Internal combustion engines can operate with much greater fuel efficiency with the help of automotive electronics. IT technologies can reduce fuel consumption with route optimization.
Information technologies for increasing fuel use efficiencies
1. Table of Contents
BEYOND OIL.....................................................................................................................2
INTRODUCTION.........................................................................................................2
THE FUEL EFFICIENCY IMPERATIVE................................................................3
FUEL CONSUMPTION: THE IMPORTANCE OF LIGHT VEHICLES.............4
FUEL EFFICIENCY FROM EXISTING TECHNOLOGY.....................................5
Measurement and Fuel Efficiency................................................................................6
Engine Efficiencies.........................................................................................................8
Variable Valve Timing and Lift: fuel to match vehicle speed...................................8
Multiple Valve Cylinders: more juice from fuel........................................................9
Cylinder Deactivation: winding down at lower loads................................................9
Direct Fuel Injection: getting the mix right................................................................9
Integrated Starter and Generator: shutting power to an idle engine......................9
Turbo charging: packing in more power...................................................................10
Hybrid Cars..................................................................................................................10
Transmission Efficiencies: synchronizing engines with vehicle motion.................10
Alternative Internal Combustion Engines.................................................................11
Diesel Engines...............................................................................................................11
Natural Gas Engines....................................................................................................11
DIFFUSION OF FUEL EFFICIENT TECHNOLOGIES.......................................12
Monitoring and Tracking Information Technologies..............................................12
Automotive Electronics Enabled Fuel Efficiencies...................................................13
Diesel Engines...............................................................................................................15
Natural Gas Engines....................................................................................................16
Hybrid Cars..................................................................................................................18
PROFILES OF INNOVATING COMPANIES........................................................18
BorgWarner.................................................................................................................19
Overview.......................................................................................................................19
Financial Performance................................................................................................19
Westport Innovations Inc............................................................................................19
Overview.......................................................................................................................19
Financial Performance................................................................................................19
Clean Diesel Technologies Inc....................................................................................20
Overview.......................................................................................................................20
Financial Performance................................................................................................20
Remy International......................................................................................................20
Overview.......................................................................................................................20
Financial Performance................................................................................................21
Xata Corporation.........................................................................................................21
Overview.......................................................................................................................21
Financial Performance................................................................................................21
CONCLUSIONS..........................................................................................................21
2. BEYOND OIL
INTRODUCTION
Oil independence is the clarion call of the day in the USA. Lately, concerns about the price of oil,
security risks and climate change have coalesced to galvanize support for energy alternatives.
The transportation sector accounts for 69% of all petroleum consumed in the USA and will be at
the center of efforts to lower fuel costs.
Strategically, the transportation industry faces two major choices. The first is improving operating
efficiencies of existing technologies and the other is a paradigm change in the vehicle technology
using new sources of fuel1. In the first category, operating efficiencies can be increased with the
adoption of maturing information technologies including broadband wireless and global
positioning technologies for optimization of vehicle movements. In addition, operational
efficiencies can be realized from automotive electronics technologies by optimizing energy use in
engines and transmission in vehicles. Information technologies and automotive electronics can
complement each other and compound the benefits from any one of them. Operational efficiency
can also be improved by using alternative fuels such as diesel, which scores on combustion
efficiency, and natural gas which is a cleaner fuel and can absorb the costs of development of a
fuel efficient engine. Hybrid cars are an intermediate option in that they use both the internal
combustion engine and a battery to drive the vehicle.
Alternatively, three major technologies are available to take the place of the internal combustion
engine--hybrid-electric vehicles, plug-in electric vehicles, and hydrogen fuel cell vehicles. Hybrid
electric cars are a transitional technology while the latter two make a complete break by
discontinuing the use of oil.
The internal combustion engine still operates well below its potential and incremental
improvements in its operation entail much lower risks compared to new technologies. New
vehicle technologies are at an early stage of development and the infrastructure required for the
recharging batteries or supplying hydrogen is virtually non-existent. In the near term future, the
best bet for raising fuel efficiencies in a short enough time is to optimize the existing designs of
vehicles. New concepts of vehicles, such as the electrical car, have yet to be tested in a
commercial context2 and will inevitably incur unanticipated costs of development of an uncertain
1
Estimates show that 50% of efficiency gains can be realized by upgrading existing light vehicle
technologies, see, “Transportation Efficiency”, National Petroleum Council, NPC Global Oil and Gas
Company, July 2007.
2
A Government study “Analysis of the Transition to Hydrogen Fuel Cell Vehicles and the Potential
Hydrogen Energy Infrastructure Requirements”, US Department of Energy, March 2008, concludes, “There
is broad consensus that industry will need to demonstrate in the laboratory the capability to cost
3. magnitude. Under the most optimistic assumptions, fuel cell vehicles, for example, are not
expected to be commercially viable till 2030.
THE FUEL EFFICIENCY IMPERATIVE
The worldwide demand and supply imbalance in petroleum is likely to persist when the world
economy grows at the trend rate. Measures of oil reserves are typically a function of exploration
technology and do often eventually exceed their initial estimates. Continuing improvements in
seismology, for pinpointing the location of reserves, are likely to improve the probability of finding
new sources of oil. Regardless, petroleum production will inevitably lag behind the rapidly rising
consumption in emerging markets. Growth in oil production is hobbled by the predominance of
state-owned producers overseas3. The political passions that protect the national monopolies in
natural resources are not likely to change any time soon.
In June 2008, the United States consumed 20.8 MMbd, of which 13.15 MMbd were net imports.
By contrast, China, a country with five times the population of the U.S., consumes 6.93 MMbd, of
which 3.19 MMbd were net imports. China’s economy is growing at 10% per year and its oil
production has peaked. Growth in China can be sustained only by importing much more than the
current 3.19 MMbd of oil.
Figure1
effectively manufacture fuel cell vehicle systems in quantity (i.e., at $45/kW by 2010 and $30/kW by 2015,
with a 5-year time lag between lab-demonstrated capabilities and implementation in a mass-produced product).
Meeting these targets is deemed a key condition for proceeding with government policy and industry investment in
the deployment of hydrogen vehicles and infrastructure…Without any government policy incentives in the years
between 2010 and 2025 (Figure ES-5), the automotive industry would need to invest tens of billions of dollars and
sustain billions in annual losses over more than a decade, with profitability delayed until 2022 or beyond”. With policy
intervention, affordable cars, in the price range of $25,000, will not be available till 2030 and presume a penetration
rate of 9 million cars.
3
Alan Greenspan observes that the global oil market has on the one hand countries with most of the oil reserves with
production monopolized by state-owned companies and on the other countries where reserves have been exhausted
and have oil companies with most of the modern exploration and other technologies. The state-owned companies are
experiencing declining production as they neglect technical improvements, “Age of Turbulence”, by Alan Greenspan,
Penguin Press, 2007.
4. Figure 1 shows that per capita oil consumption in the U.S. is approximately 26 barrels per person
on an annual basis. The European Union and Japan, have a per capita consumption of around
15 barrels per person. By contrast, per capita consumption in China is only about 2 barrels per
person. As its per capita consumption catches up with the Western world, the world supply can
only tighten. According to the China Association of Automobile Manufacturers (CAAM), China
has become the second largest market for new cars; sales of 7.22 million cars were registered in
2006, up 25% from 2005. In 2007, China produced 8.8 million vehicles, up about 22% from 2006.
FUEL CONSUMPTION: THE IMPORTANCE OF LIGHT VEHICLES
The automotive sector accounts for much of the fuel consumption in the transportation sector.
Within the automotive sector, the light vehicles sector is the largest consumer of petroleum. We
will see later that the light vehicles sector has also been slow in adoption fuel efficiency
technologies.
Highway Transportation Petroleum Consumption by Mode, 1970–2006a
(thousand barrels per day)
Light
Light vehicles Motor- Heavy Highway c Total
Year Autos trucks subtotal cycles Buses trucks subtotal Transportation b
2000 4,766 3,453 8,219 14 98 2,298 10,630 12,792
2001 4,798 3,491 8,290 13 93 2,295 10,690 12,672
2002 4,923 3,602 8,525 12 91 2,401 11,029 12,939
2003 4,866 3,963 8,829 12 90 2,334 11,265 13,108
2004 4,919 4,137 9,055 13 92 2,162 11,323 13,344
2005 5,050 3,840 8,890 12 93 2,426 11,422 13,537
2006 4,891 3,957 8,848 14 93 2,473 11,429 13,592
Average annual percentage change
1970–2006 0.3% 4.5% 1.5% 3.5% 1.1% 3.4% 1.8% 1.7%
1970–2006 0.8% 2.5% 1.5% 0.7% 0.6% 2.5% 1.7% 1.6%
5. Source: Transportation Energy Data Book 2008
See Appendix A for Highway Energy Use.
a
Each gallon of petroleum product was assumed to equal one gallon of crude oil.
b
Total transportation figures do not include military and off-highway energy use and may not include all
possible uses of fuel for transportation c Highway refers to vehicles.
FUEL EFFICIENCY FROM EXISTING TECHNOLOGY
Fuel efficiency can be increased by lowering energy losses with the use of electronic control
systems that match the mechanical power generated by the engine and the power needs to move
vehicles. Traditional engines had limited capability to adapt to the fluctuating demands of vehicles
as they accelerate and decelerate. Increasing use of electronics enables real time variations in
energy consumption proportionate to the needs of vehicles. Automotive electronics technologies,
typically an array of sensors, are embedded in the engine and other assemblies of vehicles and
enable data collection to help match power requirements of vehicles with fuel use.
In addition, automotive electronics monitor driver behavior and vehicle health and help to
correlate the data with fuel consumption4. The data on the speed of the vehicle and its
acceleration rates are correlated with fuel consumption to ensure optimal driving practices.
Vehicle health is electronically monitored to lower idle time and compliance requirements met
without stopping for an inspection. Maintenance needs are tracked to ensure that energy is not
lost due to erosion in components. The full benefits of automotive electronics often goes with
related changes in automotive design which means that vehicle owners need to replace their
vehicles.
Fuel efficiency can also be increased with the use of wireless and location tracking information
technologies5. Broadband wireless technologies, together with Global Positioning Systems, help
4
A typical example of use of data is the North American trucking company Bison Transportation. “In a case study
conducted by Canada's Office of Energy Efficiency, Bison detailed how it uses a system developed by Sigurdson to
provide a monthly summary of total fuel use by vehicle, including fuel economy, total fuel consumed, fuel consumed
while idling, cost of fuel consumed while idling, and average vehicle speed.
Using historical fuel economy data, Bison established a fuel efficiency benchmark for each of the five tractor types in
its fleet. If drivers exceed the target for a three-month period, they receive a financial bonus; and the more they
exceed the target, the bigger the bonus.
Having that data is important because there is a difference of up to 12 liters per 100 kilometers [23.5 mpg] in the
mileage achieved by the most fuel efficient and least fuel efficient drivers. “Having data helps identify the amount of
time a driver spends at combinations of vehicle speed and engine rpm levels. [This enables us to] quickly identify idle
time and whether a driver is revving the engine too high for the vehicle speed, thus adversely affecting fuel
economy,” Sigurdson notes”, cited from “Fuel Economy: Sipping Strategies”, by Sean Kilcarr, June 1, 2006, Fleetowner
5
“Widespread use of satellite tracking and communication technology in the Class 8 (truck) market will continue to
migrate to the Class 3-7 market. Fleets are using telematics to capture and report key data related to the truck’s
diagnostics, idling, drive time, and fuel economy. In addition, companies are using telematics to enhance
driver productivity and route management. In the coming years, telematics will play a larger role in
maximizing cargo space for increased delivery capacity, fuel savings, and productivity”, quoted from
6. to gather data needed to find the shortest travel routes, increase the load factors of trucks and
circumvent congested routes6. Vehicle owners don’t need to replace their existing vehicles in
order to benefit from such technologies. They can purchase inexpensive plug-in electronic
devices and subscribe to mobile services to lower their fuel costs from their existing vehicles.
Automotive electronics and mobile information technology play a complementary role when data
gathered from sensors is transmitted wirelessly to a remote destination where it is analyzed and
the intelligence is used to control performance in real time. The performance can be managed not
only for individual vehicles but also for entire fleets.
Internal combustion engines also realize higher operational efficiencies when they use alternative
fuels such as especially diesel as well as natural gas which enable higher levels of combustion
efficiency than is possible with gasoline.
Measurement and Fuel Efficiency
Studies of fuel consumption have observed a great deal of variance in fuel efficiency realized in
the laboratory and in actual field conditions. The table below shows that the variance is an
average of 20%.
Fuel Efficiency in the Laboratory and the Field
Period Field Actual Difference % Difference
1975-1980 16.35 19.22 2.87 15
1981-1985 22.22 26.06 3.84 15
1986-1990 23.72 28.10 4.38 16
1991-1995 23.34 28.02 4.68 17
1996-2000 23.20 28.34 5.14 18
2001-2005 23.18 28.86 5.68 20
2006-2008 23.83 29.93 6.10 20
Source: Light Duty Automotive Technology and Fuel Economy Trends 1975 through
2008, EPA
“Forecast of Fleet Management Trends: 2008-2010”, by Mike Antich, Work Truck Online., Feb 2008
6
“In the United States alone, traffic congestion leads to 4.2 billion hours in extra travel time and an extra
2.9 billion gallons of fuel burned, for a total cost of $78 billion, according to a 2007 report from the Texas
Transportation Institute”, Wireless and Mobile News, February 8th 2008
7. The variance is due to a variety of factors such as driver behavior, the pace of acceleration and
speed, tire pressure7 and the quality of maintenance of the vehicle8 and choice of routes among
others. When drivers have access to real-time information of performance, they are empowered
to control the variables that affect their fuel costs; the influence of each of them is indicated in the
table below.
Fuel consumption can be reduced by up to 45% simply by lowering vehicle speeds and by even
acceleration. Simple maintenance procedures such as wheel alignment and tire pressure can
help to lower fuel consumption by 16%. By circumventing congested and poorly maintained
roads, drivers can reduce consumption by 65%.
Fleets can increase their load factor in order to minimize the miles they travel when they are able
to receive data on customer orders in real time. By synchronizing the movement of vehicles in
the entire fleet, the sum total of miles traveled can be lowered9.
VARIANCE IN FUEL CONSUMPTION
7
“Only 43.6 percent of all tires are inflated within five PSI of proper air pressure, according to a study by
The Technology & Maintenance Council (TMC) of American Trucking Associations…By some calculations, a
tire that is under inflated can cut usable life by 25 percent or more and consume as much as 10 percent of
a vehicle’s fuel efficiency…..Dana Corp.’s Commercial Vehicle Systems group recently launched
SmartWave TPMS (Tire Pressure Monitoring System). SmartWave TPMS provides real-time tire pressure
monitoring by sending pressure and temperature data to off-board communication systems. The system
also features a record-keeping function and has a temperature-monitoring function to automatically
compensate for fluctuations and ensure proper inflation regardless of tire temperature”, in “Fuel
economy: Onboard tire monitoring and inflation systems”, by Seth Skydel, Fleet Equipment, December
2006.
8
“Dossier Online tracks maintenance-related information from the FleetOutlook computer, including
things such as mileage and fuel consumption. In the case of a serious problem, such as low oil pressure or
overheating, the driver is notified through the radio speakers in the cab…The next step beyond
diagnostics is called prognostics - catching breakdowns before they occur. Sophisticated electronics could
alert you that a starter is going to go out soon….” quoted from “Diagnostics Today and Tomorrow”, by
Deborah Lockridge., Heavy Duty Trucking, March 2005.
9
"Two-way mobile communications ushered in a new era allowing for the integration of both
communications with the drivers and position location tracking….Using these systems, dispatchers can
reliably gather data on the location of shipments en-route to customers via automatic shipment
positioning. Customer data is provided that includes status information, estimated time of arrival for on-
time deliveries and the ability to modify shipments en-route and real-time….Many companies using these
systems report improved driver productivity, increased fuel efficiency and decreased administrative
costs." ……. Dispatchers can re-route drivers based on real-time data to minimize unproductive
backhauling without cargo. These systems even allow companies to track operational data, vehicle
utilization information, and maintenance guidelines, as well as to meet regulatory requirements. This
information is easily integrated into back-end systems, reducing administrative paperwork and providing
aggregated reports of operational performance”, quoted from “Wireless Evolution”, by Fleet Equipment,
September 2003.
8. Effect Conditions Average Fuel Economy Maximum Fuel
Reduction Reduction
Head Wind 20 mph 2.3% 6%
Hills/Mountains 7% road grade 1.9% 25%
Poor Gravel, curves, slush, snow, 4.3% 50%
road conditions* etc.
Traffic Congestion 20 vs 27 mph average speed 10.6% 15%
Highway speed 70 vs 55 mph N/A 25%
Acceleration Rate "Hard" vs "Easy" 11.8% 20%
Wheel Alignment 1/2 inch <1% 10%
Tire Type non-radial vs radial <1% 4%
Tire Pressure* 15 psi vs 26 psi 3.3% 6%
Air Conditioning Extreme Heat 21% N/A
Source: US Environmental Protection Agency
Engine Efficiencies
Vehicles powered by internal combustion engines operate at far below their optimal levels nearly
a hundred years after their invention. Only about 15% of the fuel consumed by vehicles is actually
utilized to power a vehicle or its accessories while the rest is lost to engine or transmission
inefficiencies10. Engines convert only 18.2% of the chemical energy of the fuel into mechanical
power for driving vehicles. Of the total loss of 81.8%, as much as 62.4% is accounted for by
engine losses, 17.2% by standby / idling losses and 2.2% to accessories such as air-conditioning.
Another 5.6% of the energy is lost in transmission of mechanical power from the engine to the
wheels of a vehicle. Finally, energy lost in braking is 5.8%. Only about 6.8% is used in
overcoming the resistance to the movement of the vehicle.
Increasing adoption of automotive electronics enables the regulation of the variables of
performance, such as air and fuel supply to engine cylinders, with increasing precision which
helps to minimize wastage in fuel consumption. Sensors embedded in the engine ensure that fuel
is consumed when it is needed or the engine cylinder is shut down. When the engine is working,
the rate of fuel consumption is proportionate to the speed and acceleration rate of the vehicle.
Variable Valve Timing and Lift: fuel to match vehicle speed
10
Advanced Technologies and Energy Efficiency, www.fueleconomy.gov
9. Traditional engine cylinders consume fuel at a steady pace regardless of the actual need of
vehicles for acceleration and thrust. The flow of fuel into engine cylinders is governed by valves
which open at fixed intervals and for an invariable period of time. Variable Valve Timing and Lift,
on the other hand, has embedded sensors that regulate the flow of fuel and air proportionate to
the varying needs of the vehicle. This technology improves fuel efficiency by 5%, a vehicle
lifetime benefit of $1,40011.
Multiple Valve Cylinders: more juice from fuel
Multiple valve cylinders have more than two valves to evenly spread the fuel and a proportionate
supply of air around the area of the cylinder. A traditional engine has two valves; one for intake
and another for the exhaust. The fuel spray is, therefore, concentrated at the point of the intake
valve at some distance from the center of the cylinder where the ignition happens. Multiple valves
help to spread the fuel around the cylinder as well as the air to maximize combustion efficiency to
achieve higher fuel efficiency.
Cylinder Deactivation: winding down at lower loads
Similarly, cylinder deactivation temporarily shuts down some of the engine cylinders when a
vehicle operates at relatively low loads. At lighter loads, traditional engines continue to suck air
(pumping losses) and draw unneeded fuel. This technology is particularly useful for vehicles with
more than four cylinders and is estimated to lower fuel consumption by 7.5% and realizes vehicle
lifetime benefit of $2000.
Direct Fuel Injection: getting the mix right
Direct fuel injection is a means to maximize fuel efficiency by maintaining the recommended
optimal air-to-fuel ratio of 14.7:1 inside the engine cylinder. The modern versions of fuel injection
technologies concentrate the fuel and the air in closer proximity of the spark plug for improved
combustion efficiency. A combination of sensors monitors the air-to-fuel ratio and the
corresponding inflows of air and fuel for optimizing combustion efficiency. This is in contrast to the
traditional carburetor which pre-mixed air and fuel before they entered the cylinder. Direct fuel
injection technologies realize fuel efficiencies of 12% with vehicle lifetime benefit of $3,200.
Integrated Starter and Generator: shutting power to an idle engine
Integrated starter and generator is a means to minimize the energy lost when the engine is
intermittently idle at stop signs or otherwise. The engine is shut down when its power is not
needed and restarts it instantaneously when a vehicle resumes its run. More advanced versions
11
Fuel cost savings are estimated assuming an average vehicle lifetime of 185,000 miles, a fuel price of $3.07, and an
average fuel economy of 21 MPG. All estimates are rounded to the nearest hundred dollars
10. of this technology also use the heat from braking to charge an electrical battery just like a hybrid
car does. Integrated starter and generator increases fuel efficiency by 8% with a vehicle lifetime
benefit of $2,200.
As a result of idling of vehicles, additional losses are incurred when accessories such as air-
conditioning continue to function and account for 2.2% of the losses. The losses are higher in
trucks which have TVs, computers, refrigerators and other accessories installed for drivers
traveling long distances12. The losses are minimized when accessories are operated by auxiliary
power units instead of engine power.
Turbo charging: packing in more power
Turbo charging is another kind of technology that extracts greater power for every unit of the size
of the engine cylinder. It compresses the air going into the engine cylinder, effectively pumping
more air without any change in the size of the cylinder, and burns proportionately more fuel and
generates more power for each explosion. The air is compressed by taking advantage of the
force generated by exhaust gases to power the pump that compresses the air. Turbo charging
and supercharging yields efficiency benefits of 7.5% and vehicle lifetime benefits of $2,000.
Hybrid Cars
Hybrid cars combine an internal combustion engine and an electrically driven engine. Fuel
efficiency is improved by optimizing the internal combustion engine with the use of control
systems as discussed above. It has also a way to stop the engine when it is either idle or cruising
and does not need power to accelerate. Finally, a hybrid vehicle re-uses the heat generated by
braking to generate the electricity that drives the vehicle. City driving with hybrid car generates
more electricity to drive the vehicle without gasoline.
Transmission Efficiencies: synchronizing engines with vehicle motion
Continuously Variable Transmission (CVT) 13is a means to match the engine power or RPM with
the speed of the vehicle; when the two are proportionate, fuel consumption is minimized. A car
normally uses a great deal more power when it resumes its run after a stop sign than it really
needs. Traditional manual cars are unable to adjust the speed to the engine power of a vehicle
because they allow only a fixed number of changes in the gear ratio. By contrast, CVT change
the gear ratio with infinitesimal changes in speed of the vehicle so that fuel consumed for any
level of engine power matches the exact acceleration requirements of the vehicle. CVTs reduce
fuel consumption by 6% with a vehicle lifecycle benefit of $1,600. Automatic transmission has
12
The estimated cost of idling of trucks is $77 per hour according to Vivek Khosla, Director, Product
management for PHH Arval quoted in “Forecast of Fleet Management Trends: 2008-2010”, op cit.
13
“How Continuously Variable Transmission Works”, by Jeff Kar
11. increased the number of gears from three to four in the past to seven to eight in recent years for
the same reason.
Another variation of the CVT is the automated manual transmission (AMT) which shifts gears
electronically without the need for a clutch. The estimated fuel economy from AMTs is 7% and
vehicle lifetime benefit of $1,900.
Alternative Internal Combustion Engines
Diesel Engines
Diesel engines have much of the efficiencies desired by builders of gasoline engines already built
into them. They have higher combustion efficiency than gasoline engines because they compress
the air in the engine cylinder much like a turbo charged gasoline engine does. A diesel engine
burns fuel with much greater efficiency because its compression ratio is a high of sixteen to
twenty four compared to the maximum of ten possible with traditional gasoline engines. The air is
compressed before the fuel is injected; the quantity of fuel can, therefore, be regulated to meet
varying needs of the engine14. The compression levels of the air can also be adjusted to meet the
needs of a vehicle. Unlike traditional gasoline engines which burn fuel at a single point where the
spark plug is located, the heat generated by compressed air in a diesel engine is spread
throughout the cylinder and burns the fuel with greater efficiency. Newer gasoline engines seek to
achieve similar levels of combustion efficiency with multiple valves. Altogether, diesel engines
realize fuel efficiency 30-35% higher than gasoline engines15.
Diesel also has naturally higher energy content, 10-20% more, per gallon than gasoline.
Natural Gas Engines
Traditional natural gas engines are spark ignited and have the same limitations as gasoline
engines if they are not optimized16. When vehicle loads fluctuate, as they inevitably do in urban
driving conditions, fuel consumption by natural gas engines does not adjust in tandem and
consumes far more fuel than diesel engines. Unlike gasoline engines, natural gas engines cost
more because the storage tank for the fuel is much larger.
On the other hand, natural gas is clean at the well-head and saves the costs of reducing
pollutants and engine development to limit emissions. By contrast, diesel engines emit NO x and
other particulates that raise the cost of compliance with environmental standards. Refineries also
incur added costs of reducing the sulfur content of diesel before vehicles can meet emission
standards.
14
“Move over, Prius”, Economist, 24th October 27, 2008
15
“A Vision for America’s energy future”, Business Roundtable, 2007.
16
“Natural Gas Vehicle Research Roadmap”, California Institute for Energy and the Environment, May 2008
12. More efficient natural gas engines optimize the internal combustion engine just as gasoline
engines do. The higher fuel efficiency is achieved by burning a rich mixture of air and fuel and
their flow is closely controlled with electronics. The higher volumes of air ensure that fuel is burnt
fully and is less likely to emit pollutants.
When costs of production of natural gas, the development of corresponding engines and
compliance with environmental standards are added, the cumulative cost is competitive with
diesel engines at scales of production that are expected in 201017.
DIFFUSION OF FUEL EFFICIENT TECHNOLOGIES
The adoption of fuel efficiency technologies is delayed by several factors including the long
product life cycle of automotive companies. Consumers also weigh the cost of replacement of the
vehicles they own against the benefits of buying new technologies. The macro economic
environment is an important factor including the effects of fuel prices, environmental standards
and the incremental cost of more fuel efficient options. The technologies that can be plugged-in
have a better chance of acceptance compared to those which require higher levels of investment
in new vehicles.
Monitoring and Tracking Information Technologies
Telematics, or the combination of telecommunication and Global Positioning Systems (GPS), for
monitoring vehicle movement and performance, have gained widespread acceptance in larger
vehicles traversing the country. They use the more expensive satellite technologies that have the
ability to send signals in sparsely or densely populated areas18. Increasing use of inexpensive
broadband 3 G wireless technologies has extended the use of telematics to delivery trucks in
metropolitan areas. The mass use of telematics is expected with the spread of radio wireless
technologies like WiMAX which expand the periphery of the coverage area and are free from the
signal drops common with current cellular wireless technologies. An industry survey conducted by
PHH FirstFleet19 in 2005 found that 60% of the fleet managers reported that they were adopting
telematics to track equipment status and driver activities. Thirty-nine percent (39%) of the
respondents indicated they wanted to optimize routes and fuel management, and 38% thought
their drivers would perform better and drive more responsibly if they knew they were being
17
“Comparative costs of 2010 Heavy Duty Diesel and Natural Gas Engines”, California Natural Gas Vehicle
Partnership”, July 2005.
18
“In the late 1980s, Schneider National, Inc. decided it was time that someone developed a "scientific approach" to
fleet management. The company turned to QUALCOMM, which had recently developed the industry's first satellite-
based, two-way mobile communications system - called OmniTRACS. By 1989, Schneider was using the first 5,000
OmniTRACS units on the market”, quoted from “Wireless Evolution”, by Carol Birkland, Fleet Equipment, September
2003.
19
“Telematics and 'Green' Initiatives Surge in Private Truck Fleets “, Business Wire, August 7, 2006.
13. monitored. Fifty-seven percent (57%) reported a satisfactory return on their financial investment
in Telematics. The experience has been satisfactory enough for 50-54% of them to say that they
would probably install or expand a Telematics program in their fleets in 2006.
Automotive Electronics Enabled Fuel Efficiencies
The diffusion of technologies for improvement of fuel efficiencies has progressed unevenly as can
be seen in the table below. While multi-valve and variable valve have achieved mass market
adoption, other technologies like cylinder deactivation, gasoline direct injection, turbochargers,
continuously variable transmission are at an early stage of adoption. The other technologies we
will discuss later, hybrid and diesel, are also in early days of customer acceptance.
Rate of Adoption of Engine Optimization Technologies
1975 1987 1998 2008
Adjusted Fuel Economy (mpg) 13.1 22 20.1 20.8
Weight ( lbs ) 4060 3220 3744 4117
Horsepower 137 118 171 222
0 to 60 Time ( Sec ) 14.1 13.1 10.9 9.6
Truck Sales ( % ) 19 28 45 48
Front-Wheel Drive ( % ) 5 58 56 53
Four-Wheel Drive ( % ) 3 10 20 28
Multi-valve ( % ) -- -- -- 77
Variable Valve Timing ( % ) -- -- -- 58
Cylinder Deactivation ( % ) -- -- -- 7
Gasoline Direct Injection ( % ) -- -- -- 2.3
Turbocharger ( % ) -- -- 1.4 2.5
Manual Transmission ( % ) 23 29 13 7
Continuously Variable Transmission ( % ) -- -- -- 8
Hybrid ( % ) -- -- -- 2.5
Diesel ( % ) 0.2 0.2 0.1 0.1
Source: Light Duty Automotive Technology and Fuel Economy Trends 1975 through 2008
The incremental costs of engine optimization technologies are low and payback periods short
enough to be attractive for customers. A wide variety of estimates of incremental costs and
corresponding fuel efficiency benefits are available. We have used the numbers selected by the
Department of Transportation after an evaluation of the divergent estimates as well as data
provided by manufacturers. The actual benefits to the customer depends on their travel demand
which could well diverge significantly from the averages we have used for our estimates. In
addition, the benefits will vary depending on how the technologies are combined. Gasoline Direct
Engine, for example, appears to yield marginal benefits but is far more when it is combined with
turbo charging technologies.
14. An examination of the data on the product plans of manufactures reveal that the adoption of the
remaining engine optimization technologies is expected to accelerate for the period ending 2015.
Direct Injection, in particular, is expected to rise more than seven times and turbo charging is
expected to more than double.
15. Expected Diffusion of Engine Optimization
Technologies till 2015
Technology Cars Trucks
Type Percentage
Automated Manual Transmission 10 10
Spark Ignited Direct Injection 12 23
Turbo charging 5 9
Source: Extracted from Federal Register, Volume 73,
No 86, May 2nd 2008
Diesel Engines
Diesel engines were used by 50% of passenger cars in Europe in 2006 rising from 22% in 1996 20.
In the USA, the adoption rate has been lower with a 3.6% penetration rate, for all types of
vehicles, in 2006 (with a lower rate for light vehicles as indicated above)21.
In part, the low rate of adoption of diesel cars in the USA is due to lingering negative perceptions
about diesel cars etched in the minds of people at the time of their introduction in the late 1970s
and early 1980s. A recent survey found that only 41% of potential 1,023 adult customers would
consider buying a diesel car (58% will not).22 An equal number of customers perceived diesel cars
to be environmentally friendly while a larger proportion of 64% believe that they are fuel efficient.
Diesel in the past was considered to be smellier and noisier than gasoline and 61% and 67% still
consider that to be the case even now. The reality is that clean diesel engines today have 90%
lower emissions, 60% lower noise and 30% lower fuel consumption compared to 1988 23. Among
the owners of diesel cars, the only significant negative perception of diesel cars is their higher
price while overall they have positive feelings about their cars24.
Compliance with emission standards for diesel imposes penalties in the form of higher costs of
vehicles using them25. EPA requires diesel cars to meet the same emission standards as a
20
“Transport Technologies and Policy Scenarios to 2050”, World Energy Council, 2007, page 35.
21
Quoted in “Bring on the Diesels cars, trucks and SUVs”, Diesel Technology Forum
22
Diesel Technology Forum, op cit
23
Quoted in “Future Potential of Hybrid and Diesel Power trains in the US Light Duty Market”, by David L
Greene, Oak Ridge National Laboratory, August 20th, 2004
24
Oak Ridge National Laboratory, op cit
25
The cost of a medium-sized truck, for example, will increase by $4,000 to meet the emission standards in 2010.
“Trends in Public Sector Fleet Management 2008-2010”, by Mike Antich, Government Fleet Magazine
16. gasoline engine which implies a 77-percent reduction in nitrogen-oxide emissions and an 88-
percent drop in particulate emissions26. Meeting these standards is difficult unless sulfur content,
which interferes with exhaust treatment and particulate filters, is lowered. New regulations require
refineries to reduce their sulfur content from 500 ppm down to 15 ppm beginning from October of
200627.
Light vehicles are highly price sensitive with estimated price elasticity of demand as high as 8.6%
for diesel cars versus gasoline28. The higher costs of engines compliant with environmental
standards discourage the use of diesel engines. In addition, refining capacity for diesel has not
kept pace will rising demand. Diesel is generally priced at a lower level than gasoline. In times of
rising fuel prices, however, diesel prices have exceeded gasoline as shown in the chart below.
Diesel and Gasoline Prices
600
500
Cents Per Gallon
400
300
200
100
0
2/ 4/ 6/ 8/ 10 12 2/ 4/ 6/ 8/ 10
5/ 5/ 5/ 5/ /5 /5 5/ 5/ 5/ 5/ /5
20 20 20 20 /2 /2 20 20 20 20 /2
07 07 07 07 00 00 08 08 08 08 00
7 7 8
Dates
Gasoline Prices Diesel Prices
Natural Gas Engines
Natural gas vehicles are predominantly in the public sector, 20% of the 80,000 municipality buses
use them29. In the trucking industry, less than 1% of the 200,000 trucks have natural gas engines.
26
Quoted in “Diesel, dirty no more”, by Tara Baukus Mello, Edmunds
27
“ULSD”, by Dawn M Geske, Diesel Progress, May 2007.
28
Oak Ridge National Laboratory, op cit, th
29
Quoted from, “The promise of natural gas as a transportation fuel”, Investor presentation, Westport Innovations
Inc, 2008.
17. They have also have found niche applications in refuse trucks (2,500), shuttle buses and delivery
trucks (10-20,000), school buses (3,000) and light vehicle fleets (20,000)30.
Natural gas engines are expected to gain wider acceptance towards 2010 when their fuel
efficiency is expected to be 95% of diesel engines31. The newer engines increase the combustion
efficiency by a richer mix of oxygen and fuel and by compressing the mixture before it is burnt.
More air in the mix also reduces the NOx emitted after the gas is burnt. Diesel engines will emit 6
times more NOx than natural engines.
By 2010, the emission standards for heavy and medium-duty diesel engines are slated to be far
more stringent. Fleets are switching to natural gas engines to avoid the higher costs of
environmental compliance required of diesel engines. According to Dee Kapur, the President of
the International Truck and Engine, the cost of a medium-duty truck will rise by $5,000 to $6,000
to meet the 2007 emission standards and as yet an undetermined figure to comply with the 2010
standards. The cost of heavy-duty trucks will rise by $10,000 32. The ultra low-sulfur that would
have to be used is reported to cost an additional 14-16 cents for every gallon.
In the USA, the supply of domestically extracted natural gas is increasing and will encourage its
use in transportation. According to a recent study of Navigant Consulting, supply of natural gas is
increasing as unconventional sources of natural gas, shale gas, coal bed methane and tight gas,
rise. Navigant’s estimates show that unconventional natural gas supply increased by 65% to 8.9
Tcf per year in 2007 from 5.4 Tcf per year in 1998 while its share increased from 28% of total
supply to 46% in 200733.
More recently, production has surged especially in Texas and Wyoming 34. The production
increase is likely to be sustained because it is propelled by successful implementation of new
technologies, i.e., horizontal drilling35 which is able to draw on natural gas deposits in shale.
The data is cited from “The compelling case for natural gas vehicles in public and private fleet applications”, by
30
Mark Bentley, NGVAmerica.
31
“Comparative costs of 2010 Heavy Duty Diesel and Natural Gas Engines”, California Natural Gas Vehicle
Partnership”, July 2005.
32
The figures were quoted in “The Great Discontinuity: Why Historical Studies are not a useful guide in making
current and future heavy duty purchase decisions”, NGVAmerica, May 2006.
33
“North American Natural Gas Supply Assessment”, Navigant Consulting, July 4th 2008.
34
“After 9 years of no net growth through 2006, an upward trend began that generated 3% growth between first-
quarter 2006 and first-quarter 2007, followed by an exceptionally large 9% increase between first-quarter 2007 and
first-quarter 2008…..between the first quarter of 2007 and the first quarter of 2008,… supplies ( from Texas ) grew
by an exceptionally high 15%. Other contributing regions included Wyoming with growth of 9%, Oklahoma with 6%
growth, and Louisiana with 4% growth”, quoted from EIA
35
In the late 1990s, about 40 drilling rigs, or 6%, were drilling horizontally. As of May 2008, the number of rigs drilling
horizontal wells has grown to 519 rigs, or 28% of the total
18. These technologies can tap into the large reserves36 of natural gas available in Barnett Shale
deposits which were previously inaccessible37.
In addition, supplies of liquefied natural gas are increasing dramatically38. The USA is expected to
increase its imports from 2.1 Bcf / day in 2007 to 12.8 Bcf / day in 2016 39. While in the past natural
gas as a by-product of oil extraction was burnt, it is now stored as liquefied natural gas and
increased transported and traded across the world.
Hybrid Cars
Consumer interest in hybrid cars has steadily increased but this is not matched by the willingness
to pay the premiums for these cars. According to the findings of a survey of J D Power and
Associates, 72% of the consumers were either definitely or probably interested in acquiring a
hybrid for their next car40. When asked whether they would be willing to pay a premium of $5,000,
only 48% were still interested.
Consumers have a choice of sub-compact cars available in the market which come close to
matching the fuel efficiency of hybrid cars. In most cases, the payback period of the additional
costs of a hybrid car is far longer than the sub-compacts. The Honda Civic Hybrid, for example,
saves $640 each year if it achieves the 42 miles a gallon certified by the EPA and travels 15,000
miles per month as an average household does in the USA. The additional cost over the Honda
Civic is $4,84041 which suggests a payback period of seven and a half years. On grounds of fuel
efficiency alone, a Consumer Reports analysis showed that Honda Fit is a better choice.
Hybrid cars will make economic sense when they are used by owners who have high travel
demand as would be the case with taxi fleets.
PROFILES OF INNOVATING COMPANIES
In this section, we will review the business and financial performance of some selected
companies engaged in supplying products, services and technology for improving the fuel
efficiency in the automotive transportation sector.
36
Natural gas reserves in the USA are now estimated at 211 trillion cubic feet up 27% over the last decade according
to the data quoted in “Ability of the USA to compete in the Global LNG Marketplace”, American Gas Foundation,
October 2008
37
EIA, op cit
38
Based on the construction of existing facilities for the construction of LNG plants, the world’s production of LNG is
expected to double from 22.4 Bcf / day in 2007 to 49.4 Bcf / day in 2016 according to the report prepared by the
American Gas Foundation, October 2008.
39
American Gas Foundation, op cit
40
“Most consumers willing to pay for hybrid cars”, by Martin LaMonica, CNET, June 24th 2008.
41
“Still waiting for hybrids to be the smartest buy”, by Joseph B White, Wall Street Journal, July 17th 2008
19. BorgWarner
Overview
• BorgWarner (Ticker: BWA) is a global company focused on automotive engine and drive
train products for improvement of fuel efficiency.
• New business for the period 2008 to 2010 is $1.98 billion; turbochargers account for 37%
of the business and dual clutch transmission 16%. Europe accounts for 50% of the
business, Asia 30% and America’s 20%
Financial Performance
• Compounded Annualized Growth Rate of 12.8% compared to global industry average of
3.8%
• Return on invested capital increased from 13.9% in 2006 to 15.2% in 2007 and is
estimated to be in the range of 14-15% in 2008.
• Operating margins increased from 7.8% in 2006 to 8% in 2007 and estimated to be
8-8.5% in 2008.
• Earnings per share increased from $2.04 in 2006 to $2.44 in 2007 and are estimated to
rise to $2.80-$2.95 with cash on hand of $226 million.
Westport Innovations Inc
Overview
• Westport Innovations Inc (Ticker: WPRT ), a Vancouver, Canada, based company builds
natural gas versions of diesel engines, for trucks and buses, and uses their base design
available with Original Equipment Manufacturers (OEMs). Their solutions include fuel
supply and storage components.
• A joint venture, Cummins Westport Inc with 50% equity participation from Cummins,
allows Westport to use a worldwide network for distribution and after-sales services.
Financial Performance
20. • Compounded Annualized Growth Rate of 30% since 2004, YOY growth for the quarter
ending June 30th was 62.4% in value terms and 102.3% in unit terms (the difference is
due to the appreciation of the Canadian dollar). The unit sales growth in the previous
year was 56.3% in the previous year.
• The YOY growth of gross profit was 32.7% for the quarter ending June 30th 2008 and
33.9% for the previous year.
• The company incurred losses in net profit of $3.5 million or -0.13 per share at the end of
June 30th 2008 compared to $4.5 million or -0.22 per share in the previous year.
Clean Diesel Technologies Inc
Overview
• Clean Diesel Technologies (Ticker: CDTI) develops intellectual property for clean diesel
technology, for reducing emissions and lowering fuel costs, and develops commercially
viable products.
• Clean Diesel Technologies has in its portfolio 27 US patents and corresponding 121
foreign patents and another 119 US and foreign patents pending.
• The key licensing agreements are with Robert Bosch and Tenneco
Financial Performance
• Revenues increased from $1.1 million in 2006 to $4.9 million in 2007. Revenues at the
end of the quarter for Q22008 were $2.62 million compared to $0.13 million in Q22007.
• Net loss was $2.1 million in Q22008 or $0.26 per share compared to $519,000 for
Q22007 or $0.08 per share.
Remy International
Overview
• A $1.2 billion global company with a focus on automotive electrical components like
starters, alternators, engines, turbo chargers, locomotive power assemblies and fuel
systems for OEMs and the aftermarket. Growth strategy involves catering to the needs of
hybrid car components.
21. • Has a joint venture with Continental for Integrated Starters and Alternators Damper
( ISAD)
Financial Performance
• Net sales for financial year ending 2008 increased by 7.9% to $1.22 billion
• Earnings before Interest, Tax, Depreciation, Amortization and Rent (EBITDAR) increased
by 78% in 2008 to $95.9 million.
Xata Corporation
Overview
• Xata Corporation provides web based fleet management solutions for fuel cost reduction,
route optimization, vehicle health diagnosis, optimal utilization of fleet vehicles and idle
time reduction.
• The company has a market share of 16% in the private fleet and for-hire fleet market
compared to the 57% of the industry leader Qualcomm.
Financial Performance
• Sales were $16.17 million in 3Q2008 up from $6.76 million in 3Q2007.
• The company reduced its net losses from $7.8 million in 3Q2007 to $0.7 million 3Q2008
and increased its Earnings per Share before Interest Tax Depreciation and Amortization
to 0.12 from minus 0.16.
CONCLUSIONS
Gasoline, diesel and natural engines are close competitors in the market for fuel efficient
vehicles. Currently, diesel engines have an edge in fuel efficiency with their in-built efficiencies
that gasoline engines and natural gas engines will have in the future. When they are optimized,
gasoline engines and natural gas engines would match the fuel efficiencies of diesel engines.
In the end, the economics of fuel choice and consumer preferences will be the key determinants
of the adoption of each of these technologies. In the USA, abundant supplies of natural gas and
consumer enthusiasm for natural gas a clean fuel is likely to prevail over a diesel engine which is
still perceived to be smelly and dirty. Gasoline engines will trail even if they match the efficiency
of diesel engines as oil is not considered to be as clean and is imported from countries hostile to
22. the USA. Natural gas, on the other hand, is currently not widely available at retail outlets as
gasoline. Diesel engines already have fuel efficiencies that natural gas engines and gasoline
have but their wider adoption is constrained by higher costs of compliance with emission
standards. Consumers have pronounced price sensitivity to higher costs of engines and vehicles.
Higher diesel prices exacerbate the situation.
The cost of replacing a fuel inefficient vehicle by a fuel efficient vehicle is a major barrier to
adoption new technologies for lowering energy consumption. Consumers are disinclined to
accept long payback periods which are the main reason for the slow market penetration of hybrid
cars. Plug-in electronic devices, such as global positioning systems, and similar automotive
electronics provide not only quicker payback but also the ability to improve efficiencies from
existing vehicles. These devices have gained much wider acceptance.
Automotive electronics is another way to increase efficiencies but not necessarily without
replacing a vehicle. The incremental costs of using automotive electronics are low but they are
often only available in newer vehicles. Increasing competition from diesel cars is likely to drive
both the manufacturers of gasoline engines and natural gas engines to incorporate automotive
electronics in the future.