Automakers' relative focus on patents

Figure 11: Automakers' relative focus 

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A potential problem in patent analyses is that, over time, firms change their names and structure. Consequently several different firm names might need to be added to obtain the total number of patents for a group such as Chrysler (Griliches, 1990). This was addressed in two ways. First, the firm’s composition was investigated in terms of mergers and acquisitions up until the end of 2008. For the battery makers, which have been active in a rapidly changing business, this resulted in several additional firm names for each group. Secondly, only parts of the firm’s name were used when searching for patents, as the full name potentially excludes a large number of patents assigned to the group. Pilkington and Dyerson (2006) used patents to discuss the development of battery electric vehicles. They use only one patent class, comprising 268 patents for the whole period from 1976. This may be methodologically questionable and clearly makes the argument for an approach such as the one above, with its basis of more than one or just a few patent classes. In a study of another technological change in the automotive industry, Lee and Veloso (2008) used two parallel approaches, keywords and patent classes, to sort out patents. In addition to this, they manually checked each patent to verify its relevance and categorise it. Among the main technological solutions being discussed for the vehicle of the future, all benefit from a hybrid powertrain and thus from an electrochemical energy storage system, such as a battery. Vehicles using internal combustion engines with conventional or alternative fuels are hybridised to increase their energy efficiency and reduce emissions (HEVs). In the case of plug-in HEVs, use of an alternative fuel (electricity) is also possible. Fuel cell vehicles (FCVs) are hybridised in order to increase the energy efficiency of the powertrain and improve the life expectancy of the fuel cells. Even ‘pure’ battery electric vehicles (BEVs) might be hybridised using two different energy storage systems in order to handle both energy and power storage efficiently. Consequently, even though there still is great uncertainty regarding the powertrain of the future, hybridisation and thus batteries is very likely to be part of the development. In this paper, (H)EV is used to denote all types of electric propulsion, from micro hybrids, via full hybrids to all-electric vehicles. The market development so far has been cyclical with increased efforts to develop BEVs when shortages of oil were acute, for example during wars and the oil crises in the 1970s. In 1990, a mandate was adopted in California requiring car makers to sell a certain percentage of zero-emission vehicles beginning in the 1998 model year (Fogelberg, 2000). This stimulated car makers to do their utmost to develop zero-emission vehicles. Most of the large automotive firms began limited production and sales or leasing of BEVs in 1996 or 1997 (Kawahara, 1997). In December 1997, Toyota started deliveries of the Prius HEV in the Japanese market, and two years later Honda introduced their first Insight HEV on several markets. Nissan sold a small number of Tino HEVs in 2000. Ford introduced their first HEV powertrain in an Escape in 2004 and General Motors followed with a series of HEV introductions starting 2006. Until the end of 2008, the Japanese automakers and especially Toyota dominated the deliveries of HEVs, with approximately 95 percent of the total volume (Honda, 2009; Hybrid Market Dashboard 2007; 2008; 2009; Kalhammer et al, 2007; Toyota, 2009). Among the new technologies needed, the batteries differ the most when compared to traditional automotive engineering, as they require the addition of electrochemical engineering skills to the traditional mechanical and electrical engineering ones. As is common in industries in relatively rapid technological change, the number of mergers, acquisitions and partnerships has been large in the firms working with batteries for propulsion. In Appendix 1, an attempt is made to describe battery firms with relations to the six automakers in this study. Figure 1 presents an overview of some of the six automakers’ previous relations with battery makers and current ones for 2008, plus some of the vehicles in which the batteries are (scheduled to be) installed. Some automakers use suppliers to make their battery systems, such as Continental’s and Cobasys’ using cells from A123 Systems for among others General Motors. Other examples include Magna Steyr supplying battery systems to Volvo based on cells from A123 Systems and the joint venture between Samsung SDI and Bosch named SB LiMotive supplying battery systems for BMW. In Table 3, an overview of patent data developed and used in this study is given. The number of patents granted for each automaker is in the same order of magnitude with a variation between 6,000 and 14,300. In the case of Honda, the manual scrutiny revealed a large number patents relating to another method to store electric energy; super capacitors. However, even though those are used in similar applications, they were not classified as battery-related in this study. In addressing the role of batteries in the powertrain of future vehicles, the development of the share of battery-related patents among the automakers was studied, see Figure 2. The data indicates that the share of battery-related patents has increased and the sharp rise around 1990 coincides with the launch of the Californian Zero Emission Vehicle Mandate. However, each automaker has approached the battery technology differently. Figure 3, indicates the early dominance of General Motors and Ford in battery technology-related patenting, as well as the Japanese automakers’ drastic increase in battery-related patent accumulation starting at the beginning of the 1990s. In comparison to Figure 2, Figure 3 presents the absolute numbers of patents, thereby introducing a risk that different patenting strategies may influence the figures, such as filing a lot of ‘small’ inventions versus only filing ‘major’ ones. In Figure 4 - Figure 10, a visualisation of the automakers’ focus in the architectural – component dimension is provided. Here, cell and module patents are counted as component patents, pack patents are equally distributed on the component and architectural side, and battery system and powertrain patents are counted as architectural. When comparing the figures, it is important to note that different scales are used for the vertical axis. On the aggregated level (Figure 4), the data indicates a focus on the architectural side during the latter half and most active part of the period of study. The largest absolute dominance of architectural patents was around 2002. When studying each automaker separately, large differences in strategy and focus are indicated. General Motors and Ford started early with a clear component focus and have thereafter moved towards an increased focus on the architectural side. The Japanese automakers started battery-patenting a lot later with an initial heavy focus on the architectural side. Since 2003, Nissan and thereafter Toyota appear to have the highest level of activity on the component side. In the latter half of the period, all six automakers were actively addressing tractionary batteries. To obtain another perspective on the data for each automaker, the number of architectural patents was compared to the total number of battery-related patents. Here, a linear model was used giving cell patents zero, module patents 25%, pack patents 50%, system patents 75% and powertrain or above 100% in weight. Consequently, a number close to one indicates a strong focus on the architectural side and vice versa. In Figure 11, this relative value is given for all six automakers together with a polynomial trend of the second order. The development of the relative focus over the period 1993 – 2009 indicates different trends with Ford being very focused on the architectural side, whereas Nissan and Toyota have moved towards an almost neutral (0.5) focus. As outlined in the methodology section, the battery makers were studied following a slightly different approach. In Table 4, basic data is given. It indicates that battery activities are a relatively smaller part of the activities in the large Panasonic group and that JCS has a larger focus on tractionary batteries. In Figure 12 – Figure 14, the development in each dimension is described for the period of study. Figure 12 shows an overall trend towards more component patents. This is due to the large number of component patents assigned to Panasonic, whereas JCS has moved in the other direction towards more architectural patents. In comparison, Panasonic started architectural patenting very late but the group has anyway managed to file approximately twice the number of such patents than JCS. Finally, the relative focus for 1993 – 2009 is indicated in Figure 15. For both battery makers, it appears as if there has been a peak in architectural focus around 2004. First of all, the empirical data indicates that the battery has become a key component for automakers. This is supported by the increasing number of relations being established between auto and battery makers, by the increasing share of battery-related patents granted, and by the general logic of electrification as a common denominator of the main known alternatives for future vehicle propulsion. All automakers have a large number of battery- related patents, which indicates an important role of in-house knowledge, as argued for in previous studies of knowledge partitioning (Lee and Veloso, 2008; Takeishi, 2001; 2002). However, no firm has opted for a full in-house development of the battery technologies. Previous literature on automotive inter-firm relations and outsourcing mainly deals with relations between automakers and their existing suppliers, i.e. within the automotive industry. Even though this is the main case, it should be noted that relations with firms predominantly outside the automotive industry are also important; perhaps especially so in the early stages of potential paradigmatic shifts. This paper deals with one such example. Automakers need the expertise of battery makers (which is considerable as illustrated by the patent study) and battery makers must consider a new type of application for technologies which they have often been developing and manufacturing over a long period for a range of other applications. In the terminology proposed by Henderson and Clark (1990), (H)EVs are a mix of architectural and radical innovations and probably closer to the latter. As argued by Wolter and Veloso (2008), this would imply a higher degree of vertical integration. This study does neither confirm nor contest this correlation. On another level, battery and even more the fuel cell technologies are typical examples where modularisation is expected to contribute to efficient production and lower costs. Even though the automotive industry has been relatively resistant towards modularisation (MacDuffie, 2008; Zirpoli and Camuffo, 2009), a product suited for modular approaches is likely to contribute to lower vertical integration, compare Wolter and Veloso (2008). Considering all six automakers, there would appear to be a US and a Japanese approach to knowledge base development close to that outlined by Nonaka and Takeuchi (1995). All three Japanese automakers have established strong ties to battery partners in the form of joint ventures (cf. MacDuffie, 2008). The US automakers have weaker ties, consisting mainly of supply agreements. This difference might be due to different traditions of working with suppliers but might also reflect the fact that the Japanese automakers introduced HEVs on the market 5 – 10 years earlier than the US ones. Consequently, they might be some years ahead in the HEV product life cycle. The early commercialisation of nickel metal hydride batteries from Panasonic/PEVE partly reflects an investment made by Toyota. Consequently, there is a risk that other automakers may attempt to free-ride on Toyota’s efforts by using relations with PEVE. As almost all HEV makers have used batteries from PEVE, this is a genuine issue. However, several aspects potentially compensate for the negative effects of this free-riding. One aspect is that larger production volumes at PEVE can be expected to contribute to economies of scale. Another aspect is that other automakers’ relations with PEVE contribute to PEVE’s knowledge, which indirectly also contributes to Toyota’s knowledge. Since Toyota owns the majority in PEVE (60 percent), it controls PEVE’s activities and can thus make sure that PEVE acts in the interest of Toyota. A special case is the use of large suppliers such as Bosch to manage relations to battery makers. Such an approach represents a focus on the higher level in the battery product architecture and an increased dependency on suppliers’ knowledge, i.e. a clear case of knowledge partitioning (cf. Takeishi, 2001; 2002). It might be cost-efficient in the short run but potentially less so in the longer run, provided that batteries become core components in future vehicles. With an intermediate firm between battery maker and automaker, it appears more difficult to achieve the mutual exchange of knowledge that contributes to rapid learning. The dominance of component innovation at the suppliers is in line with the traditional division of responsibilities between integrators and suppliers. As Panasonic became more involved in the development of tractionary batteries with Toyota, leading to a joint-venture in 1996, the number of architectural patents increased rapidly. Compared to Johnson-Controls- Saft (JCS), Panasonic had a stronger component focus, probably as Panasonic developed batteries for a wider range of applications. Automotive experts often argue that tractionary applications of batteries imply several new requirements that make them very different from other types of applications, such as mobile phones, laptops and hand-held tools. Consequently spill-over from activities relating to non-automotive applications are not evident. Due to different traditions and other cost structures, it may even be so that a strong position in a non- automotive market causes rigidities hindering a rapid development of tractionary batteries. A related aspect is that battery makers with a long tradition outside the automotive industry might need a lot of encouragement and support to understand the conditions relating to automotive applications. Itazaki (1999) gives a detailed description of how Toyota and Panasonic jointly developed battery production to a completely new quality standard. Since the automotive industry is characterised by large volumes and low margins, it might also be difficult to find a battery maker willing to invest the substantial resources needed unless a clear outlet for its products is available. In relation to the main objective of this paper, a further elaboration of previous literature is needed to facilitate the discussion. First, it is argued that high uncertainty motivates a high mutual overlap (Lee and Veloso, 2008; Takeishi, 2001; 2002; Zirpoli and Camuffo, 2009). A rough estimation of the total uncertainty as regards tractionary batteries is that the uncertainty has decreased over time. A slightly more detailed estimate indicates that in the beginning of the 1990s, the ZEV mandate probably contributed to lower the demand uncertainty. Towards the end of the decade, the ZEV mandate lost most of its power and Japanese HEVs were introduced on the market. Since then, HEV sales have steadily increased and the technological feasibility has been confirmed. Consequently, it can be argued that the total uncertainty relating to (H)EVs increased from 1990 until around 1998 and thereafter decreased again. However, it has to be mentioned that there has been and is a continuous competition between various electrification alternatives from mild HEVs via full HEVs to plug-in HEVs, BEVs and FCVs. The patent study indicates that the automakers as a group have moved from an emphasis on component patents in the 1970s and 1980s to a dominance of architectural patents starting in the mid 1990s. The battery makers have moved towards an increased relative focus on architectural patents. Automakers change in focus is in line with the uncertainty vs. overlap proposition, whereas the development for battery makers is not. When considering the more detailed assumptions about the uncertainty development, it can be noted that when the ZEV mandate was adopted, a corresponding increase in component patents followed in 1993 (given the approximate time lag for patents of two to three years). Thereafter, the architectural patenting increased rapidly, in spite of the probable gradual increase in uncertainty. Following automakers’ introductions of HEVs on the market, a change in the trend towards the component side is indicated, which also is in contrast with the general proposition, as commercial production normally would correspond to decreased uncertainty and thus less overlap. As all component knowledge at the automaker can be interpreted as an overlap in relation to the supplier(s), this implies that the overlap is bound to increase over time. One way to address this, in relation to the general uncertainty vs. overlap proposition seemingly conflicting perspective, is to introduce some kind of depreciation rate for the knowledge, see for example Hall et al (2009). Obviously some knowledge becomes outdated and, as noted by Olleros (1986), one factor contributing to the low success rates of first-movers is the threat of rapid obsolescence for early versions of products using radically new technologies. Another way is to use a relative measure instead of an absolute. In this case, the relative overlap would be the automaker’s body of component knowledge in relation to the supplier’s. If the supplier’s body of component knowledge develops faster than the automaker’s, the relative overlap decreases over time (and analogously for the overlap in architectural knowledge). The relative overlap was calculated for the relation Toyota and Panasonic, which has been the most stable integrator – supplier relation as regards tractionary batteries. Figure 16 shows the accumulated number of patents in the component dimension for Toyota divided by the corresponding number for Panasonic, and a higher value corresponds to an increased overlap. Similarly, an increase in Figure 17, would also correspond to an increased overlap on the architectural side. The figures show that the relative overlap in knowledge appears to increase on the component side and remain stable on the architectural side (since both firms started serious activities involving tractionary batteries). The Lee and Veloso (2008) case study indicates that for automakers, there is an increase in component knowledge over the product life cycle, which dominates over the uncertainty effect. For the integrators, this is in conflict with the positive relation between uncertainty and overlap, as the uncertainty normally decreases over the product life cycle. In this case, the ‘product’ probably is the powertrain of the vehicle. But the life of different battery chemistries is also relevant to consider. There have been a number of battery chemistries succeeding and overlapping each other, among them lead acid, nickel cadmium, nickel metal hydride and lithium-ion. In 2009, only nickel metal hydride batteries had reached mass production for tractionary automotive purposes, being the main technology in most HEVs. Large expectations were linked to lithium-ion batteries but in 2009, the techno-economical uncertainty related to this chemistry was still very high as regards tractionary applications. Aggregated data for the automakers does not indicate a trend towards more component innovations in relation to the total number of battery-related patents. However, for the battery makers a weak trend towards component patents is indicated. Overlap may be a misleading word. Auto and battery makers may develop substantial bodies of component and architectural knowledge without duplicating each other. The crucial question might not be the relative ‘overlap’ but rather how the integrator and supplier(s) collaborate during different stages of the product life cycle. A close collaboration with one or a few suppliers would imply increased possibilities to share the tasks and knowledge in various ways, whereas looser relations would imply a higher need for in-house capabilities in order to maintain the independency. In one aspect, this is supported by empirical data. When Toyota’s battery patenting volume started to increase, it was with a focus on the architectural aspects, thus probably relying to a large extent on Panasonic’s component knowledge. In a broader perspective, the Japanese automakers closer relations to their battery makers would imply a reduced need for component knowledge. However, empirical data rather tells the opposite. As the automakers and battery makers have approached the use of tractionary batteries differently, a use of aggregated data appears to hide rather than highlight the potential factors behind the different component and architectural foci. The timing of the market introduction of (H)EVs may be one factor influencing the relative focus on component and architectural knowledge. In absolute terms, Toyota had almost only architectural patents until more than a year after its first HEV was introduced to the market. Similarly, the other automakers had a strong dominance of architectural patents in the period around their first market introduction of a HEV. It appears plausible that there is a focus on architectural matters in the later phases of a new vehicle development project before a market introduction. When new product development reaches a certain stage, the integrator as well as the supplier have to accept the state of the technology and focus on ‘making it work’, i.e. architectural knowledge. After the market introduction, there might be a renewed focus on component knowledge for the next generation of product. There is one (techno-)logical aspect which may explain some of the differences between different automakers. A HEV of the power-split type (e.g. the Toyota Prius) uses a fairly complex powertrain where the battery is but one part of the total system. The control technology is one key issue to solve to make such a powertrain work. Activities and patents relating to this type of HEV may thus to a large extent relate to this system or architectural level. Another logic applies for battery-dominated plug-in hybrids or BEVs. In these vehicles, the battery is a very central component and the success or failure of such vehicles (still to be confirmed when this paper is made) depends to a large extent on the lifetime, capacity and cost of the battery. One of the most aggressive promoters of BEVs is Nissan (and Renault), with very ambitious plans for commercialisation starting 2010. A focus on component patenting can also be noted in the Nissan data for the last period. In the same vein, there may be a relation between the maturity of each battery technology and the relative focus on component and architectural knowledge. As the study covers a long period, it should also be noted that general trends as regards what to carry out in-house and how to work with suppliers have changed over time. One example is that in the beginning of the 1990s, following the example of the Japanese automotive industry, other automakers started to develop closer relations with some of their suppliers. Another example is that whereas General Motors in recent years has stated that they prefer to work with several suppliers of batteries (or battery cells) and concentrate their own resources on the higher levels of the battery system, Toyota pursues a strong in-house strategy for all strategic technologies, thus even considering the joint-venture with Panasonic as an unwanted compromise. Another factor potentially explaining the differences between the results of the study and the arguments in the literature is that the technology and its application are still very much developing and it may thus be too early to draw such conclusions. Further research in a later stage appears therefore of interest. To summarise, this paper argues that potential paradigmatic shifts in technology imply genuine uncertainty and a need for new knowledge. Inter-firm relations is one way to increase knowledge, either through a limited number of close relations (e.g. Toyota) or a multitude of more open relations (e.g. General Motors). In relation to previous literature, this paper details the terminology used in relation to the component and architectural dimensions, it questions that the component or architectural focus relates to the general level of uncertainty and that the trend towards a component focus dominates for the integrators, and it proposes that the relative focus rather relates to the product plan of each integrator. Furthermore, this paper indicates that a study of the component and architectural dimensions of knowledge gives several interesting perspectives on the strategies of the firms. This is in itself an argument for comparative studies, where different firms or groups of firms are studied separately, rather than aggregate studies, which miss such aspects completely. For the practitioner, the study highlights different firms’ knowledge strategies but, due to the early stage in the potential shift to electric vehicles, it has to leave to the reader to consider which strategy is the best. This study provides empirical support for the increasingly important role of batteries in a vehicle’s powertrain, potentially leading to a substitution of the internal combustion engine. In this on-going potential paradigmatic shift, patent data indicates a rapidly growing firm- internal knowledge base. However, according to the mapping of six automakers collaborative efforts with battery makers, firm-external relations also appear crucial. Different approaches exist, basically implying a US and a Japanese style. In relation to previous literature, this paper details the terminology used in relation to the component and architectural dimensions, it provides partly conflicting messages as regards the relation between knowledge overlap, uncertainty and the product life cycle and it proposes additional aspects potentially influencing the knowledge strategies. Finally, the variety in approaches to battery knowledge amassment provides a thrilling setting for a discussion of which is the winning strategy. But even though the Japanese actors in 2009 seem to lead in the HEV market, it is far too early to make any conclusions.