FEV Inc. Report “Light Duty Technology 

Cost Analysis, Power-Split and P2 Hybrid 

Electric Vehicle Case Studies” – 

Response to Peer Reviewer Comments
EPA-420-R-11-017

November 2011

Assessment and Standards Division

Office of Transportation and Air Quality

U.S. Environmental Protection Agency

and

FEV, Inc.

EPA Contract No. EP-C-07-069

Work Assignment No. 3-3

FEV Inc. Report “Light Duty Technology 

Cost Analysis, Power-Split and P2 Hybrid 

Electric Vehicle Case Studies” – 

Response to Peer Reviewer Comments
Overview 

This document provides responses to peer review comments on the FEV Report, “Light Duty 

Technology Cost Analysis, Power-Split and P2 Hybrid Electric Vehicle Case Studies” The peer 

review for the FEV Report was conducted by ICF International, and the documentation of their 

peer review process and analysis of its findings have been published in: Peer Review of FEV 

Inc. Report “Light Duty Technology Cost Analysis, Power-Split and P2 Hybrid Electric Vehicle 

Case Studies”, Final Report, March 31, 2011. 

The original text of the ICF Report is used in this document for the purpose of directly 

addressing each comment topic or comment theme with a response from EPA and FEV. Thus, 

the EPA/FEV responses are incorporated into the body of the ICF comments summary, and are 

identified by blue text and a response number (e.g. “Response #: ...) In the interest of clarity 

and context for the reader, the Introduction and Peer Review Process sections of the ICF 

Report are included in this document, but the large Appendices containing peer reviewer 

qualifications and the original review submittals are not. 

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Introduction (from ICF Report) 

The U.S. Environmental Protection Agency’s (EPA's) Office of Transportation and Air Quality 

(OTAQ) is developing programs to control greenhouse gas (GHG) emissions from light-duty 

highway vehicles, which require an evaluation of the costs of technologies likely to be used to 

meet any standards. EPA contracted with FEV Incorporated to perform this cost analysis 

through tearing down vehicles, engines, and components, both with and without these 

technologies, and evaluating, part by part, the observed differences in size, weight, materials, 

machining steps and other cost-affecting parameters. Though complex and time-consuming, 

EPA believes this approach has great potential for determining accurate technology costs, a 

goal that is of paramount importance in the setting of appropriate GHG standards. 

Although the teardown and analysis work is ongoing, FEV wrote a report detailing the 

methodology it and its subcontractor are using to cost out technologies and describing the 

results of the cost-out work to date.1

 To assure that this work incorporates the highest quality 

science, EPA contracted with ICF International (ICF) to determine appropriate independent peer 

reviewers for the FEV report, “Light Duty Technology Cost Analysis, Power-Split and P2 Hybrid 

Electric Vehicle (HEV) Case Studies” and document their feedback on the costing methodology 

it presents. The reviewers selected were independent subject matter experts and their 

reviews were conducted in compliance with EPA peer review guidelines.2

 

This report presents the findings of the reviews conducted by four subcontracted subject matter 

experts. The peer reviewers were: 

1. Mr. Ted Bohn, Argonne National Laboratories 

2. Dr. Linos Jacovides, Delphi (Retired) 

3. Ms. Linda Miller, independent consultant 

4. Dr. Deepa Ramaswamy, Hybrid Chakra 

The Peer Review Process (from ICF Report) 

From December 2010 to April 2011, EPA contracted with ICF to coordinate this peer review. 

ICF implemented the peer review in compliance with EPA’s Peer Review Handbook (3rd

Edition).2

 EPA requested that the peer reviewers represent subject matter expertise in 

manufacturing cost estimating and/or automotive design. 

ICF developed a list of candidate peer reviewers from the following sources: (1) ICF experts in 

this field with knowledge of relevant professional society membership, industry, academia, and 

other organizations, and (2) suggestions from EPA staff. ICF identified 25 qualified individuals 

as candidates to participate in the peer review. ICF sent each of these individuals an 

introductory screening email to describe the needs of the peer review and to gauge the 

candidate’s interest and availability. ICF attached to the email the reviewer charge to ensure 

each candidate was familiar with the scope of work. ICF also asked candidates to provide an 

updated resume or curriculum vitae (CV). Several candidate reviewers were unable to 

participate in the peer review due to previous commitments, and several others did not respond. 

ICF reviewed the responses and evaluated the resumes/CVs of the interested and available 

individuals for relevant experience and demonstrated expertise in the above areas, as 

 

1 Draft Report FEV07-069-303F, February 22, 2011. 

2 EPA's Science Policy Council. Peer Review Handbook, 3rd Edition (http://www.epa.gov/peerreview/).OMB's Information Quality 

Bulletin for Peer Review and Preamble (also in the EPA's Peer Review Handbook, Appendix B). 
demonstrated by educational degrees attained, research and work experience, publications, 

awards, and participation in relevant professional societies. 

ICF reviewed the interested, available, and qualified candidates with the following concerns in 

mind. As stated in the EPA’s Peer Review Handbook, the group of selected peer reviewers 

should be “sufficiently broad and diverse to fairly represent the relevant scientific and technical 

perspectives and fields of knowledge; they should represent a balanced range of technically 

legitimate points of view.” As such, ICF selected peer reviewers to provide a complimentary 

balance of expertise of the above criteria. 

EPA reviewed ICF’s proposed peer reviewers and concurred with ICF’s recommendations; 

these peer reviewers were listed in the introduction. Exhibit 1 shows the representation of the 

peer reviewers in the required areas of expertise. 

Exhibit 1. Chart of Peer Reviewer Expertise Areas and Affiliation 

Expertise Areas/ 

Affiliation 

T. Bohn, 

Argonne 

National 

Laboratories 

L. Jacovides,

Delphi 

(Retired) 

L. Miller, 

independent 

consultant 

D. 

Ramaswamy, 

Hybrid 

Chakra 

HEVs 9 9 9 9

Cost Modeling 9

Manufacturing 9 9 9

Mass Production 9 9 9

Tier 1 Supplier 9

Original Equipment 

Manufacturer (OEM) 9 9 9

Prior to distributing the review materials, ICF sent each of the reviewers a conflict of interest 

(COI) disclosure and certification form to confirm that no real or potential conflicts of interests 

existed. The disclosure form addressed topics such as relationships with the report’s authoring 

organization, employment, investment interests and assets, property interests, research 

funding, and various other relevant issues. Upon review of each form, ICF determined that 

each peer reviewer had no COI issues. ICF executed subcontract agreements with all of the 

reviewers. 

ICF provided peer reviewers with the following materials: 

• Draft report by FEV, Inc., entitled, “Light-Duty Technology Cost Analysis Power-split and 

P2 HEV Case Studies,” dated February 22, 2011; 

• The Peer Reviewer Charge to guide their evaluation; and 

• A template for the comments organized around the Peer Reviewer charge. 

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The Peer Reviewer Charge provided peer reviewers with general guidelines, as well as example 

questions, for preparing their overall review, with particular emphasis on methodologies and 

cost results. In addition, EPA asked each reviewer to provide recommendations on the “overall 

adequacy of the model for predicting future battery prices, and on any improvements that might 

reasonably be adopted by the authors to improve the model.” 

A mid-review teleconference was held on March 8, 2011, to discuss the charge, the purpose of 

the review, and to answer any outstanding questions the reviewers might have. The call was 

moderated by ICF and attended by reviewers Mr. Bohn, Dr. Jacovides, Ms. Miller, and Dr. 

Ramaswamy, as well as EPA staff Brian Nelson, and FEV, Inc. staff Greg Kolwich who were 

familiar with the report. 

 

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Responses To Peer Review Comments 

1. Summary of Peer Reviewer Comments 

1.1. Comments on Methodology/Results 

a. Reasonableness and Potential Bias of the Methodology as Documented 

Dr. Jacovides stated that the methodology is correct and can lead to correct results, as he had 

familiarity with the approach and expected results from prior work. Given that familiarity, he felt 

the report represented a superb implementation of the concept and that the analysis of the HEV 

and internal combustion engine (ICE) equivalent was done very carefully, correctly, without any 

obvious bias, and achieved results in agreement with his own. Mr. Bohn agreed generally, but 

only for the baseline HEV. 

However, two other reviewers expressed skepticism. Ms. Miller felt that the methodologies are 

generally reasonable, but raised some specific concerns, including a lack of documentation 

proving accurate results. Specifically, she noted that, while the paper references marketplace 

validation, no examples were given. Dr. Ramaswamy agreed that the report does not 

sufficiently document the validation of the methodology at a subsystem or a system level. The 

implication was that, while the bottom-up approach was highly detailed, insufficient data was 

given in the report to show that the resulting subsystem or system costs agreed with those 

developed or published by other reasonable sources. Ms. Miller also noted that the 

methodology only predicts absolute costs, and that a sensitivity analysis should be included and 

documented. 

Response 1: As summarized in Report section C.7, Marketplace Validation, marketplace 

validation occurs at all stages of the cost analysis with special emphasis placed on crosschecking in-process costs (e.g. material costs, material selection, labor costs, manufacturing 

overhead costs, scrap rates, and individual component costs within an assembly).

For example, for the NiMH battery costs, over 80% of the battery component costs were 

validated using data from subject matter experts (SME) and/or production supplier quotes. The 

type of cost validation included component pricing for finished goods, raw material quotes and 

manufacturing equipment pricing. Both active and passive electronics components, as well as 

several mechanical type components including the D-cell battery canister, collectors, lid, and 

vent button, were all validated using industry quotes. Also the majority of the battery raw 

material costs (e.g. nickel-plated steel, positive and negative substrates, positive and negative 

powders, electrode separator) were acquired through a formal quoting process. In several 

instances, when prices were suspect, i.e. too low or high based on SME experience, more than 

one supplier quote was obtained as a means of validation. For developing the manufacturing 

equipment overhead rates (e.g. positive and negative coating lines, compaction lines, formation 

equipment), general specifications were established and sent out for quote. 

This same approach was taken for many of the main high-impact components evaluated in the 

analysis including the traction motors, high-power electronic inverters, and high-voltage wiring. 

Cross-checking on final assembly costs also occurs within the scope of the cost analysis, mainly 

as a “big picture” check. In general cross-checking final assembly costs are typically achieved 

through solicitation of industry experts. For example in the case of the traction motor analysis, 

FEV consulted with a T1 traction motor supplier on the anticipated pricing of traction motors 

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based on the established boundary conditions. The pricing estimate from the supplier was 

within 5% of the calculated value. 

In response to these comments concerning the potential impact of uncertainties within the cost 

elements, FEV has updated the final report to include the following sensitivity analyses: 20% 

increase in material costs, 20% decrease in material costs, 20% decrease in manufacturing 

overhead rates, 20% decrease in labor rates, 20% increase in mark-up rates, 20% decrease in 

mark-up rates. 

Dr. Ramaswamy agreed that the methodology for determining costs is generally reasonable, but 

highlights some significant exceptions. Specifically, engineering development costs and use of 

indirect cost multipliers (ICMs) was not considered in sufficient detail and may be incorrect. An 

example was given (see specific comment excerpt number 8 in Table 1) where ICM costs are 

incorrectly applied to the OEMs. This would introduce bias to lower predicted costs beyond 

reality, thus the engineering development costs for the subsystems should be revised. 

Response 2: ICMs are used in EPA’s rulemaking process to help determine the overall cost of 

a technology. The specific values assigned to the ICMs are based on the complexity of the 

technology. These multipliers were developed separately from this FEV costing methodology 

and are not used by FEV, but rather are applied by EPA to the FEV cost results. They are, 

therefore, beyond the scope of this Report. More information on ICMs can be found in the EPA 

Report 420-R-09-003. See Responses #10 and #21 for discussion of engineering development 

costs. 

Ms. Miller also noted that the scaling methodology appeared to be overly simplified when it was 

applied to labor and manufacturing overhead. Whereas the cost of direct labor is more a factor 

of part complexity than one of size, certain elements of overhead costs were only minimally 

affected by part size. This could introduce bias that should be explored through use of 

sensitivity tests. 

Response 3: Multiple scaling methodologies were applied in the analysis based on the 

component type, the required change to the component for the new vehicle segment, and the 

data available. For example, with the traction motor (estimated 60 kW) and generator 

(estimated 30 kW), a ground-up cost calculation was developed for each assembly. By 

developing a cost/kW factor based on these two data points, costs were estimated for 

alternative size motors and generators. 

In the scaling of the high-voltage battery, several different scaling considerations were applied. 

For the various vehicle segments, the battery power capacity was increased/decreased by 

altering the number of sub-modules (one sub-module equals 8 D-cell batteries which is 

approximately equal to 10.6V). In the Fusion Hybrid analysis there were 26 modules connected 

in series to provide 275V. To change the power capacity of the overall battery pack, submodules were added or deleted to suit the system requirements. As the number of submodules were added or subtracted from the analysis, so were the costs of the sub-modules. In 

addition to the sub-module costs, there were nine other sub-subsystem categories which 

contributed to the overall high-voltage traction battery cost. For a few of these sub-subsystem 

categories (e.g. Vehicle Operations assembly, body wiring harness-low voltage) the change in 

material, manufacturing overhead, and labor were considered insignificant so no scaling from 

the Fusion Hybrid calculated costs was required. With some sub-subsystem (e.g. cooling, 

battery covers, battery module assembly) the cost change was approximately proportional to the 

number of modules added or deleted. Thus a cost scaling factor was developed based on the 

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number of modules for these types of sub-subsystems. In selected cases (e.g. traction battery 

sensing and control modules), where much of the hardware in the sub-subsystem remained 

constant regardless the number of battery sub-modules added/deleted, only the hardware 

changes within the sub-subsystem were accounted for, using one of two methods: (1) adding-in 

or subtracting-out absolute component costs, (2) applying a scaling factor against the 

components which would require change. 

In the case of the high-voltage wire harnesses, a compensation factor was developed for each 

vehicle segment based on the expected change in harness length, and a cost per harness unit 

length. Other harness parameters would not significantly change (e.g. same connector count 

and performance specification, same battery current for all applications, same number of 

retention points). The same cost/unit length of harness used to develop the initial Fusion Hybrid 

model was used in the scaling portion of the analysis. 

The scaling methodology for many other general components, based on an increase or 

decrease in size from the cost of the Fusion Hybrid components, utilized constant total 

manufacturing cost (TMC) and mark-up ratios to scale up or down. For example, assume the 

TMC cost of a Fusion Hybrid stamping was $2.50 and the breakdown in cost elements, 

developed from a ground-up analysis, were as follows: 50% material costs ($1.25), 10% labor 

costs ($0.25), and 40% in manufacturing overhead costs ($1.00). If the stamping doubled in 

size (i.e., mass), maintaining the same TMC ratios, the material cost would go to $2.50, labor 

costs to $0.50, and manufacturing overhead costs to $2.00. The manufacturing overhead 

increase is rationalized by a larger press and longer cycle time where as the added labor cost is 

the resultant of a longer cycle time. 

In cases such as battery assembly, FEV and EPA agree that labor and manufacturing overhead 

are not ratiometric to material mass/size changes. In these cases the methodology did employ 

custom scaling factors for labor and manufacturing overhead based on input from subject matter 

experts. FEV has added a sensitivity analysis in response to this comment. 

The only key limitation Dr. Jacovides noted is that the methodology was limited to the two 

architectures studied (split power hybrids used by Toyota and Ford and, to a limited extent, 

Hyundai’s P2 architecture). 

Response 4: We agree that extension of the analysis to other hybrid architectures may be 

useful, but this is beyond the scope of the work assignment and tasks assigned by EPA to FEV. 

See also Response #9. 

While he noted that the P2 battery was properly analyzed by tear down of an actual unit and 

could be extended to other hybrids (GM [two mode and the Malibu ISG] and the Honda Insight), 

Mr. Bohn expressed skepticism about the general subjectivity of the scaling assumptions, 

particularly for P2 HEVs, but, while noting that bias was possible, he made no judgment on its 

direction or magnitude. However, a general consensus seemed to be that the P2 HEV results 

were more likely to be erroneous than the scaling to other vehicle types, which was, in turn, 

likely to be more erroneous than the results for the baseline vehicles.

Response 5: Scaling was done on two levels in this analysis. First, component costs from the 

powersplit hybrid large car (Fusion) were scaled to get costs for same or similar components on 

vehicles of the same size but using a P2 hybrid design. Second, both powersplit and P2 hybrid 

costs for the large car category were scaled to other vehicle sizes. We agree that there is 

potentially greater uncertainty in the cost estimates as they move further away from direct 

reliance on teardowns and toward more reliance on scaled results. However, cost and time 

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constraints, and the lack of production P2 hardware at the time the work was initiated, made it 

unworkable to conduct more teardowns and thereby reduce the need for scaling. The scaling 

parameters and methodology were carefully developed to avoid reliance on subjective or 

arbitrary assumptions, and to ensure high confidence in the whole range of results. Specific 

comments about scaling for P2 components and across vehicle sizes are addressed in 

Responses #3, #7, and #9; we have also added sensitivity analyses to the Report to help 

address these comments. 

b. General Flaws in the Scope of the Study 

Mr. Bohn suggested that the scope is “just right” and offered no conclusive statements. He 

noted that expanding the scope of the study would likely introduce more variability and that 

reducing it would not necessarily increase its validity or accuracy. 

Dr. Jacovides said that, although beyond the scope of this report, the study results would be 

meaningless without knowledge of appropriate use of ICMs. This was a limitation of the study—

the study may be sufficiently detailed exclusive of ICMs, but end results could vary by up to a 

factor of two depending on the ICMs. 

Response 6: See Response #2. 

As introduced previously, more substantial concerns were raised over the scaling of results, 

especially to P2 HEVs. Dr. Jacovides expanded on the comments from part (a), expressed 

concerns about both the methods and results for the P2 system. While the results of scaling for 

the P2 system may be in the right direction, the sizing of the electrical system (power electronics 

and the electrical machine) were likely incorrect. Because the duty cycle of the electrical 

system in a P2 HEV is very different than that of the powersplit HEV, the ratios of copper to iron 

in magnets will likely be different. Further, if the electrical machine for the P2 was sized based 

on power, this was incorrect. Instead, torque and duty cycle are the primary determinants of 

size (and cost). Also P2 HEVs have a clutch to disconnect the engine so that regenerative 

braking does not have to be reduced to provide for engine friction thus providing an all electric 

range (AER). The resulting 32.4kW power of the electrical machine will not provide sufficient 

required torque and power for AER. Further, since the size of electrical machine is determined 

by torque, not power, a slower speed machine will be heavier which contradicts the assumed 

20% vehicle curb weight reduction for the P2 architecture for all vehicle segments. 

Response 7: We did not assume significant all electric range (AER) capability in the P2 hybrid 

being costed and so did not evaluate the ability of the electric motor and associated 

components to provide required torque and power for AER. We have revised the Report to note 

this so that users of the Report results may be aware of it. 

Since we were not considering significant all electric driving modes for the P2 application, we 

believe motor sizing based on power is correct for this analysis. Furthermore, EPA engineers 

involved with this project have evaluated the P2 designs now nearing production to help validate 

our choices of machine specifications and found good correlation. The Report has been 

clarified regarding how weight reduction is factored-in to the P2 architecture. Note that the mass 

reductions considered in the P2 analysis are the result of non-hybrid-specific innovations, such 

as the shift to lighter materials throughout the vehicle. 

 

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 Dr. Ramaswamy agreed that the assumption of a 20% power and weight reduction assumed 

for the P2 hybrid may be unjustified. Further, she found that there is no justification in other 

literature that the Lithium Polymer battery (as opposed to nickel metal hydride [NiMH]) would be 

a better long term solution for the P2 hybrid. 

Response 8: The Report has been revised to clarify the basis for the 20% weight reduction 

(and resulting reduction in required power), and for the costing of a Lithium-polymer battery in 

the P2 vehicle but not the powersplit vehicle. It is not the migration from powersplit to P2 

architecture that enables these changes; we think it likely that the powersplit hybrid could 

incorporate the weight reduction and use of Lithium-polymer battery as readily as the P2 hybrid, 

though this was not evaluated. Rather, the weight reduction was specified by EPA as an 

upfront assumption for the FEV analysis, and was for technology innovations not related to 

hybridization such as a shift to lighter materials throughout the vehicle; it included consideration 

by EPA of offsetting weight additions from hybridization. 

Likewise the Report included a Lithium-polymer battery for the P2 architecture and a NiMH 

battery for the powersplit architecture not because these are inherently the right choice for these 

two types of HEVs, but because the EPA team expects Lithium-polymer batteries to have great 

potential for use in hybrids and asked that it be included in the P2 costing. On the other hand, 

for the powersplit costing, EPA directed FEV to maintain the Fusion characteristics (weight and 

battery type) in order to keep that result focused on the teardown findings, with minimal 

extrapolation to other hardware that might sensibly find its way into later-generation hybrids, 

such as Li-polymer batteries and lightweight materials. For this reason, it would not be 

appropriate to compare the powersplit and P2 cost results on an equivalent basis. 

Dr. Jacovides argued that the study will be difficult to apply to other vehicles or architectures 

without the detail provided by a similar tear-down. Ms. Miller agreed that extrapolation to other 

vehicle sizes cannot be done without the basic underlying detailed studies, and that 

extrapolation of costs for vehicles other than the Fusion relies on use of scaling and does not 

have the same level of detail as the rest of the study. A different use of scaling factors, such as 

by applying scaling factors to material cost and investment in equipment instead of for 

manufacturing cost and burden could yield a very different result. 

The general consensus was that the scaling portion of the study was the most dubious. 

Response 9: We agree that extending the Report’s findings to vehicle types or hybrid 

architectures not specifically covered in the Report should not be undertaken without a properly 

crafted methodology for doing so, although, depending on how far the extension goes, we do 

not think it would necessarily require extensive new teardowns. See Responses #3, 5 and 7 for 

additional responses on the scaling issues raised by these peer reviewers.

c. Appropriateness of Study Inputs 

Dr. Jacovides reiterated his contention that the report’s central analysis (comparison of a hybrid 

and an ICE Fusion) was very well done. However, he raised concerns with estimation of the 

following cost assumptions: 1) development of control software, 2) integration of the electrical 

and mechanical parts, and 3) calibration. All are upfront engineering costs that should be 

considered as part of the cost of the vehicle, although they may be insignificant by the time 

production volume has reached 450,000 units. 

Response 10: At the OEM level, all 3 of these concerns are accounted for by applying an 

Indirect Cost Multiplier (ICM), to the FEV results (see Response #2). At the supplier level, the 

cost of developing control software, integrating the electrical/mechanical parts, and calibration 

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are accounted for with an ED&T cost for each component, which is a percentage of the 

component cost, based on its complexity, in the context of the methodology assumptions and in 

particular in the assumption of high volume production. 

Ms. Miller was concerned that lack of communication [i.e. independent review of the study] with 

the OEM's – while consistent with EPA policy – can lead to inappropriate validation of the 

teardown costing. Dr. Ramaswamy agreed that insufficient independently determined 

system/subsystem costs were used to validate the calculated costs. The Report does discuss 

this, but specific examples of validation should be considered as additional inputs to the 

process. 

Response 11: The Agency does not typically ask the party that is potentially being regulated 

for direct review of cost assumptions prior to publication of a rulemaking analysis. However 

OEMs can and do provide extensive review of EPA cost analyses through the public process 

required in every rulemaking. We have high confidence in the study validation methodology 

because the subject matter experts (SMEs) utilized by FEV in the validation process are familiar 

with OEM manufacturing practices and cost structures, and their input improves the veracity of 

FEV final cost results. See also Response #1 for discussion of the extensive marketplace 

validation performed by SMEs. 

Dr. Ramaswamy also argued that the major flawed assumption of this study was that the high 

voltage battery will be manufactured in the United States. NiMH batteries are not manufactured 

in volume in the United States. Although several companies have plans to manufacture Li-ion 

batteries, the cells typically come from Asia. This inaccurate assumption biased the cost results 

high.

Response 12: The assumption of U.S.-based manufacturing was directed by EPA and is typical 

of FEV’s cost analyses for light-duty vehicle rules, based on direction from EPA. We agree that 

some elements of vehicle component production are likely to occur elsewhere, and, because 

this would most likely be for the purpose of cutting costs, the assumption serves to make FEV’s 

analysis conservative (i.e., biased toward higher costs). However, we believe trends toward 

greater alignment of global wage structures and rising costs of long-distance shipping will tend 

to mitigate this impact in the future. Furthermore this approach ensures a consistent framework 

for costing performed by FEV as part of this work assignment. 

We note that the question of future production locations for vehicle batteries and 

subcomponents is far from settled. HEV systems represent a relatively new manufacturing 

sector and the ultimate location of production facilities is yet to be determined for the domestic 

market. Sizable new investments in the United States have been initiated within the past few 

years. See also Response #14e. 

d. Reasonableness of Assumptions 

Reviewers noted concern about several assumptions included in the study. Dr. Jacovides again 

noted his general conclusion that while the assumptions used are appropriate, the implicit 

assumption that a downstream user without the same expertise as FEV would be able to run the 

model is unlikely. Dr. Ramaswamy agreed that assumptions were generally reasonable, but 

highlighted especially the unreasonable assumption incorporated in the scaling parameter for 

the battery. 

Response 13: All of the underlying information in the FEV cost analyses (including databases, 

spreadsheet formulas, and process flow diagrams) are available to the public via the rulemaking 

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docket. Any component supplier or OEM should be able to work with this information, and 

understand exactly how the costs were determined. If suppliers, OEMs, or other stakeholders 

discover any errors or incorrect assumptions in the FEV analysis, we encourage them to notify 

EPA. The FEV methodology is not intended to be used by others as a standalone model. We 

agree that people with expertise in this type of analysis would be needed to build on the FEV 

analyses. See Response #3 regarding battery scaling assumptions. 

Ms. Miller listed the following specific assumptions that should be re-considered: 

• The assumption that the technologies used may be considered mature should be 

evaluated. The assumption of maturity impacted numerous underlying cost elements, 

including lack of allowances for learning, scrap rates, non-recovered engineering, 

design, and testing (ED&T) expense and capital costs, and equipment end of life costs. 

o Response 14a: When conducting the cost analysis for each technology 

configuration, a number of assumptions and boundary conditions are required 

upfront in the analysis prior to the start of any costing work. The same 

assumptions and boundary conditions are applied to both the new and baseline 

technology configurations, establishing a consistent framework for all costing and 

resulting in a level playing field for comparison. The user of the FEV cost 

estimate must be aware of these boundary conditions when determining if the 

FEV cost estimate is applicable to the user’s specific situation. 

o To account for cost differences arising from factors outside of this framework, 

such as differing technology maturity levels in the timeframe of interest, EPA may 

decide to apply adjustments, such as reverse learning factors. 

o ED&T expenses are coved at the supplier manufacturing level within the mark-up 

rate applied by FEV. ED&T at the OEM level is applied through the application of 

an Indirect Cost Multiplier (ICM). See Responses #2, #10, and #21. 

o Capital costs are included in the manufacturing overhead rate based on a 

straight-line depreciation method with zero end-of-life value. 

• The assumption that no new or modified equipment maintenance is required is 

inconsistent with equipment at the end of its life cycle, assumed above. Together, these 

biased the cost estimates low. 

o Response 14b: Within the manufacturing overhead rate/burden rate calculator 

template, which calculates the overhead rates for various operations and 

processes, there are allowances made for equipment “maintenance, repair and 

other” (MRO) expenses. The contributions are calculated as a percentage of the 

primary and process support equipment costs. The Report has been revised to 

clarify this point. 

• The assumption that integration of new technology would be planned and phased in to 

minimize non-recoverable expenses would be cost effective. In reality, new technology 

requirements to achieve fuel economy improvements and emissions reductions will 

preempt this consideration. 

o Response 14c: The matching of new technology with timing of product cycles is 

not within the scope of this study. However it is a key facet of the methodology 

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used by EPA to ensure that new technology introduction due to standards does 

not disrupt manufacturers’ product cycles. This is accomplished through the 

assumption of technology phase-in caps and specified product cycle intervals in 

the agency modeling work. 

• The markup rate needs to vary dependent upon the part size and part complexity. If 

tolerance limits are not considered part of part complexity, tolerances need to be 

considered as another factor in determining scrap rates. Assumed scrap rates should 

also be verified. 

o Response 14d: Tolerance limits are considered to be one of the parameters 

defining part complexity, which in turn affects costs. Through SME reviews, 

which consider many variables including tolerance and performance 

requirements, scrap rates are set accordingly. For example compressor wheels 

in turbochargers have tight tolerance requirements and therefore were assigned 

a higher scrap allowance in the FEV Pilot Study and additional case studies. In 

addition, the cost of manufacturing tight-tolerance parts is accounted for in 

manufacturing equipment selection and cycle times. 

• The assumption that all sourcing/manufacturing centers will be in the United States was 

not valid and could bias the results high or low. 

o Response 14e: See Response #12. To establish a consistent framework for 

costing, a common cost structure was required for all cost analyses. This 

included establishing a common manufacturing location, the United States. 

Based on this boundary condition, most manufacturing operations and processes 

were developed under the assumption of heavy automation with less manual 

labor. This key assumption was directed by EPA at the start of this cost analysis 

and, to the extent that it might bias the costs, it will do so in a conservative 

direction, i.e., somewhat higher costs. Recent trends in manufacturing dynamics 

for advanced technology components make it difficult to predict the degree and 

direction of low-cost-country sourcing. We believe that trends toward greater 

alignment of global wage structures and rising costs of long-distance shipping will 

tend to mitigate this impact in the future. 

• Assumed labor rates may need to be adjusted to include overtime costs and other 

premiums. It was unclear from the report if this was included and could bias the results, 

depending on union agreements and/or operating expenses. 

o Response 14f: Labor rates do include allowances for overtime costs and other 

shift premiums. These allowances are applied to the base wages as part of the 

fringe calculation. Note that the rulemaking assumption that rollout of the new 

technologies as a result of the standards will not disrupt the normal production 

practices employed by OEMs and suppliers, helps to mitigate any need to 

assume excessively large additional allocations for overtime pay. (See Response 

#14c). 

• Packaging cost assumptions should be checked, based on the sample calculation (page 

50, Figure C-6). 

o Response 14g: FEV has made some simplifying assumptions in calculating 

packaging costs because these costs are a very small part of the overall new 

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technology costs. We believe a more thorough analysis of packaging costs 

would not have a significant effect on the overall cost numbers. 

• Allowances for a percentage of pallets/racks out for cleaning/repair are not included and 

biased the packaging cost low. 

o Response 14h: The cost analysis includes a cost allowance in the 

manufacturing overhead rate for general plant and dunnage cleaning. The 

Report has been revised to clarify this point. 

• The assumed Cost of Complexity is inappropriate. Volumes of 450,000 per year 

assumed that the major complex assemblies (engine, transmission, and complex 

subsystems) are produced on dedicated lines. If they are not, then a cost of complexity 

factor needs to be added. The 75% combined utilization/efficiency assumption was 

reasonable unless hybrid components are assembled on the same lines as the baseline 

products (as they will be), in which case this utilization/efficiency is over-stated. This 

biases the results low; additional complexity should be factored into the 

utilization/efficiency calculation. 

o Response 14i: At the assumed 450K annual volume for hybrid technology 

components, subsystem, and systems, it is expected that the technologies 

costed are all produced on dedicated lines. In addition, given the highvolume/mature-technology assumption, an 85% utilization is justified. If 

manufacturers do in fact decide to mix other technologies into these lines, we 

would expect the reason for doing so would be to reduce overall costs in 

comparison to building on two lines, and so would not warrant assigning a cost 

increase to the high-volume technologies covered in the report. 

• With respect to System Scaling Cost Analysis, ratios used to develop sizes and material 

costs for HEV components (traction motors, high traction batteries, etc.) were 

appropriate, but use of these ratios to determine other factors (especially labor and P2 

HEV powertrain components) was less valid. These are more related to part complexity 

than part size. Which costs are scalable should be reevaluated. 

o Response 14j: See Response #3. 

Mr. Bohn discussed some assumptions, particularly regarding the base vehicle and the P2 

Hybrid having equivalent performance with increased fuel economy. He said associated 

assumptions about the amount of engine blending and depth of battery discharge were 

subjective and expressed concerns regarding the lack of electric machine rating standards. 

However, he made no mention of their reasonableness or direction of influence on the study’s 

results. 

Response 15: An objective of the technology cost analysis associated with the EPA rulemaking 

effort is to generally assume equivalent performance (other than fuel economy) between 

baseline and new technology configurations. For example, cost analysis that assumes 

significantly reduced acceleration in new technology vehicles would not be expected to 

adequately inform EPA rulemaking decisions, because of the added complexity it would 

introduce over customer acceptance and safety. Similarly, because towing capability is 

essential for large trucks, we assumed that downsizing of the engine would not be appropriate 

for these vehicles. The blending and depth of discharge characteristics were selected by EPA, 

consistent with the equivalent performance objective, as inputs to the study’s P2 component 

sizing determinations. 

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e. Appropriateness of Results 

Three of four reviewers generally considered the study results appropriate but commented on 

the need for increased validation. Dr. Jacovides commented that the results were reasonable, 

but noted that it would be useful to have Ford and Toyota review them before making the report 

public. Dr. Ramaswamy agreed that the results were appropriate for the given scope, 

assumptions, and inputs, but noted that the description of the validation of the costing 

methodology was insufficient and that a sensitivity analyses and further analyses/correction of 

some assumptions were warranted. Mr. Bohn, too, agreed that the results were reasonable 

given the scope, assumptions, and inputs, but felt that reasonable validation was achieved, 

although he considers the level of validation appropriate to be subjective. 

Ms. Miller disagreed. She felt that, given the levels of assumptions made, at best cost 

estimates are directionally correct, which is inconsistent with the stated goal of absolute costs. 

In particular, she had concerns regarding validation. While the methods used were solid 

(teardown analysis, process flow diagrams, analysis of comparable parts, etc.), numerous 

methodological assumptions were used and their validation is insufficiently documented. She 

recommended sensitivity testing, appropriate and correct accounting for component sourcing, 

and reevaluating labor costs. 

Response 16: See Responses #1, #3, and #11. FEV is adding sensitivity analyses to the 

Report in response to the peer review comments. 

f. Appropriateness of Scaling Costs to Other Vehicle Classes and to Other Hybrid 

Technologies 

Generally reviewers seemed to express more reservation about the scaled results than the 

baseline vehicles, for a variety of reasons. 

Dr. Jacovides noted that scaling for vehicles with identical architecture but different power 

inappropriately account for labor. Similarly for P2 HEVs, costs for electrical machines should 

not be scaled as power, but on torque and duty cycle. Ms. Miller agreed that the ratios used to 

size HEV components was appropriate for material costs and investment in equipment, but that 

using the size ratio scaling methodology for overhead cost, direct labor costs, and required 

staffing was inappropriate. She had these same concerns with scaling for the P2 HEV 

calculations. Dr. Ramaswamy also agreed that for most components, the scaling to other 

vehicle classes was reasonable. Mr. Bohn added that while the approach used in scaling 

appears reasonable, he had concerns that the actual values used in the scaling approach could 

be off and lead to erroneous results. However, this was not supported by his general conclusion 

above regarding the reasonableness of results. 

Response 17: See Responses #3, #5, and #7. 

Mr. Bohn and Dr. Jacovides commented that the NiMH battery scaling was done correctly, 

although Dr. Jacovides noted that scaling did not consider an alternative approach of using a 

larger number of smaller cells. He believed that the approach used for the P2 architecture was 

directionally correct but the results would not be as accurate as those between the baseline 

hybrid and ICE vehicles. Although he noted that the estimated cost of the cells seemed 

reasonable, Dr. Jacovides raised two questions about the treatment of the Li-ion battery: 1) that 

discussion should be added to explain preservation of battery life when scaling by nominal kWh, 

and 2) that clarification should be made on what size battery is cost for the P2 HEV. Dr. 

Ramaswamy agreed. She noted that scaling of parameters across different vehicle classes 

A-14 
needed to be better explained and justified, given that this one component was responsible for 

the bulk of the cost of the hybrid powertrain. 

Response 18: Consistent with the core philosophy for all of the cost work performed by FEV 

for EPA, we chose to determine Li-ion battery costs based on teardown of an actual production 

battery. We agree that other configurations exist or may exist in the future, but these will likely 

only serve to lower eventual battery costs to the extent that they prove more cost effective than 

the design we chose, thus making the battery costs developed by FEV somewhat on the 

conservative side. Li-ion battery sizes for the vehicle segments analyzed were provided by the 

EPA team as an input to the P2 HEV cost analysis; depth of discharge constraints to ensure a 

robust battery life was one of the considerations taken into account by the team. The battery 

sizes costed for the P2 vehicle analysis are provided in Table H-2 of the Report. See Response 

#3 for additional discussion on how the scaling of battery costs across the vehicle segments 

was carried out. 

1.2. Comments on Other/General Observations 

General comments not included in the earlier sections are discussed in this section. 

Ms. Miller complemented the detail and effort of the analysis and report and the use of 

recognized methodologies. Dr. Ramaswamy noted a small number of omissions and 

discrepancies. She noted that, while the report talked about the applicability of the powersplit 

hybrid system to the sub-compact, small, large, and minivan vehicle segments, it should clarify 

that this group also covers small SUVs such as the Ford Hybrid Escape, which is one platform 

that already supports this architecture. 

Response 19: The applicability of the powersplit hybrid system technology to the various 

vehicle segments was established by EPA as part of the study inputs and so is within the scope 

of the broader rulemaking analysis rather than the FEV Report. Note that the Ford Escape falls 

into the large car segment, and therefore actually is included in the powersplit cost analysis. 

Dr. Ramaswamy also noted several specific items of concern. She indicated that the study 

seemed to omit a high-voltage DC/DC converter used by the traction motor and generator, 

which is used in the Fusion Hybrid and should be included in the cost. Table E-2, compared to 

those in Table D-3, showed inconsistencies that should be addressed. Dr. Ramaswamy also 

noted that Table A-1 should have calculated the percentage increase as compared to the base 

non-hybrid vehicle cost, instead of calculating the increase with respect to the mid/large size 

vehicle segment cost. Also, in Figure B-1, she questioned why the bill of materials (BOM) was 

not updated after step 6, when additional information has been gained about the component 

after its disassembly. She also asked what the 19,149 parts stand for on page 50, first 

paragraph. 

Response 20: The DC/DC converter was included in the analysis and covered in the Report in 

section D.7.1.2 “Voltage Converter/Inverter Subsystem”. The costs of the DC-DC converter 

were reported in Table D-10. 

The discrepancies between Table D-3 and Table E-2 (now labeled “F-2” in the Final Report) are 

based on the using an electric horsepower to kW conversion (0.746) versus mechanical 

horsepower to kW conversion (0.736). 

A-15 
The comparison bill of materials (C-BOM) referred to in Figure B-1 is a top level BOM used to 

identify component/assembly differences at a high level. Every component or assembly which 

is disassembled further for a cost analysis has a separate manufacturing indented BOM. 

In the packaging calculator section of the Report, the 19,149 identifies the estimated number of 

battery packs which would be shipped out in a two-week window. This number is directly used 

to calculate the dunnage costs. 

The percent increase in cost for each vehicle category (Table A-1) over the baseline vehicle is 

not included in this study because we did not cost the base vehicle in each category. 

Dr. Ramaswamy also believed the methods for determining the engineering design costs for 

various components/systems were unclear. These included: 1) the Atkinson engine engineering 

design cost, associated control system, and calibration; 2) the engineering design cost for the 

electronics controllers, software for the battery system, and mechanical design of the battery 

system (the numbers presented appear low); 3) the ED&T for the traction battery assembly (too 

high relative to that for the control module, given the relative engineering efforts) (Table D-11). 

Response 21: Within the automotive industry, there are several methods used to calculate 

ED&T. These methods range from a detailed build-up of estimated R&D and ED&T costs (at all 

levels, Tier 1, Tier 2, Tier 3), which are then amortized over a defined annual volume and life 

cycle, to a percent allocation, based on component complexity, of the total manufacturing costs. 

In between these two methods are hybrid approaches which utilize a combination of the two 

methods. The exact method an OE or supplier may choose to use, or accept, may be based on 

several factors including size of company, product portfolio, production volumes, product range 

(i.e., custom, commodity or hybrid of the two), market risk, dual sourcing, and product 

experience. 

Performing a comprehensive work-up of ED&T costs, for every component, appears on the 

surface to be the most robust method. However the probability of accomplishing this task 

accurately, based on the amount of detailed information required, without the necessary 

confidential business information, is very low. 

For the EPA cost analyses, FEV chose to use the percent allocation of total manufacturing costs 

as the method for calculating ED&T costs. This same methodology is used extensively by 

automotive suppliers and OEs in today’s industry. Also this is the same method chosen by 

FEV, for all costing work, conducted for all customers. 

FEV’s ED&T rates are based on a constant recovery/payback rate. This constant rate is based 

on the assumptions that the established automotive supplier, within a stable economy, will 

maintain a certain size R&D department, product and design engineering department, and test 

department. The cost to run this department will generally remain proportional to the value of 

manufactured product leaving the facility, under a stable business climate. There are always 

exceptions to these rules. For example, where the integration of the new technology 

configuration is slow to reach financial planning volumes, or an existing technology remains in 

production for an extended life, with no replacement technology planned, adjustments to rates 

should be applied – based on the defined boundary conditions. 

Based on the assumptions and boundary conditions established for the EPA cost analysis 

project (i.e., well developed product designs, high production volumes, high first time 

manufacturing yields, significant marketplace competition, low field warranty, etc) an ED&T 

A-16 
A-17 

mark-up range between 0% to 6% has been selected for the analysis. The selected range is 

based on a combination of publications from OEMs and suppliers, input from FEV’s subject 

matter experts in manufacturing, examining ED&T mark-up rates in the automotive industry, 

publicly-available financial data (i.e., 10K reports), and EPA’s Indirect Cost Multiplier report. 

Dr. Jacovides recommended specific companies that should be consulted to assess the 

accuracy of results: Ford for the baseline vehicles and those scaled according to size and 

Honda or GM for scaling to P2 HEVs. Also, individual component costs should be compared to 

those used on the Volt and Leaf. 

Response 22: See Responses #1 and #11. We agree that it may be instructive to compare 

costs of hybrid components from this study with those from other studies that focus on other 

hybrid and electric vehicle designs. However, we believe these vehicles are markedly different 

in function and design and so such comparison would not directly inform the validity of the FEV 

study results. 

Ms. Miller also noted that validity testing of the Munro & Associates software, FEV databases, 

and costing algorithms should be performed and documented. Hypothesis testing of 

assumptions concerning burden rates, product maturity, etc. and sensitivity analysis to 

demonstrate correlation to actual component costs should also be added to the study. 

Response 23: As discussed in Response #1, cost validation occurs at multiple stages of the 

analysis. During the build-up of cost models, much of the information acquired to construct the 

models is based on supplier quotes. In general, subject matter experts (SMEs) construct all 

cost models. Once the cost models are completed, the SME will review the models for 

accuracy by running some pilot runs with components/assemblies with known costs as part of 

the validation process. 

Information loaded into the databases comes from various reputable sources. For example the 

majority of high impact material pricing comes from supplier quotes. The data contained within 

the labor databases is extracted from the Bureau of Labor Statistics. We have added sensitivity 

analyses to the Report in response to the peer review comments.