The great electric car race (pg. 2)

Battery power has been around longer than any of these companies; it is as old as the automobile itself. In 1896 an electric car beat five gasoline-powered vehicles in the first motor race held on American soil. By 1900 there were a dozen manufacturers of electric cars; they produced 28% of the 4,192 autos built in the U.S. that year. Powered by lead-acid batteries, electric cars were silent, clean, and simple to operate. Their normal cruising range was 25 to 40 miles at speeds approaching 20 miles an hour - fast enough for the primitive roads of the time.

But battery technology was slow to advance. Electrics were ill-suited to long-distance driving as new highways were built. Henry Ford introduced the economical, easy-to-repair Model T in 1908 and would eventually sell 15 million. Gasoline engines, at first noisy, smelly, and unreliable, became more refined. Sales of electric cars peaked in 1912 and gradually dwindled to a small group of customers, mainly wealthy women and doctors. The last production models disappeared by the end of the 1920s.

For several decades battery development moved haltingly. There was no Moore's law positing a doubling of battery capability every 18 months. The chemistry is complex, and demand was slight. Then, as concerns grew about climate change and imported oil, interest was rekindled. In the 1970s electric-powered delivery trucks, small vans, and rudimentary passenger cars like the Sebring-Vanguard CitiCar appeared. Best suited for retirement communities, the plastic-bodied CitiCar had a top speed of 44 miles per hour, a range of 50 to 60 miles, and a ride like a farm wagon.

Federal regulators stepped in to give the technology a boost. The passage of the Clean Air Act in 1970 and its subsequent amendments were designed to improve air quality by reducing exhaust emissions. They got the attention of GM chairman and CEO Roger Smith, who had a fondness for great leaps in technology. In 1990, Smith drove a battery-powered concept car called the Impact at the Los Angeles auto show and announced four months later that GM would put it into production as a demonstration of its concern for the environment. Smith retired later that year, but his successors pushed ahead with the plan, despite doubts about its feasibility. Nearly seven years later the car, renamed EV1, went on the market at select dealerships in Southern California and Arizona, available for lease at $640 a month. The lozenge-shaped two-seater was quiet and powerful. But despite more than 1,000 pounds of lead-acid batteries, early models could travel only 55 to 75 miles per charge, thus creating "range anxiety." Recharging took eight hours.

GM upgraded the EV1 with nickel-metal hydride batteries and extended its range, but with gasoline prices low, interest was scant. California regulators read the tea leaves and dialed back on a requirement that automakers produce zero-emission vehicles (ZEVs). Losing thousands of dollars on each car, GM discontinued production of the EV1 in 1999, thereby earning the enmity of environmentalists. In 2003, GM recalled all the cars to get them off the street, thereby inciting conspiracy rumors and creating a story line for the popular documentary "Who Killed the Electric Car?" GM later claimed that the EV1 taught it about software and electric motors, but that hardly justified the cost of the program, estimated at $1 billion.

With climate change now a popular topic and memories of last year's gas price spike still fresh, nearly all the major car manufacturers have declared plans to put electric cars on the road by 2012. China has let it be known that it wants to become one of the leading producers of all-electric cars in as little as three years. China's BYD, already one of the fastest-growing battery makers, is using an investment by Warren Buffett in an effort to become the world leader in cars and batteries.

In the U.S. a company called Ener1, run by a former investment banker, is trying to establish itself as an American presence in batteries. Former Intel CEO Andy Grove believes that the U.S. needs to invest more in what he calls a critical technology and argues for a government-led consortium in battery research. Eyes will be on Obama's climate czar, Carol Browner, this summer as she coordinates the administration's effort to push a comprehensive energy bill through Congress.

New lithium-ion batteries - lighter, denser, and rechargeable more times - have improved the cost-benefit equation of electric cars. "The day you have a mass-marketed zero-emission vehicle, how are conventional cars going to look?" Carlos Ghosn, CEO of Renault-Nissan, asks Fortune. "I'm going ahead with the lithium-ion battery." The battery's biggest weakness is a tendency to become unstable under stress. In 2006, Sony recalled several million laptop batteries because of a manufacturing defect that caused some to burst into flames.

The first lithium-ion-powered cars should start appearing next year. BMW is testing an experimental Mini Cooper with batteries in the back seat that has a range of 150 miles, while Toyota is developing a city car that can go 40 miles on a charge. Spurred once more by regulation, American manufacturers are coming to the party too. Batteries are the only suitable technology to meet California's 2014 ZEV standard. Ford will introduce a new small car powered by a lithium-ion battery in 2011. Chrysler has shown an electric minivan and an electric Jeep at auto shows and says it will introduce an unidentified electric car in 2010.

It will be at least a decade before electric cars make a significant impact on the overall market. Battery-powered cars are still handicapped by their limited range and the length of time they must remain at the plug for recharging. Their adoption will have to first gain traction in metropolitan areas where driving distances are short, and expand from there.

Gasoline, diesel, or some other high-density fuel will continue to be required to cover vast distances or to scale mountain passes. In a recent report, Roland Berger strategy consultants wrote, "We do not see battery electric vehicles having the same driving range as internal-combustion engine cars, thereby limiting their use mainly to city driving." Cost also remains a big issue. "I don't see battery electric vehicles selling in significant numbers within the next five years," says powertrain forecaster Michael Omotoso of J.D. Power & Associates. "Gas prices would have to go to $8 a gallon before the average buyer sees an electric vehicle as a sensible option."

Long before then, it will be clear how GM's investment in the Volt paid off. Projections call for the production of 10,000 cars during its first year, 60,000 in the second. By comparison, GM sold 1.8 million Chevrolets of all kinds last year.

GM says that as the Volt's sales volume increases, its cost will come down, but it isn't expecting to make a profit until the car has been redesigned at least twice. "First-generation technology is expensive, but you can't have a second generation without a first generation," said GM vice chairman Bob Lutz, in one of his last statements before retiring. "Volt will survive and prosper."

He didn't say anything about GM's doing the same.  

12