This week, host Daniel Raimi talks with Ellen Hughes-Cromwick of the University of Michigan Energy Institute. Hughes-Cromwick previously served as chief economist in the US Department of Commerce. Before that, she was the chief economist at Ford Motor Company for over 18 years. Raimi asks Hughes-Cromwick about the state of play in the automotive industry, how electric and autonomous vehicles are changing the economic and competitive landscape, which companies are best positioned to take advantage of these new technologies, and what role climate policy can play in planning for the vehicles of the future.
Listen to the Podcast
Top of the Stack
References and recommendations made during the podcast:
The Full Transcript
Daniel Raimi: Hello and welcome to Resources Radio, a weekly podcast from Resources for the Future. I’m your host, Daniel Raimi.
This week, we talk with Dr. Ellen Hughes-Cromwick of the University of Michigan Energy Institute. Ellen previously served as chief economist in the US Department of Commerce and before that, was the chief economist at Ford Motor Company for over 18 years. I’ll ask Ellen about the state of play in the automotive industry: how are electric and autonomous vehicles changing the economic and competitive landscape; which companies are best positioned to take advantage of these new technologies; and what role does climate policy play in planning for the vehicles of the future.
Okay. Ellen Hughes-Cromwick from the University of Michigan Energy Institute, thank you so much for joining us today on Resources Radio.
Ellen Hughes-Cromwick: Thank you, Daniel. Great to be here.
Daniel Raimi: It's lovely to see you. I get to see you pretty frequently here in Ann Arbor and it's always a pleasure. So I'm so happy that you are able to come on the show and tell us about your expertise. And today we're going to talk about the automotive industry, which is where you've spent a large part of your professional life. But before we get into that, can you tell us a little bit by way of background on how you got interested in energy and environmental topics, and what sort of led you to the automotive industry?
Ellen Hughes-Cromwick: Oh, great. Well again, thank you so much for giving me this chance to talk about these exciting topics. My career has been just an incredible journey from the Peace Corps in Sub-Saharan Africa, to studying international development, which was my key interest, and that motivated me to really understand economics. And as a profession, I was really fortunate to not just be a professor when I started out, but to work in banking and understand the banking industry, and from there into transportation.
And in transportation at Ford Motor Company, I really felt like the development that the company offered in many different parts of the world provided an incredible increase in the standard of living for people who needed jobs and who wanted jobs. And you know, a lot of the work that we did at Ford Motor Company was really centered around energy and around the environment. And hopefully these automotive companies will get on board and really move ahead in terms of clean energy in the future of mobility.
Daniel Raimi: Right. Yeah. We're going to get into those issues for sure, over the next 20, 25 minutes or so. I didn't know you did Peace Corps in Sub-Saharan Africa. Where did you do your stint?
Ellen Hughes-Cromwick: Yes. My husband and I were in the Ivory Coast and unfortunately it was cut a little bit short because of health reasons, but it was fascinating, an incredible experience. And what a great organization.
Daniel Raimi: Yeah, fascinating. I'll have to ask you more about that later. Another time. So, let's talk about the automotive industry. And before I met you, one of the things I didn't fully appreciate was the length of time that automobile manufacturers take when thinking through rolling out new vehicles and new technologies in their products. So can you give us a little bit of background on the timeframe over which a new vehicle is conceived, designed, tested, manufactured, and ultimately delivered? And the reason I asked this as kind of a starting point is for those of us who think about policy frequently, to have a good understanding of how the industry actually works, we have to understand the timescales by which they operate. And so I thought this would be a useful way of getting us started on an understanding just kind of the timescales over which these product cycles operate.
Ellen Hughes-Cromwick: Great. You know, an internal combustion engine vehicle is a very complicated, durable good. And I'm not an engineer. However, I've worked with many, many engineers over the years and it is quite fascinating to understand that a product cycle can be as long as three to five years. And while companies have worked arduously to shorten up the product cycle in the recent decade or so, it is still the case that to solidify the supply chain and contracts, and also to undertake product creation—which is to innovate and develop new products—that the gateways over which a company goes from conception to, what we called at Ford, job one, can be quite long. Three years, I'd say, would probably be average, especially when one is thinking about a brand new product. Of course companies can freshen up an existing product and make minor changes to what we call the top hat, which is the top half of the vehicle, and those can be accomplished in a fairly short period of time.
In fact, companies are driving to, you know, as I said, shorten up the overall cycle for those freshenings, as well to make them much more rapid. Because as you might know, a lot of customers globally, especially in China and Asia, want fresh product. They don't want to have stale vehicles that have been on the market for even three years. So yes, the product cycle is long. It's very complex. That may be shifting, however, as we move to electrified vehicles, because it does represent a product that has fewer components. It is easier to build, takes up less space, and potentially that could offer up a lot of opportunities, shorten the product cycle, and make products in a much more timely fashion.
Daniel Raimi: That's really interesting. So we're moving in, maybe the social media era of auto manufacturing, where things can be manufactured and put out, you know, more quickly than they have in the past.
Ellen Hughes-Cromwick: Yeah, that's right. That's right. And hopefully we'll have some great startups here in Detroit that will be looking at how to create those new vehicles that are electrified and autonomous.
Daniel Raimi: Interesting. So, you mentioned new players in the industry. That leads me to the next question that I wanted to ask, which is; When you look out across the global landscape of automakers, and I'm thinking mostly about passenger vehicles here, but if you want to elaborate and discuss other types of vehicles like heavy-duty trucking, please feel free to do that; Who are some of the biggest players that are out there today in the world of automakers? I imagine we know most of their names, but can you tell us a little bit about some of the relative strengths and relative weaknesses of some of the big players in terms of their market footing and technological footing as we think about the evolving technologies in the auto sector?
Ellen Hughes-Cromwick: That's a really good question, and again, I think I'll provide my perspective. It may not be a wholly expert one, but clearly Toyota and VW are two of the major leaders. We have some leaders also growing up in China, some of the state-owned companies that have enjoyed alliances with companies like GM and Ford over the years. I'm thinking of CAIC, and some other major companies. Of course, you know Geely has acquired Volvo, and Chairman Li and his team have done an outstanding job creating new products under the Volvo brand.
I'm also thinking of, you know, some of the smaller players like Tesla and new players, like potentially Rivian, as they launch their electrified pickup next year in Illinois at the former Mitsubishi plant. The playing field, in other words, is evolving as well. At the same time, those bigger players that I mentioned, that own a fairly sizeable market share globally, have more capital in general and more ability to allocate resources to new product creation.
They’ll be around for a long time and have great alliances in many different geographic markets. And so yes, we do have new players there disrupting the old business model, so to speak, and I think that's a good thing. Competition is good. It is true, however, that in the automotive industry there is excess capacity. While the industry sells almost a hundred million units a year globally, there is about 20 percent more capacity as compared to that selling rate. And that excess capacity means that, yes, there's a lot of competition, we're likely to see some changes over time to try to rightsize and rationalize the industry.
Daniel Raimi: You mentioned earlier that electric vehicles tend to have fewer components. They're in some ways simpler to manufacturer. Do you have concern about communities in the US or abroad that do depend on those, you know, secondary jobs or those supply-chain jobs to supply internal combustion engines? Is that a sort of workforce issue that you think we'll be looking at in the years to come?
Ellen Hughes-Cromwick: I think it's going to be critical as we look at this transition to electrified transportation, we have to be very considerate of workforce development and policies that help the transition from the existing infrastructure to new infrastructure. Certainly it's the case in the Midwest region where we are, because we grew up with just these incredible mobility assets in the region, the people and the infrastructure. And now as we look ahead, how do we make that transition successful? And I do think that there are pathways to do that and policy enablers that will ensure that we will be successful.
There was an interesting report recently by Transport and Energy Organization in Europe that showed that if the European industry transitioned to electrified successfully, that they would recoup not only the existing jobs at internal combustion engine plants, but actually grow. However, if they didn't address it directly, they could lose upwards of 30 percent of employment in the industry. Therefore, it is an imperative for our policymakers and for our business leaders to make sure that that transition can be successful. There are many new occupations that will grow out of [the] electrified transportation sector and automated as well, and therefore we've got to make sure we train those future workers and retain those jobs.
Daniel Raimi: Yeah, which raises the challenging question of sort of a straight-talking, clear-eyed view of the future that communicates to those communities, and try[ing] to talk about what you might be losing along with the potential upside that you described, which is such a challenging political issue that we could spend hours talking about all by itself.
Ellen Hughes-Cromwick: Absolutely.
Daniel Raimi: Speaking of challenging political issues, I wanted to ask you about some news that's been making headlines over the last few weeks and months, which is about fuel efficiency standards here in the United States for passenger vehicles. So the US automotive industry, to my understanding, and correct me if I'm wrong, but to my understanding has largely sided with California and some other states in terms of adopting their preferred fuel efficiency requirements, rather than sign on to the Trump administration's proposals to sort of weaken or at least halt some of the growth in fuel efficiency standards in the US. Why, in your view, would auto companies prefer to have more stringent rather than less stringent rules?
Ellen Hughes-Cromwick: I think that's a really good question, and one that I've been thinking a lot about recently, given the fact that I was at Ford Motor Company when they signed up for the new CAFE standards and all of the research and work that went into that effort. Companies and businesses require a little more certainty around policy, and they developed business plans to achieve the CAFE standards that were recently put in place now. To freeze or reverse or change that would represent additional cost and effort on the part of companies. They've dedicated capital to achieve that. Therefore, the first reason why I think the companies have moved to sign up, ZEV is simply that, "Hey, we developed our business plans around this policy and now you're telling me that that's going to be changed. I've already dedicated resources to achieve that. Now you're telling me those are really sunk cost. That's not a great outcome."
And further, they know that the climate science means that we all have to move in that direction anyway and they may be anticipating a zigzag back to the existing CAFE standard platform. That's reason number one, I think that's really important. And number two, the rest of the world is moving in that direction. These companies are global. They need to be selling into Europe, they need to sell into Asia and they need to sell into South America. To have multiple standards that are really at odds with each other, especially given that capital is scarce for many of these companies. They're not a Google with a hundred plus billion dollars of cash on their balance sheet. They need to make sure that they can align their standards over many different geographic regions. And clearly the ZEV mandate approach is much more consistent with what they see in terms of policy in Europe and Asia. Those are the two major reasons I think that they have decided to move in that direction.
Daniel Raimi: Yeah, that makes sense. And it sort of cycles back to that first question that I asked you about time horizons and planning cycles. And you know, companies have invested for years with a certain expectation. and changing that expectation on a dime is not practical or cost-effective.
Ellen Hughes-Cromwick: That's right.
Daniel Raimi: So let's switch topics and move over to electric vehicles and, to a lesser extent, autonomous vehicles. The electric vehicles that we're starting to see on the road, you mentioned Tesla earlier. Of course there are zero emissions, there are electric vehicles from other automakers as well. They're still a small part of the market today, a relatively small share of sales, but they're projected to grow quite rapidly over the next several decades, particularly in high growth markets, including China and the European Union and the United States. When you think about passenger EVs in the US and globally over the next, let's say, 10 years, how bullish or bearish are you on, you know, how many of them we're going to see out there when we're driving around Ann Arbor or Washington DC or Davis, California or anywhere else?
Ellen Hughes-Cromwick: I guess I'm probably on the optimistic side of the consensus, with regard to the take-up rate between now and 2030. Let me explain a little bit, as you know the selling rate of electrified vehicles has been growing at a double digit pace since 2015 and even earlier. However, there were very few electrified vehicles before 2015. Last year in the US, there were 361,000 sales of either plug-in electric vehicles or battery electric vehicles. In China, that selling rate was a million plus units. Now bear in mind that last year the total number of vehicles sold globally was greater than 90 million units. And globally, the number of plug-ins plus battery electric vehicles sold was about 2 to 2.5 million units. Therefore, relatively low by historical comparison. At the same time, I think the acceleration in electrified vehicle sales is the most likely outcome because the cost structure has fallen quite substantially.
Nobody would have projected, even three years ago, that Tesla would represent a third of the luxury market share. And I am talking total luxury markets, not just new types of transmissions. That's pretty amazing. And I think people are not looking into the future, bearing in mind that the costs have come down for the battery pack. And I think that the market forces, combined with the fact that policy has enabled and provided some stimulus for electrified vehicles, that we're likely to see the growth be much more substantial, and that's why I'm more on the optimistic side as compared to what most analysts may be projecting.
Daniel Raimi: And you had sort of chalked the large majority of that up to declining battery costs.
Ellen Hughes-Cromwick: I would say that's probably the first factor, and I would love to do an econometric model of that. However, the data are not very rich yet, in terms of a time series that would provide a meaningful predictive analytic. But yes, I think the battery cost is the first. But secondly, the degree to which the Chinese government has supported and stimulated battery manufacturing and electrified vehicle startups, that has laid the groundwork for other companies to kind of sit up and take notice and recognize that, you know, really to sell into that very large market. One has to be producing at scale these electrified vehicles.
Daniel Raimi: Yeah, that makes sense. So we've been talking for the last few minutes about passenger vehicles, right? Passenger cars, passenger trucks, such as those developed by Rivian. When you think about other applications of battery electric vehicles, like long-haul trucking, where do you think the market's going on that side of the equation? Do you think there's a substantial role that heavier-duty, longer-haul battery transportation is going to play in the next decade or two? Or do you think that's a ways out?
Ellen Hughes-Cromwick: I guess I'm not an expert on heavy-duty vehicles and I'm a little cautious about a projection, but my understanding and reading of heavy-duty is that the battery pack is cost-prohibitive. However, as you know, in long-haul energy cost is absolutely the number one factor. And to the extent that we continue to see the innovations on battery pack construction in the kilowatt-hour capacity of those battery packs, that over time it will achieve that cost structure that will be very attractive for heavy-duty. My understanding is that that's farther into the future than what we see for light vehicles and even medium-duty. Medium-duty vehicles, there are some really interesting kind of product developments there and especially with battery packs that could become very cost effective. And of course, in the electrified bus segment, we're seeing some major headway with some key manufacturers.
Daniel Raimi: Right. I think I read an article fairly recently that was talking about the Chinese city of Shenzhen, which if I'm remembering correctly, has fully electrified their bus fleet and the fleet is, you know, substantially larger than New York City's or something like that. It's just really rapid deployment of electrified buses, which is exciting.
Ellen Hughes-Cromwick: Yeah, that really is.
Daniel Raimi: You mentioned medium-duty vehicles. Can you help me get some, an intuition as to what those vehicles are like or is it like UPS trucks or that kind of thing?
Ellen Hughes-Cromwick: Yes, primarily those freight delivery vehicles that are the last mile to our wonderful e-commerce sector that has accelerated substantially and likely will continue to grow robustly. And those companies that foster e-commerce platforms are certainly interested in providing a much more sustainable and electrified fleet over time. And therefore a lot of effort has been dedicated to ensuring that those medium-duty trucks, which are greater than 14,000 pounds as a gross vehicle weight measure, that those vehicles can offer up electrified products, that they will be electrified over time. So I think that there's a lot of optimism in that particular sector, in part because it is so important for e-commerce, and e-commerce companies have been really kind of committed to generating a much cleaner business model over time. Cleaner, clean energy business model.
Daniel Raimi: Right. Right. That makes sense. So we're running short on time, but I just want to ask you one more question about vehicles. And this is the AV side of things rather than EV. So autonomous vehicles. And I know this isn't your main area of work, so we'll put that caveat in there, but I'm just curious from your perspective, certainly much closer to the industry than I am and watching these developments take place. Autonomous vehicles are being tested out in the real world. There are actually some here in Ann Arbor, Michigan that we see from time to time cruising around town. What's your view on how likely we are to start seeing substantial numbers of AVs on the road in the next, say, five, ten years?
Ellen Hughes-Cromwick: When talking about AVs, I think it's important to look at the different attributes of autonomous vehicles. And the Society of Automotive Engineers has established key definitions on the range of different autonomous vehicle content from what they call level one, and that would include certain content that is, you would think is just sort of a normal part of a new vehicle, out to level five, which would be the ultimate in terms of driverless vehicle, no cockpit, no steering wheel and a completely autonomous vehicle. In fact, the degree of autonomous vehicle content is increasing quite a bit and the key driver for that, of course, is enhanced safety and also consumer preferences. People who drive like the additional ability to have almost someone looking over their shoulder, the automatic braking and lane violation alerts and other features are offering up some additional comfort and safety for drivers.
That is, I think, a very different outcome than the level five completely driverless vehicles. And my understanding is that it will take much time and effort to achieve a driverless vehicle environment. Some experts suggest it could be well beyond 10 years to get to a level five. Or perhaps certain Metro areas could be geo-fenced and only driverless vehicles in that geo-fenced area could operate. That's quite possible and maybe there's some innovative city planners who are actually thinking that they should get that on the books soon. So let's see what happens. But I do think it will be a little bit of time before we see a level five completely driverless vehicle environment.
Daniel Raimi: Interesting. I keep thinking, so I have a one-year old, and I keep thinking that, "I wonder how old is he going to be so that I can just have an AV come pick him up and take him to school and then go pick him up afterwards." So not for elementary school. Luckily he can walk to elementary school. So that's good. Okay, so Ellen, thank you so much for sharing all of your expertise on these issues.
Ellen Hughes-Cromwick: Thank you for having me. This was fun.
Daniel Raimi: Yeah, it's so wonderful. And let's close it out with, I'm going to ask you the question that we ask all of our guests, which is what's at the top of your literal or metaphorical reading stack? And I will get us started with, we were talking about sort of workforce displacement, workforce disruption earlier when we were talking about internal combustion engines and electric vehicles. Regular listeners of the show will know that we talk quite a bit about energy transition on the show and in particular coal communities.
And I was really interested to see a recent piece that was published on Forbes’ website. It was written by Chris Hansen, who is a Colorado legislator, Morgan Bazilian, who's a professor at the Colorado School of Mines, and Ken Medlock, who's a professor at Rice University. And it's an article that talks about a new legislation in Colorado that is all about energy transition for coal workers in Colorado, providing them with workforce training, wage differential benefits and grants to communities where coal workers are living. That is enacted in some recent legislation.
So definitely check out this piece. It's called “Energy Transitions And Local Action: The Case Of Colorado's Coal Transition.” And I think there's also a peer reviewed article associated with it, along with some legislation, so really interesting new models coming out on how to deal with some of these workforce transition issues in Colorado.
Ellen Hughes-Cromwick: That's great.
Daniel Raimi: Yeah. How about your own, what's at the top of your stack?
Ellen Hughes-Cromwick: Well, I just finished a book called The Pioneers by David McCullough. And what was so interesting about that book, and I hope any listeners out there would pick it up because it doesn't sound like it's about the environment, but it really is, there's so much discussion and interest among the pioneers who ventured into the southeastern portion of what is now the state of Ohio. That was the West, and it was called the Northwest territory. They were really interested in the environment and nature, and were so coveting of the environment in that area as they developed. Granted, they did have to cut down a lot of trees, unfortunately. At the same time, they were interested in preserving the environment over time. And I just thought that was really fascinating. There are other books, I love The Fifth Risk by Michael Lewis. I thought that was a great book following another one I just read called The Undoing Project, which was about the friendship between two of the founders, really, of behavioral economics, Tversky and Kahneman. I just thought that that book was great. And then I'll just close with, you know, I keep going back to how paradigms are shifted, and the philosophy of science has so many great philosophers who've studied this, Thomas Kuhn in particular, [and] Karl Popper. And some of the work that they did [was] about how difficult it is to shift paradigms and shift thinking on major theoretical issues. And I think there are some great lessons there for all of us who are talking about huge technology changes, like moving from an internal combustion engine to an electrified vehicle, what that means for improving our environmental outcomes.
Daniel Raimi: Yes, absolutely. Well, Ellen Hughes-Cromwick from the University of Michigan. Thank you again so much for joining us on Resources Radio.
Ellen Hughes-Cromwick: Thank you, Daniel
Daniel Raimi: You've been listening to Resources Radio. If you have a minute, we'd really appreciate you leaving us a rating or a comment on your podcast platform of choice. Also, feel free to send us your suggestions for future episodes. Resources Radio is a podcast from Resources for the Future. RFF is an independent nonprofit research institution in Washington DC. Our mission is to improve environmental, energy, and natural resource decisions through impartial economic research policy engagement. Learn more about us at rff.org.
The views expressed on this podcast are solely those of the participants. They do not necessarily represent the views of Resources for the Future, which does not take institutional positions on public policies. Resources Radio is produced by Elizabeth Wason with music by me, Daniel Raimi. Join us next week for another episode.