost efficiency as well as its safety, durability, and ease of use. The convenience of the supporting infrastructure available for the internal-combustion engine was another very important consideration in the power plant choices of the automakers. In addition, increasingly strict emissions regulations have been influencing their priorities since about 1970.
A closer examination of these issues--technology, infrastructure, and emissions regulation--can help make it possible to forecast which technology will power cars in the coming decades. Other factors too may eventually be important. Fuel cells, for example, may have unique advantages for what auto engineers call "packaging": since they don't need an engine bay, they offer greater freedom in styling and structural safety. For the time being, however, the three fundamental issues will prove decisive.
Here we focus on only two technologies: fuel cells and gasoline- or diesel-powered internal-combustion engines. Hybrids--the third contender--are clean and fuel efficient and have a valuable role to play in the near term, but they sacrifice performance and raise costs, since two separate technologies must be integrated and controlled. (5) Although hybrids are in compliance with today's lower emissions targets, only the fuel cell can power the zero-emission vehicles (ZEVs) that regulation will require in everincreasing numbers.
At the beginning of the 1980s, the average horsepower per liter of cars in the US market had been drifting for 25 years--since the introduction of the high-compression engine, in the mid-1950s. A complacent industry was making few efforts to improve the underlying technology. But in the early 1970s, pressure for improved efficiency and emissions performance rose sharply. The US Clean Air Act as amended throughout the 1970s embodied in law the environmentalists' demand for stricter emissions rules. Furthermore, the Arab oil embargoes of the 1970s squeezed the fuel supply and drove the need for more efficient engines.
Early efforts to meet new efficiency and emissions requirements succeeded, though at the cost of a huge erosion of power, drivability, and overall performance. But breakthroughs such as electronic engine-control systems and catalytic converters enabled the internal-combustion engine to more than double its average horsepower per liter, from 29 in 1980 to 64 in 2002, at a significantly lower cost, and to reduce its emissions sharply. In 1986, the engine of an entry-level car accounted for more than 15 percent of its total production cost. That figure has dropped to 8 percent today, even though engines now use more expensive materials (such as aluminum) and components. These developments represent a new and continuing S-curve in the internal-combustion engine's evolution (Exhibit 1).
Indeed, the technology has come a long way, and automakers are committed to improving its power capacity, fuel efficiency, and emissions still further. Projections suggest that in these respects, internal-combustion engines will continue to gain at a rate of 1.5 percent annually--an impressive pace for a century-old technology and well in line with current R&D investment. (In general, on the contrary, returns to R&D investment fall over time.) During the next ten years, several other advances are expected, including continuously variable transmissions, infinitely variable engine-valve timing, direct fuel injection, cylinder deactivation (Exhibit 2), and drive-by-wire technologies (see sidebar "AUTOnomy raises the stakes," on page 48).
In the past five years, the number of internal-combustion-related patents issued by the US Patent and Trademark Office has gone up 25 percent, a huge leap compared with the incremental increase in the number of such patents granted over the previous two decades. This upsurge suggests that innovation in the field isn't in danger of slowing down. The fact that auto-makers continue to support such R&D should come as no surprise given their enormous investment in the technology.
How do fuel cells compare with the internal-combustion engine in raw performance? At the heart of a typical hydrogen fuel cell lies a proton-exchange-membrane (6) (PEM) stack that electrochemically converts hydrogen and air into electricity and water (Exhibit 3, on the next page). This electricity directly powers the car's electric motors and accessories. Depending on how efficiently the hydrogen is produced, fuel cells not only are clean "at the tailpipe" but also tend to use fewer resources along the whole chain, from the production of fuel to the turning of a car's wheels (Exhibit 4). Fuel cells also have other potential advantages, such as instant-on torque response, less noise, and cheaper maintenance. In addition, fuel cells are more efficient because they generate electric power directly, so they will be well suited to cars that have increasing numbers of electrically powered features: the 2002 BMW 7 series, for example, has nine temperature-control fans just in the driver's seat. The internal-combusti on engine, by contrast, drives an alternator to meet a car's electrical needs and incurs "parasitic" losses in efficiency by mechanically driving accessories such as power steering.
Nonetheless, internal-combustion engines are currently well positioned, technologically and economically, to outperform the fuel cell in powering vehicles. Although the fuel cell was commercialized at General Electric in the early 1960s for military and aerospace applications, current prototypes are still expensive producers of energy, and the reliability and durability of the PEM generate concerns, especially under real driving conditions. Despite the rapid development of fuel cells, they are still prohibitively expensive to produce if the goal is to match the range and performance of conventionally powered cars. Depending on the manufacturer, current estimates for the cost of PEM fuel cell prototypes range from $500 to $2,500 per kilowatt produced, which is still a figurative mile behind the internal-combustion engine's $30 to $35 per kilowatt. But ten years ago, the cost of experimental PEM fuel cells probably exceeded $50,000 per kilowatt produced, and marked improvements in the underlying technology sinc e then have captured the interest of the industry, not to mention an estimated $3 billion-plus in investments through 2004.
Another hurdle now being overcome is the amount of space needed for a fuel cell that can power a car, because the size and weight of the cell affects its performance and utility. The one in DaimlerChrysler's 1994 "concept car" NECAR (New Electric Car) 1 filled the rear of a van, leaving room only for the driver and a single passenger. Six years later, the NECAR 5 power plant fit neatly within the Mercedes small A-Class engine bay and could power vehicles at speeds greater than 150 kilometers (90 miles) an hour.
A well-established infrastructure for fuel and repair services is vital for any driver. The internal-combustion engine clearly has the advantage here, for developed economies provide ready access to these services. The hydrogen fuel cell faces one of its greatest challenges in precisely this arena, since it lacks an infrastructure for its upkeep and maintenance. The creation of such facilities poses several potential problems. Building hydrogen storage facilities at filling stations (or the stainless-steel tanks needed for convertible methanol) and manufacturing tankers to supply those stations will require billions of investment dollars, for example. Experts predict that the infrastructure will develop gradually, beginning with large stations for centrally fueled fleets (of city buses, to give one example) and then moving to more dispersed and consumer-friendly locations, while existing gasoline stations are slowly converted to the fuel cell technology and new outlets are constructed to service it. Appropria tely trained technicians and equipment must also be made available everywhere drivers might need them.
Because hydrogen doesn't exist in a natural form that can be tapped, the generation of the vast quantities necessary to supply power to a large automobile market is also problematic. Energy- and emissions-efficient methods of extracting hydrogen from other compounds and of converting it for onboard use remain elusive. Solar-powered "farms" to extract hydrogen from water via electrolysis have been suggested but are not yet practical. Fuel cell vehicles also pose their own potential safety hazards: given the volatility of hydrogen gas, for example, stringent universal safety regulations must be imposed for storing, handling, and disposing of it.
The alternatives to a hydrogen gas infrastructure are equally troublesome. Onboard fuel reformation processes-which convert conventional hydrocarbon fuels such as natural gas or methanol into hydrogen-would require each car to contain all the essential elements of a small refinery. The increase in size, weight, complexity, emissions, and costs would further diminish the ability of fuel cells to compete with other technologies. Moreover, even if an onboard cryogenic tank could store liquid hydrogen at its vapor point (-253[degrees]C), the cost, the risk of accidents, and the problem of refueling would all present serious obstacles.
Indeed, the cost of deploying a reliable hydrogen infrastructure on par with current gasoline networks has been estimated at $100 billion and more. Unless governments subsidize the development of such an infrastructure, it is quite hard to imagine fuel cells competing economically with the internal-combustion engine in the foreseeable future.
Emissions regulation is the Achilles' heel of the internal-combustion engine. Carbon dioxide, the primary greenhouse gas, is an unavoidable by-product of fossil fuel combustion, whether the engine uses gasoline, natural gas, or diesel fuel or is an electric hybrid. If the public were convinced of the environmental dangers posed by air pollution and global warming, or of the geopolitical risks of an overreliance on fossil fuels, the technology could be regulated out of existence. The cleaner and quieter fuel cell is far better from an environmental point of view.
If pure hydrogen powers fuel cells, they emit almost no hydrocarbons, carbon monoxide, carbon dioxide, or nitrogen oxides. What carbon dioxide emissions there may be are by-products of the steam reformation of natural gas, currently the cheapest way to produce hydrogen.
Emissions and regulations
Although the internal-combustion engine generates far higher exhaust and evaporative emissions, the auto industry, despite considerable difficulties, has proved remarkably effective at reducing many of them (Exhibit 5): other than the greenhouse-enhancing carbon dioxide, they have fallen by 90 percent or more since 1968. (7) In fact, by 2000, late-model cars emitted less pollution while running than 1970s-era cars did while turned off (large amounts of gasoline vapor leaked from old models).
Today's safer, cleaner, and more efficient vehicles have been the result of the regulators' willingness to impose restrictions and of the carmakers' ability to respond to them. Reengineered catalyst technologies and new close-coupled high-flow exhaust-gas recirculation will further reduce emissions. What is more, BMW and Mazda are working to adapt internal-combustion engines to use hydrogen fuel, so they may eventually be able to piggyback on breakthroughs in techniques for storing it--a development that would reduce their emissions almost to fuel cell levels and further prolong their ascendancy, though with penalties in efficiency.
Nonetheless, this regulatory wave could be reaching its crest. Further restrictions may be beyond the automakers' capacity to meet at a reasonable cost. Particularly in large metropolitan areas, the internal-combustion engine is facing a raft of proposed regulations to limit emissions; the possibilities include banning it from city centers and imposing special taxes for vehicles fueled by hydrocarbons. The California Air Resources Board (CARB), for example, has required high-volume automakers to sell a percentage of zero-or near-zero-emissions vehicles in the state by 2003. Because of the immaturity of pure-electric-vehicle technologies, CARB withdrew two previous ZEV phase-in milestones and has relaxed the 2003 targets. Yet carmakers might still miss the final deadline, thereby exposing themselves to millions of dollars in potential fines.
In April 2002, California became the first US state in which a bill restricting carbon dioxide emissions from automobiles was introduced. Will regulators go further and impose the ZEV standard on all automobiles or enforce carbon dioxide emissions limits that the internal-combustion engine can't meet? Barring a dramatic shift in the level of consumer concern for the environment, these scenarios seem unlikely. Surveys show that while a majority of consumers support efforts to reduce emissions and conserve fuel in principle, fewer are willing to sacrifice cost, performance, or convenience. (8) Any attempt to regulate the internal-combustion engine out of existence, it seems, would proceed very slowly.
Besides complacency, the major constraint on regulation is the potential loss to governments of revenues from fossil fuel taxes. This problem, in addition to the need to subsidize the hydrogen supply chain, may place an intolerable fiscal burden on those governments, in the developed world, that are thinking about using regulation to accelerate a switch to fuel cells before consumers have made that choice. (9)
Given the many advantages of the internal-combustion engine, it will remain the dominant power plant well into the present century, both as a standalone technology and in gasoline- and diesel-electric hybrids. Its tremendous capacity for improvement means that its competitors should take a long time to catch up or even to assume a strong position in the automobile market. Developing countries, which have less onerous greenhouse gas restrictions, will likely embrace the best available internal-combustion technology rather than confront the cost and infrastructure obstacles of alternative power.
Well into the middle of this century, more cars around the world will be propelled by the internal-combustion engine than by any other power source. These cars will require all the fossil fuel and maintenance support currently in place. While the fuel cell is an up-and-coming technology, its advantages are being realized more slowly than many had hoped. A brash leap into a fuel cell world is risky and, at present, unlikely. A well-planned transition will avoid a premature launch, a disappointed public, and a fallback to industry and environmental complacency.
EXHIBIT 4 Fueling hope Miles per gallon (or Carbon dioxide equivalent for fuel emissions, 2001, cell engines), 2001 grams per kilometer Conventional internal- 28 72 combustion engine (ICE) Advanced ICE (1) Gasoline 49 42 Diesel 56 37 Hybrid ICE (2) Gasoline 71 30 Diesel 83 27 Fuel cell engine Compressed hydrogen 94 34 (4) Onboard reformer (3) 42 49 (1)Incorporating cylinder deactivation, continuously variable transmission, direct fuel injection, infinitely variable value lift, 36- and 42-volt alternator system, plasma ignition system, and turbocharging and aftercooling. (2)True hybrid with all advanced technologies incorporated (see footnote 1); electric motor handles stop-and-go travel and initial highway acceleration while gasoline - or diesel-powered ICE handles higher speeds. (3)Transforms gasoline into hydrogen, carbon dioxide, and trace amount of carbon monoxide. (4)Carbon dioxide emitted in production of hydrogen in refineries for use in fuel cell; figure is expected to drop over the next decade. Source: Massachusetts Institute of Technology Note: Table made from bar graph
(1.)The industry's enthusiasm for another contender, the pure electric vehicle, has been severely curbed for a number of reasons. Batteries with suitable power are too big and heavy for most vehicles, end ranges and recharging times remain unresolved issues. Barring an unanticipated breakthrough in battery technology, the pure electric vehicle will likely be a niche player in the foreseeable future.
(2.) Supply-side measures, including R&D assistance.
(3.) Demand-side measures, such as tax credits.
(4.) From the early years of motoring, steam engines, electric motors, and gasoline and diesel engines have appeared in many configurations. In fact, hindsight obscures the hard-fought battle waged over the internal-combustion engine, In the 1890s and 1900s, journals noted the ease of use, quietness, and simplicity of electric vehicles. By 1910, gasoline-electric urban delivery trucks were fairly common, since, according to a high-tech journal of the day, The Horseless Age, they "overcame the lack of flexibility of internal-combustion engines." Steam power, the forgotten latecemer, quickly surpassed electric vehicles in range, speed, and convenience; Germany produced high-pressure steam-powered trucks as late as 1936.
(5.) The "hybrid" noted here is the true hybrid, such as the one in the Toyota Prius, a car that can be propelled by either its internal-combustion engine or its battery. "Mild" hybrids, in which the battery is little more than an alternator-motor that can power a cars accessories, represent an extension of the internal-combustion engine.
(6.) Also known as the polymer-electrolyte membrane.
(7.) Honda, whose 2000 Accord SULEV was the first vehicle powered by an internal-combustion engine to achieve the hybrid-equaling SULEV (super ultralow emission vehicle) status, has announced that its 2003 Civic SULEV will match the emission status of its Civic Hybrid and will also achieve better fuel efficiency.
(8.) A 2002 survey by J. D. Power and Associates, for example, revealed that while 60 percent of US consumers would consider a hybrid for their next vehicle--primarily to reduce fuel costs--that proportion dropped to under 20 percent if the extra purchase cost exceeded the fuel savings. And of recently marketed "green" vehicles, only those (such as the Toyota Prius) with performance comparable to that of cars powered by internal-combustion engines have had acceptable sales, even in Europe.
(9.) In 2002, Oregon became the first US state to raise registration fees for hybrid vehicles because they use less fuel and therefore reduce fuel tax revenues, which typically help pay for road construction. This issue could become increasingly problematic in parts of the world where fuel taxes contribute a disproportionate share of general tax revenues.
RELATED ARTICLE: Challenge or opportunity?
For the foreseeable future, automakers will likely have to manage a variety of power plant technologies. To stay competitive and to meet regulatory emissions targets, these companies must continue to develop and service the internal-combustion engine and its hybrids while concurrently advancing fuel cell technology.
Significant structural changes to the industry appear imminent. Automakers have begun to seek corporate partnerships within and outside it to mitigate the costs and risks of developing fuel cell technology. They will also have to predict whether their fuel cells will offer significant proprietary advantages in power density, fueling strategy, and convenience or will ultimately become commodity items, allowing automakers to outsource the production of fuel cells and the associated power trains.
The fuel cell is just one of many new technologies--including drive- and brake-by-wire--that will accelerate the car's current transformation from a mechanical-hydraulic machine with electronic trim into a fully electronic system akin to the modern jet fighter. These technologies will require a new breed of engineering, purchasing, research, service, and management talent. It is doubtful that any automaker or retail auto service shop now has the mix of specialists to handle this new paradigm.
Further alliances with electronics suppliers can be expected; indeed, cars might become a new vessel for "Intel Inside--style co-branding, Automakers might also use the new technologies to pursue opportunities throughout the value chain, New brands could generate new distribution concepts and retailing innovations, facilitating the shift away from today's entrenched and high-cost dealer networks. It is the ability to exploit such opportunities and to develop a judicious sunset policy for the multibillion-dollar asset base of the internal-combustion engine that will determine whether the current automotive OEMs will remain the personal-transport leaders in the future or will be suffocated by their legacy of sunk costs.
AUTOnomy raises the stakes
The AUTOnomy, a concept car from General Motors, showcases two advanced technologies: fuel cells and drive-by-wire. According to Dr. Christopher Borroni-Bird, the director of GM's Design and Technology Fusion Group, the AUTOnomy was designed around the premise, "What if we were inventing the automobile today rather than converting a century-old concept?" The following interview was conducted by Lance Ealey in March 2002.
The Quarterly: With all the media buzz around fuel cells, many people overlook the fact that the AUTOnomy is no less about drive-by-wire. What is drive-by-wire, and why do you see it as the partner of fuel cells?
Christopher Borroni-Bird: Drive-by-wire replaces an automobile's hydraulic and mechanical systems, such as the brakes, throttle, and steering, with electrical and electronic systems. Fuel cells and drive-by-wire technologies have several natural affinities, so that combining them makes sense. Both will likely become commercially viable in the same time frame, maybe five to ten years, so they will evolve side by side, which could help resolve technology compatibility issues. Also, drive-by-wire at the level used in the AUTOnomy--electric steering, braking, et cetera--requires high voltage, 42 volts or more, to work, because braking can be very energy intensive. That kind of voltage is difficult to sustain with today's 12-volt systems. What is needed is a high-voltage supply, and that's what the fuel cell provides. We realized that this was a powerful concept from a technology standpoint, It made so much sense to combine the fuel cell and drive-by-wire.
More to the point, combining the fuel cell and drive-by-wire is what breaks the automotive paradigm. When our supplier SKE introduced us to its drive-by-wire technologies, it really got us thinking about eliminating all of the mechanical links between the chassis and the body. The core of the AUTOnomy is a skateboardlike chassis that contains the fuel cell, the power train, the suspension--in fact, the entire functional apparatus of the car. But because all vehicle controls, including steering, braking, and acceleration, are operated electronically, no mechanical links intrude into the body. This makes the vehicle body itself interchangeable. And that makes deconstructing the automotive business model a very interesting proposition.
The Quarterly: How so?
Christopher Borroni-Bird: For wealthy individuals, this could mean seasonal body changes. For fleets with specialized vehicles, it could offer a way to dramatically increase asset utilization. For the industry itself, it portends new ways of doing business. An automaker might have three or four skateboards of different shapes, sizes, and capabilities and would produce these in the millions of units each, generating tremendous scale economies, Bodies could be outsourced Dr made locally in foreign markets to meet local-content requirements. The licensing of bodymakers could become an attractive new revenue stream for auto companies.
The Quarterly: Isn't the fuel cell itself scalable in a similar way? Does its design provide for further flexibility?
Christopher Borroni-Bird: That's right. To increase power output, for example, you simply increase the number of plates in the fuel cell stack. That would allow auto companies to basically build one scalable power plant and so replace the many different internal-combustion-engine factories they now must have.
The Quarterly: That flexibility actually has historical precedents. Before the coming of mass production, a wealthy car buyer often bought a rolling chassis from a carmaker and would then commission an independent bodymaker to build the body for it. An additional service such companies would offer their customers was the storage of additional bodies, which could be swapped on and off the chassis as needed.
Christopher Borroni-Bird: One can easily imagine a similar business model evolving for the AUTOnomy. The AUTOnomy's skateboard is modular, updatable, and envisioned to last 20 years. This last point could make it an interesting choice, in future years, for emerging markets. With far fewer mechanical systems, the components of the skateboard should be more durable. After 20 years it would still work. And it would still be a zero-emissions vehicle.
The Quarterly: One of the perceived problems with fuel cells is that a good many customers for automobiles and other vehicles now appear to be unwilling to pay premium prices for the purposes of promoting broader social and environmental priorities, such as cleaner air. How can this problem be overcome?
Christopher Borroni-Bird: Most companies have been working on fitting fuel cells to conventional internal-combustion-engine vehicles. In a sense, that's low risk, but in another sense it may be a doomed approach. Like it or not, I think you have to offer more to the general public than just cleaner air or fuel independence. I think we're getting closer to that value proposition with vehicles like the AUTOnomy.
The Quarterly: Was the design freedom the AUTOnomy offers always a priority for the development team?
Christopher Borroni-Bird: Yes and no. Our biggest surprise during the AUTOnomy project was coaxing people to take advantage of the design freedom the concept offered. At first, it was difficult for the designers to come to grips with. But if we can make this vehicle look attractive in a way that a conventional vehicle can't duplicate, that will be a real win.
Lance Ealey is an alumnus of McKinsey's Cleveland office, where Glenn Mercer is a principal. Copyright (C) 2002 McKinsey & Company. All right reserved.
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|Author:||Ealey, Lance A.; Mercer, Glenn A.|
|Publication:||The McKinsey Quarterly|
|Date:||Jun 22, 2002|
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