The Electrification CoalitionRevolutionizing Transportation and Achieving Energy Security

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

25

50

75

100

125

150

WTI Brent

$/bb

l

Brent spot price flirted with $120/bbl last week.

› From a national perspective, transport electrification is an energy and economic security imperative. For consumers and businesses, it is emerging as a viable medium-term investment.

› The U.S. is at a pivotal moment in energy security policy. Oil prices are recovering from a recession-induced collapse, and are being driven up by geopolitical factors we do not control.

Why Electrification?Electrification of transportation has received considerable bipartisan support as a core component of emerging U.S. energy security policy.

2

BENCHMARK SPOT CRUDE OIL PRICES

› From a national perspective, transport electrification is an energy and economic security imperative. For consumers and businesses, it is emerging as a viable medium-term investment.

› The U.S. is at a pivotal moment in energy security policy. Oil prices are recovering from a recession-induced collapse, and are being driven up by geopolitical factors we do not control.

Why Electrification?Electrification of transportation has received considerable bipartisan support as a core component of emerging U.S. energy security policy.

3

CRUDE OIL COSTS: SHARE OF U.S. GDP

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

At between 4 and 5 percent of GDP, U.S. spending on oil could reach levels typically associated with eco-nomic recession.

Source: BP, plc, Statistical Review of World Energy 2010; DOE, EIA; U.S. Bureau of Economic Analysis

4

China United States0

50

100

150

200

250

300

2007 2015 2030

Milli

ons

LIGHT-DUTY VEHICLE STOCKVEHICLE PRODUCTION, U.S. AND CHINA (HISTORICAL)

Source: Department of Energy, Office of Energy Efficiency and Renewable Energy Source: International Energy Agency, World Energy Outlook 2009

Emerging markets are expected to account for 100 percent of future oil demand growth. This is largely driven by the transportation sector .

Global Demand Drivers

› In 2009, China surpassed the United States to become the largest auto market in the world.

› As vehicle sales increase exponentially, the number of cars on the road in China is soaring.

1980198

2198

4198

6198

8199

0199

2199

4199

6199

8200

0200

2200

4200

6200

80

2

4

6

8

10

12

14

U.S. China

Milli

on U

nits

Constrained Resource AccessOil prices are set in an open market, but that does not mean there is a free market for oil supply.

› More than 90 percent of global proved oil reserves are held by national oil companies (NOCs) that are either partially or fully controlled by governments.

› The top 13 oil and gas reserve holders are all NOCs.

TOP OIL AND GAS FIRMS BY PROVED RESERVES

5Source: International Energy Agency, World Energy Outlook 2008

ExxonMobil

CNPC

Sonatrach

KPC

Adnoc

INOC

Saudi Aramco

0 50 100 150 200 250 300 350

Oil Reserves Gas Reserves

Billion barrels oil equivalent

Petroleum fuels account for approximately 40 percent of U.S. primary energy demand, more than any other fuel.

› Approximately 70 percent of U.S. oil consumption occurs in the transportation sector, with 40 percent in light-duty vehicles.

› Transportation is 94 percent reliant on oil-based fuel for energy, with no scaled substitutes.

6

U.S. PRIMARY ENERGY DEMAND, 2009 PETROLEUM FUEL DEMAND BY SECTOR, 2009

U.S. Oil Dependence

39% Oil

27% Natural Gas

23% Coal

9% Nuclear Energy

3% Hydro electric

Source: BP, plc., Statistical Review of World Energy 2010

20% Autos24% Light-trucks28% Other Transport22% Industrial2% Commercial4% Residential1% Electric Power

7

U.S. Oil Dependence: Imports

U.S. OIL CONSUMPTION (HISTORICAL AND FORECAST) › Net imports, once a small fraction of U.S. supplies, currently meet more than half of total U.S. liquid fuel demand.

› Uncertainty exists about future import levels. Current DOE forecasts show imports falling as domestic supplies increase.

U.S. oil supplies are acquired from a variety of sources, including domestic crude oil and natural gas liquids, biofuels, refinery gains, and imports.

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

Domestic Crude NGPLs Processing Gain and Stock ChangesAdjustments and Biofuels Net Imports

Source: DOE, Annual Energy Review 2010

8

U.S. Oil Dependence: Economic Costs

U.S. PETROLEUM TRADE DEFICIT (HISTORICAL AND FORECAST) › The portion of the trade deficit driven by petroleum imports generally exceeds the imbalance we run in other goods and services with trade partners like China, NAFTA, and the EU.

› A high trade deficit exerts downward pressure on the dollar, which in turn may be helping to prop up oil prices, resulting in a vicious circle.

On a month-to-month basis, petroleum imports have typically accounted for about half of the total U.S. trade deficit since the end of 2007.

2000 2002 2004 2006 2008 20100

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Deficit in Petroleum Deficit in Goods and ServicesPetroleum Share of Total Trade Deficit

Petroleum Share of Total Trade Deficit

Source: U.S. Census Bureau, Office of Foreign Trade Statistics

› Electricity is generated from a diverse portfolio of domestic fuels.› Electricity prices are stable.

› The power sector has substantial spare capacity.

› The network of infrastructure already exists.

Features of the Electric Power Sector

9

Electrification of transportation is the best solution for sharply reducing U.S. oil dependence.

49% COAL22% NUCLEAR17% NATURAL GAS11% RENEWABLES 1% PETROLEUM

38% RESIDENTIAL37% COMMERCIAL/OTHER24% INDUSTRIAL 1% TRANSPORTATION

Source: EIA, AEO 2010

U.S. ELECTRICITY GENERATION BY FUEL, 2010 U.S. ELECTRICITY DEMAND BY SECTOR, 2010

A new generation of grid-enabled vehicles (GEVs) reached U.S. markets in 2010. North American production will ramp up in 2011.

Grid-Enabled Vehicles: Production Capacity

ANNOUNCED NORTH AMERICAN GEV PRODUCTION CAPACITY

10

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20200

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

Fiat 500EV* Fisker Nina Fisker Karma Tesla Model SFord Focus PHEV Ford Transit Connect Ford Focus EV Nissan LeafChevy Volt

Cumulative capacity = 1.1 to 1.3 million units by 2015.

› The industry is beginning to scale up. Announced North American production capacity will already exceed 100,000 vehicles in 2012.

› These figures do not include trucks.

› Additional volumes will reach the U.S. market from OEM plants overseas, particularly in the next two years.

Source: PRTM Estimates

Government and industry expectations for GEVs currently vary widely. Sales share estimates range from 1 to 10 percent—or more—by 2020.

Baseline Market Forecasts

FORECAST EV AND PHEV PENETRATION IN 2020 (UNITED STATES) › Forecast variance mostly emanates from different assumptions regarding the pace of battery/component cost reductions.

› Energy cost forecasts; lack of infrastructure; assumed future environmental policy; and guesses about consumer acceptance also play a role. 11

EIA

Global Insight

BCG

Roland Berger

Bloomberg NEF

PRTM

Deutsche Bank

0% 3% 6% 9% 12%

Source: PRTM Estimates

Electrification Overview: Challenges

› Batteries and VehiclesWith the advent of lithium-ion battery technology, the largest obstacle to widespread consumer adoption of these vehicles will be cost, though performance and raw material supply chains are also important to consider. Need innovative business models, manufacturing scale in gen-1/2, and R&D for Gen-3.

› Charging InfrastructureA profitable business model for public charging points has not been reliably demonstrated, and we do not yet know how much public charging will be needed.

› Electric Power Sector InterfaceWhile “smart” charging will make electric vehicles an asset to the grid, “dumb” charging will make them a liability.

› Consumer AcceptanceGEVs represent a significant shift in technology. In order to change mainstream consumer attitudes, GEVs must offer a compelling alternative to conventional IC engines on either cost or performance grounds.

12

While electrification has promise as an energy strategy, it can only succeed if GEVs are attractive to the mass market and can integrate into the grid.

Cost Reduction ScenariosCapital costs are currently the largest obstacle to electric vehicle adoption. However, battery and component costs are falling as gasoline prices rise.

PAYBACK PERIOD FOR A PHEV-40 (INCLUDING ARRA INCENTIVES)

13

2012 2013 2014 2015 2016 2017 2018 2019 20200

1

2

3

4

5

6

7

8

9

10

Base Case Aggressive Case

Year

s

Gas: $3/galBattery Cost:2010: $600/kWh2020: $350/kWh

Gas: $4/galBattery Cost:2010: $500/kWh2020: $292/kWh

› As battery costs come down, the value proposition will get stronger. By mid-decade, PHEVs and EVs could present drivers with an economically compelling option.

› The pace at which this happens depends on a variety of assumptions.

› Consumers typically want a 3-year payback for investments in efficiency.

14

Electric Drive EcosystemA complete electric drive ecosystem has a myriad of stakeholders, not simply OEMs and consumers. Utilities, dealers and others will have a role.

› A deployment community approach would initially concentrate amplified financial incentives for consumers, infrastructure providers and utilities into a limited number of regions. The number of communities would expand over time in multiple phases.

› Regions would be selected on a competitive basis. The most attractive regional bids would demonstrate a clear path to successful integration of GEVs, including:

› A supportive regulatory environment that facilitates concepts like utility investment in upgraded physical and IT assets; time of use pricing; and a seamless process for permitting and installing level II EVSEs in residential consumer garages.

› Support and participation from a broad swath of stakeholders, including state and local governments, utilities, utility regulators, large local employers, universities and others.

To overcome these challenges, lawmakers should initiate an ambitious program to support deployment into a limited number of communities.

15

FEATURES AND ADVANTAGES OF DEPLOYMENT COMMUNITY APPROACH

Key Policy: Deployment Communities

› Focusing on targeted regional deployment accomplishes at least three objectives:

1. Demonstrate Proof of Concept for Consumers

2. Facilitate Learning by Doing

3. Maximize Investment Payoff

› Grid-enabled vehicles require a network built on public-private coordination in order to thrive. Technology promotion has to be about more than throwing money at a problem.

› The deployment community approach recognizes that a widespread national rollout without careful planning will reduce the likelihood that GEVs can penetrate the mass market, instead being relegated to niche market status (as has happened with hybrid vehicles, 1.6 million of which have been sold over the past 11 years out of a light-duty fleet of 250 million vehicles).

Key Policy: Deployment CommunitiesTo overcome these challenges, lawmakers should initiate an ambitious program to support mass deployment in a limited number of communities.

16

FEATURES AND ADVANTAGES OF DEPLOYMENT COMMUNITY APPROACH

The Near Term Opportunity: Fleet VehiclesThe economics of electric transport will appeal to certain fleets very early. There is a huge opportunity for the battery industry to scale up this way.

VEHICLES IN OPERATION BY TYPE (2009) VEHICLES IN OPERATION BY CLASS (2009)

› There were more than 16 million vehicles in operation in commercial and government fleets at year-end 2009.

1% T

axi

3% U

tility

/Tel

co3%

Oth

er

10% Rental

11% Sales/Service

13% Long-Haul Deliv.23% State/Local Gov.

28% Short-Haul Deliv.

16.3 MVehicles

inOperation

Auto

Class 1-2

Class 3

Class 4

Class 5

Class 6

Class 7

Class 8

Buses

4.8

4.3

0.3

1.4

0.3

0.600000000000001

1.3

2.6

0.8

Million Units

Fleet Electrification RoadmapCommercial and government fleets are likely to be near-term adopters of grid-enabled vehicles, driving important early volume in the battery industry.

ADVANTAGES OF FLEETS AND FLEET OPERATORS FOR ELECTRIFICATION

•When asked, fleet managers rank total cost of vehicle ownership as the most significant factor driving acquisition decisions.

Total Cost of Ownership Approach

•Route predictability allows for minimal investment in public charging infrastructure as well as right-sized batteries.

Route Predictability

• High vehicle utilization rates increase the number of miles traveled, accelerating the payback period on GEVs for many fleet operators.

High Utilization

Rates

•Use of a central parking facility could allow some fleet operators to minimize investment in public charging and benefit from economies of scale in installation.

Use of Central Parking

Facilities

•The lower maintenance and service costs of GEVs will represent a substantial cost savings for high-mileage fleets.

Importance of Maintenance

Costs

•Access to commercial and industrial electricity rates—which are significantly lower than residential rates—will increase GEV fuel savings for fleets.

Low Electricity

Rates

•With access to capital and significant purchasing power, fleets may benefit from a number of alternative business models supporting electrification.

Alternative Business Models

•Commercial and government enterprises may consider GEVs in the context of corporate sustainability initiatives designed to reduce emissions or oil use.

Corporate Sustainability

Initiatives

18

Fleet Electrification RoadmapThe Fleet Roadmap was designed as a supplement to the original Roadmap. The report outlines a path to high GEV adoption in fleets.

KEY RECOMMENDATIONSKEY FINDINGS

› Even without government subsidies, traditional hybrids are the most cost-effective option for many fleets today.

› Falling battery and component costs begin to favor GEVs by mid-decade.

› EVs and PHEVs become the most cost-effective option between 2016 and 2020—assuming no incentives.

› Battery residual risk will be a key obstacle to adoption of GEVs.

› All tax credits should be transferable.

› Extend the benefits of “deployment communities” to light-duty vehicles operated by fleets.

› Create GEV tax credits for trucks as follows: $15,000 for class 3; $20,000 for class 4-5; $25,000 for class 6-7.

› Phase credits out after 2015.

› Clean renewable energy bonds for fleet charging infrastructure.

› Battery residual value guarantee.

19

Fleet Electrification RoadmapTargeted, temporary tax credits for all vehicle classes could put more than 200,000 GEVs on the road in commercial and government fleets by 2015.

FLEET GEV SALES SCENARIOS

20

FLEET GEV PARC SCENARIOS

› The EC policy case includes existing tax credits for light-duty vehicles as well as new credits for medium- and heavy-duty trucks. The credits phase out after 2015, reaching zero in 2020.

2012 2013 2014 2015 -

30

60

90

120

150 ('000 units)

Baseline

EC Policy Case

2012 2013 2014 2015 -

50

100

150

200

250 ('000 units)

Baseline

EC Policy Case