1. Hart Energy Consulting Future Prospects and Potential Impacts The Electrification of Transportation in the US:

2. Hart Energy Consulting Structure of the Presentation 1.The Impact of Oil Prices, CO 2 Emissions & Fuel Economy Regulations 2.Technical & Economic Feasibility of Vehicle Electrification 3.The Current HEV Market Landscape 4.Future Potential of Vehicle Electrification in the US 5.Key Takeaways

3. Hart Energy Consulting Growth of US vehicle stock has slowed in recently years, but there are still nearly 250 million light-duty vehicles out on the road today. Sources: NHWA, DOT, R.L. Polk, HEC estimates 1. The Impact of Oil Prices, CO 2 Emissions & Fuel Economy Regulations

4. Hart Energy Consulting The industrial sector and utilities have cut back on oil consumption, but the transportation sector has not => its share of of total US oil consumption continues to grow. Source: EIA 1. The Impact of Oil Prices, CO 2 Emissions & Fuel Economy Regulations

5. Hart Energy Consulting Oil and gasoline prices reached historical highs in 2008, and still remain relatively high ($75/barrel) despite a sharp economic slowdown. Sources: API, EIA Source: EIA 1. The Impact of Oil Prices, CO 2 Emissions & Fuel Economy Regulations

6. Hart Energy Consulting In the 1970s, OEMs improved fuel economy by reducing weight and horsepower, but since the early 1980s fuel economy (acc. to EPA method) has remained stagnant. Source: HEC, based on EPA data 1. The Impact of Oil Prices, CO 2 Emissions & Fuel Economy Regulations

7. Hart Energy Consulting Thanks to cheap gasoline, consumers found it affordable to purchase bigger vehicles like pickups and SUVs—but high oil prices and the recession have changed that. Source: Ward’s Auto 1. The Impact of Oil Prices, CO 2 Emissions & Fuel Economy Regulations

8. Hart Energy Consulting US CO 2 emissions—especially those of the transportation sector— must come down if global CO2 emissions targets are to be met. 1. The Impact of Oil Prices, CO 2 Emissions & Fuel Economy Regulations Sources: Oak Ridge National Laboratory, IEA

9. Hart Energy Consulting Corporate Average Fuel Economy (CAFE) standards changed little in the 1980s and 1990s, but that was before age of high oil prices and global warming. CAFE wll increase through 2016 and beyond. Sources: NHTSA, EPA 1. The Impact of Oil Prices, CO 2 Emissions & Fuel Economy Regulations

10. Hart Energy Consulting To meet the IPCC’s CO 2 emission reductions, fuel economy in the US might need to increase by over 50% => ICE engine improvements alone are unlikely to be enough. Source: IEA 1. The Impact of Oil Prices, CO 2 Emissions & Fuel Economy Regulations

11. Hart Energy Consulting Vehicle electrification can help meet fuel economy and CO2 emissions goals, but in the short term they are not cost competitive. 2. Technical & Economic Feasibility of Vehicle Electrification Source: HEC, based on Deutsche Bank, BCG, Edmunds, Anderman (2007) data

12. Hart Energy Consulting Because of the high cost of hybrids today, their payback period is relatively long => their ability to gain market share has been limited. Source: HEC, based on Edmunds, EPA, EIA data 2. Technical & Economic Feasibility of Vehicle Electrification

13. Hart Energy Consulting The main reason for the high cost of hybrids is the high cost of their batteries. New chemistries can lower cost and improve performance. Source: Saft 2. Technical & Economic Feasibility of Vehicle Electrification

14. Hart Energy Consulting As new battery technologies mature, more cost reductions can be expected: this has been the case with LCO batteries for laptops and cell phones. Source: Brodd (2005) 2. Technical & Economic Feasibility of Vehicle Electrification

15. Hart Energy Consulting Hybrids still comprise a small part of the light-duty vehicle market—but their share is growing. Consumers associate hybrids with fuel economy, so they have favored strong HEVs over mild and moderate HEVs. Source: HEC, based on Ward’s Auto data 3. The Current HEV Market Landscape

16. Hart Energy Consulting Sales of the Prius have shown a strong correlation to their payback period => it is not enough for a HEV to be “green,” it has to offer good value. Source: HEC, based on Ward’s Auto, Edmunds, Automotive News, EIA data Note: Payback calculation is based on 12K mi/year of usage, and include the EPCAT and “Cash for Clunkers” incentives 3. The Current HEV Market Landscape

17. Hart Energy Consulting Governments—federal, state, local—are providing incentives for buyers and manufacturers of HEVs, PHEVs and EVs. 3. The Current HEV Market Landscape

18. Hart Energy Consulting OEMs are approaching vehicle electrification in many different ways. 3. The Current HEV Market Landscape

19. Hart Energy Consulting Sizing up the potential of electrification is complex: payback period is influenced by many relevant variables. Source: IEA 4. Future Potential of Vehicle Electrification in the US

20. Hart Energy Consulting 4. Future Potential of Vehicle Electrification in the US Due to complexity and uncertainty, it is best to analyse a variety of possible scenarios.

21. Hart Energy Consulting In the Base Case, penetration of vehicle electrification in the light- duty vehicle market grows moderately. 4. Future Potential of Vehicle Electrification in the US Source: HEC

22. Hart Energy Consulting In “Green Renaissance,” the gasoline price floor, vehicle incentives and battery cost reductions combine to spur high levels of penetration after 2020. 4. Future Potential of Vehicle Electrification in the US Source: HEC

23. Hart Energy Consulting In “Realpolitik,” vehicle electrification penetration is modest. Total light-duty vehicle sales also stagnate. 4. Future Potential of Vehicle Electrification in the US Source: HEC

24. Hart Energy Consulting In “Green Renaissance,” aggressive fuel economy standards and vehicle electrification combine to lower liquid fuels consumption by about 9% compared to the Base Case. 4. Future Potential of Vehicle Electrification in the US Source: HEC

25. Hart Energy Consulting In “Realpolitik,” liquid fuels consumption also declines relative to the Base Case—mostly because lower new vehicle sales lead to fewer total light-duty vehicles in operation. 4. Future Potential of Vehicle Electrification in the US Source: HEC

26. Hart Energy Consulting 5. Key Takeaways Vehicle electrification in the US today suffers from high battery costs and relatively low fuel prices, but: Government policies will be necessary to help make HEVs, PHEVs and EVs more affordable until economies of scale push battery costs down further. Future fuel economy and criteria pollutant emission regulations will make future ICEs more costly. Vehicle electrification has significant upside—but only after 2020. Vehicle electrification also depends on the continuation of open trade: resource nationalism and trade barriers could limit OEMs’ and battery producers’ ability to capitalize on global economies of scale.

27. Hart Energy Consulting Thank you!! Raphael Hudson rhudson@hartenergy.com

28. Hart Energy Consulting The transportation sector—and light-duty vehicles in particular— are also a significant source of CO 2 emissions in the US. 1. The Impact of Oil Prices, CO 2 Emissions & Fuel Economy Regulations Source: EPA