Want Electric Cars en Masse? Rethink Warranties

Separating out ownership and warranties of the batteries may be the key to making electric cars affordable

By Josie Garthwaite

For an electric vehicle owner and a utility, a dream scenario for charging vehicles at the lowest possible cost might go something like this: EV batteries draw juice from the grid when demand and electricity rates are low and feed energy back into the grid when demand peaks. That give-and-take could deliver lower electricity bills for consumers and a more stable grid for the utility.

The third factor in this equation, the carmaker, could struggle in this scenario unless the current structure of vehicle ownership and warranties is changed, said Joby Lafky, senior director of business development and partnerships for smart charging startup GridPoint, at a seminar on vehicle-to-grid technology hosted by Agrion on Apr. 7 in Palo Alto, Calif.

The EV industry needs to consider alternative ownership schemes for the battery and to "reexamine what it means to warranty a battery pack," said Lafky. Automakers today typically offer "an odometer-based warranty," he said. If electric vehicle batteries—the most expensive part of the car—are used to provide grid services, the battery will deplete due to all the charging and discharging, not just mileage. So if the battery gets used up faster, and it's within the warranty period, the automaker could get stuck paying to replace it.

Short Useful Life

While the bulk of an electric vehicle may have just as much longevity and durability as conventional models, today's batteries are widely expected to degrade down to 80% of their original storage capacity (and thus reach the end of their useful life in electric cars) after only about eight years on the road. Outside of the vehicle, batteries can hold value long after those eight years.

By offering the battery under a separate leasing agreement, an automaker could have car buyers pay for only the small percentage of the value they're getting (the car minus the expensive battery)—as long as the automaker has a mechanism in place to reclaim the battery after its useful life in the vehicle and reap its "residual value" in secondary markets. However, rolling the battery pack into one contract with the vehicle—rather than covering it under a separate warranty agreement or potentially leasing it separately from the car—could deliver higher warranty costs for the automaker and a higher sticker price for consumers.

Alec Brooks, a renewable energy engineer at Google who previously directed vehicle technology for Tesla Motors, said that ancillary services (such as switching directions between charging and discharging) won't necessarily take a significantly greater toll on battery life than the wear and tear of simply driving the car.(Google's Bill Weihl and Edward Lu will be speaking at our Green:Net conference in San Francisco on Apr.29.)

Potential Value Streams

Even so, Lafky isn't the only one who sees shifting ownership and battery warranties as a key to paving the way to more affordable, mainstream electric vehicles that help—rather than hurt—the power grid.

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