Transportation is a key function of global commerce, and is the largest demand sector for energy per the U.S. Energy Information Administration (EIA). In the U.S., 28% of energy supply is used by the transport sector, which consumes 72% of all petroleum supply sources according to the EIA. The transportation sector is vast, extending from passenger cars to commercial fleet vehicles, and off-road equipment as well as shipping and transport. The technologies for these varied end-markets range from engine, to drive trains and vehicle materials such as tires, carbon fiber and aluminum.
Transport infrastructure is an important component, from fueling for natural gas vehicles, to charging stations for electric vehicles (EVs), to fleet route optimization technologies. While the internal combustion engine is the primary and incumbent vehicle engine technology, the commercial fleet market is seeing new engine and drive train technology adoption given the “return to base” nature of most commercial fleets combined with heavy vehicle use. The investment opportunities in efficient transport are primarily based on the need to do more with less: given major secular trends globally, there is a need for increased efficiency for both passenger cars and fleet vehicles. We have prioritized this opportunity according to energy use, market opportunity, and carbon emissions reductions.
While transport energy consumption has doubled in the United States since 1980, it is dominated by road transport, with can effect the greatest change on energy use and carbon emissions. There are other catalysts for efficient transport technologies aside from supply and demand economics. Governments are applying increasingly stringent efficiency standards to passenger and commercial vehicles in order to increase energy security and promote environmental sustainability. This energy demand is focused primarily on oil, which powers passenger cars, the greatest component of domestic and world energy use by transport mode as highlighted in a report from the International Energy Agency (IEA, Transport Energy Efficiency, September 2010):
Source: IEA, Transport Energy Efficiency, September 2010)
Global transport is also responsible for over 24% of carbon emissions according to the IEA (2009 World Energy Report), with over 75% of those emissions due to road travel from passenger cars. Given this concentration of resources in road travel, coupled with anticipated growth in non-OECD regions, we believe the greatest energy efficiency and clean technology investment opportunities in efficient transport exist with global passenger cars, as the IEA expects the global car fleet will double to 1.7 billion in 2035. The majority of cars sold will be outside the Organization for Economic Co-operation and Development (OECD) regions by 2020, and this will continue to drive global oil demand.
Source: 2009 World Energy Report
The US Department of Energy (DOE) 2012 report on vehicle efficiency describes car energy losses, noting the significant opportunities inherent with improved engine and drive train efficiencies. Internal combustion engines will be the dominant means of propulsion, given their lower cost and diverse set of platforms. Engine losses can be improved with diesel engine technology and turbochargers which increase load efficiencies. Engine pressures and efficiencies can also be enhanced with gasoline direct injection technologies, smart cooling and variable lift and timing which adjust values relative to engine pressures and related vehicle speed. On the power to wheels front, improved transmission technologies can increase efficiencies with better gearing, and continuously variable transmissions that increase overall efficiency by 5-7%. Start-stop engine technologies reduce tailpipe emissions and can improve overall fuel economy by 7-9%, as the micro-hybrids provide engine shut off when a car is stopped, such as at a red light or in traffic. The car re-starts when the driver presses the gas pedal. Such technology has been rolled-out initially in the EU, to meet increasingly stringent EU auto emissions standards.
On the non-propulsion side, solutions for vehicle efficiencies include vehicle aerodynamics, improving rolling resistance, and vehicle weight reduction. Low resistance tires and related tire pressure management technologies have high value, improving overall efficiencies by a few percent. Vehicle light-weighting is more complex, and comes with greater costs. While carbon fiber and aluminum have greater performance characteristics and a lighter weight than the auto body incumbent-metal steel, the greater costs of the former materials may slow adoption rates by auto manufacturers. Currently, carbon fiber and aluminum are being introduced primarily in the luxury vehicle segments, but we do believe wider adoptions will increase in the coming auto cycles, as reducing a car’s weight by 10% can improve fuel economy by 6-8% according to the DOE (54.5 MPG and Beyond, December, 2012).
Source: US DOE 2012
Electric and hybrid electric vehicles (EV and HEVs) are a rapidly growing segment of the automotive industry, driven by consumer interest in environmental sustainability, and a desire to limit gasoline purchases. EVs use an electric motor for the main source of propulsion. These vehicles have the most stringent requirements for battery technologies as there is no backup source of energy. EVs will require more public charging infrastructure before there is more wide spread consumer penetration, but EV adoption is led by the EU, given its dense population centers which better enable EV technology and charging infrastructure. The investment opportunities for EVs span from battery technologies, suppliers such as battery separation material, manufacturers, and charging infrastructure.
Image: Electric Drive Transportation Association
HEVs use an internal combustion engine and an electric motor as an assist, or supplement, depending on the technology. The HEV stores power in the battery that would otherwise be lost during braking cycles. The technologies in this segment are related to EVs, yet also involve auto suppliers that offer drive train and energy storage applications. Some of these technologies are also used with the start-stop applications described earlier.
Image: Electric Drive Transportation Association
Natural gas vehicles (NGVs) are another rapidly developing transportation technology, with the ability to power multiple classes of vehicles. Penetration rates for NGVs are greatest in Europe, South America and the Middle East, with the passenger car segment. In North America, the trucking segment is showing the greatest growth for NGVs, for commercial “return to base” fleets such as waste hauling, and port fleets that have re-fueling infrastructure that is in place. NGVs are a viable technology for commercial applications, enabling lower maintenance costs over time, with carbon emissions that are half that of incumbent diesel technology. Commercial adoption rates are increasing as U.S. Environmental Protection Agency regulations are enhanced regarding diesel particulate matter. Aside from environmental regulations, commercial fleet operators are realizing lower business risks by ramping NGV fleets, given enhanced energy security coupled with lower commodity price risk as they diversify away from diesel fuel. Primarily for this reason, Russia just announced plans to move to 50% of all on-road vehicles to natural gas by 2020.
Source: Westport Innovations Corporate Update presentation, August 9, 2013
A related technology for commercial use is fleet logistics, and related optimization technologies such as routing software and hardware. These technologies have been in place for many years at larger shipping and consumer products companies, but are now available for smaller consumer services companies. Any company operating a service fleet can benefit from substantial cost savings and a significant return-on-investment by installing fleet optimization software utilizing GPS systems. Such systems usage can enhance vehicle life by optimizing mileage per vehicle, maximize revenue by allowing more service calls/day, and increase customer service levels.
The efficient transport theme is broad, and varied, covering additional segments such as off-road equipment, marine shipping and aviation. For the purposes of this report, we chose to focus on those sectors, technologies and industries having the greatest investment opportunity for asset owners interested in the secular trends stemming from de-carbonization technologies related to non-OECD economic growth and the increased adoption of greater environmental regulations.