Thomas White Global Investing
Green Reports

June 23, 2010

The Green Report

Will PHEVs Pave the Way For a Greener Drive?
Will PHEVs Pave the Way For a Greener Drive?

The Department of Energy’s Argonne National Lab estimates that PHEVs can reduce carbon emissions by 36%.


Without question, the internal combustible engine automobile has been one of the biggest contributors to the rise in global carbon emissions. Not to mention a large consumer of fossil fuels. Over the past few years, the automotive industry has tried to overcome these weaknesses by introducing viable alternative solutions.

Of the options in use today, standard hybrids (HEV) are a crossbreed between a gas and electric vehicle, using an internal combustion engine, an electric motor and pack of batteries. Battery electric automobiles (BEV), in the purest form, derive their energy solely from electric batteries, yet are years away from practical use due to battery-life limitations. But there is a third solution on the horizon that might just bridge the time gap as we await an all electric, emission-free world. That innovation is the Plug-In Hybrid Electric Vehicle or PHEV, the next notch up from a hybrid vehicle.

What sets a PHEV apart from a traditional hybrid car? A standard hybrid car uses its internal combustion engine to recharge its batteries. A PHEV is fitted with a large battery that can be recharged by plugging it in to an external electric source, like a typical 110V wall receptacle in your home. Unlike a purebred electric car, it still can use its internal combustion engine between charging, so when the charge depletes, you’re not stranded on the road.

China already launched the world’s first commercial PHEV in December 2008. Sounding like a codeword, the F3DM from BYD Auto was initially made available only to government agencies and corporates at a price tag of around $21,900. In March 2010, commercial sales began in Shenzhen and in 2011 the company is looking forward to bringing its PHEV to the U.S. and European markets. While eyebrows everywhere were raised in skepticism about the car’s quality and performance, it had one staunch believer. Warren Buffett of Berkshire Hathaway paid $231 million for a 9.9% stake in BYD Auto’s parent company, envisioning the car playing a major role when it arrives in U.S. markets.

Governments worldwide are envisioning a PHEV future. France aims
to put two million Electric Vehicles (EVs) and PHEVs on its roads by
2020 while Germany will spend 700 million on EVs by 2011. China
wants 5% of its vehicles to run on electricity and battery by 2011
and Japan has already begun offering tax breaks for these
vehicles since 2009.

Indeed, the U.S. government it seems, shares Buffett’s belief, and is looking to plug-ins as one antidote to the nation’s dependence on oil. U.S. President Barack Obama has set a goal to have one million PHEVs on U.S. roads by 2015. In 2009, Obama announced a slew of programs that allotted $2.4 billion towards electric vehicle development. The government is ready to build the necessary charging stations network and work in tax rebates into the system to propel PHEV sales.

The PHEV is still in the development stage in the U.S. and Europe, though Chevrolet is the one manufacturer who has confirmed that its Volt PHEV will be unveiled by the end of 2010. The PHEV does appear worthy of attention, especially with its lofty mileage promises. The Chevrolet insists that the Volt can rack up 230 mpg while Nissan’s Leaf, another PHEV to be launched in 2011, is purported to notch 367 mpg.

Sound to good to be true? Apart from the mileage, a few basic setbacks remain. The bigger batteries that PHEVs sport are expensive, hiking up the pricetag of the car. The Volt is expected to be priced at approximately $40,000, twice the cost of a gasoline-electric hybrid like the fast-selling Toyota Prius. “Plug-ins are not the perfect solution, they are not going to be the cheapest,” predicts Ewan Pritchard of the North Carolina State University’s Advanced Transportation Energy Center.

A perhaps temporary but ingenious solution to the PHEV expense problem is converting an existing hybrid car into a plug-in using an aftermarket conversion kit. In 2008, A123 Systems, an automotive technology company in Massachusetts, was one of the first companies to offer this option in the U.S. Their conversion kit, when fitted onto the Prius, boosted its battery power thus extending its driving range and even its mileage. The Prius, which normally delivers roughly 46 mpg went up to 100 mpg with the conversion kit. The kits themselves have a price range of $10,000 to $12,000, which is comparatively reasonable. Aftermarket kits are slowly becoming popular not only in the U.S. but also in Europe, as well-intentioned people strive to achieve a balance between costs, convenience and carbon emissions.

Meanwhile, the PHEV continues to gain momentum from advertising its mileage prowess. And from the backing of its supporters. Rob Protheroe of California firm Plug in Supply insists, “Plug-ins are here to stay.” And it might not be long before the rest of the world plugs into the PHEV revolution as well.




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