November 6, 2014 Allison Transmission, Inc. 1



### Allison Transmission ’s Response s to EPA’s Hybrid Questions

Do you think that operating and maintenance costs for these hybrids will remain at the
current level for new vehicles built after 2021, or is there an expectation the costs faced by
owners of future vehicles will be less?

Operating and Maintenance Costs This is not a simple question to answer because there are many external influences that surround hybrids for commercial vehi cles. To start with th e transit bus market, since 2003 when Allison introduced the first hybrid for transit buses, new vehicle purchases have had supplemental government and incentive funding that generally offset s the over cost of the hybrid system. The market for transit buses in the US is about 4 000 units/year with about 14 % being hybrid , and split between two manufacturers

. At this volume level , the lower costs normally associated with economies of scale due to volume, have not been realized. Many Class 8 vocational trucks that are similar in torque and power to a transit bus, do not have a duty cycle that is hybrid

- relevant . Also, trucks do not have space for hybrid components in the size and shape that fit well in a bus. So, between limitations of duty cycle and space claim with no federal funding , there has been no volume growth in trucks through the use of a common hybrid system.

W hen service parts and repairs are needed, they tend to be very expensive due to the component complexity and lo w volume . Anecdotally, fleets have reported that hybrid vehicles
tend to have lower total m aintenance and repair costs than vehicles with conventional powertrains due to less work done by the engine and brakes. Allison has no data to quantify
this report

, but it sounds rational. As an example, some properties have reported brake life of 170,000 miles with Allison Hybrids, as compared to 55,000 miles with a standard diesel or CNG

equipped bus. Some 60

- foot articulated hybrids deployed in 2004 were still o perating in 2011 with their original brakes at 250,000 miles. T o know whethe r few, high cost repairs offset other maintenance costs, will depend on t he durability of the product, the operational profile of a specific fleet , and that fleet’s maintenance pra ctices

. The fleet re

- purcha ses that we have seen

since 2003 would lead us to believe that the value is there when looking at total life cycle cost (including acquisition, maintenance, fuel , etc. )

, when incentives are in place for the initial purchase s

.

L ooking out past 2021, hybrid technology is a good solution for some vocational vehicles that operate in a moderate to high kinetic intensity drive cycle. Hybrids are now competing with improved traditional, diesel powertrains and natural gas as an alternative

. It is unknown how the hybrid/natural gas trade

- off will evolve over the next few years. Howev er, i n the absence of very stringent emissions and GH G regulations

, and with fuel prices remain ing low and alternative fuels like CNG gaining moment um and infrastructure availability , hybrid adoption will not grow quickly. Unless hybrid adoption shows signs of growth potential, manufacturers
will limit investment in hybrid technology. Limited inve stment will not grow the volume whichNovember 6, 2014 Allison Transmission, Inc. 2

is needed to ha ve a break

- through in cost. So, to answer the question, on a relative scale, operating and maintenance costs would be expected to be about the same as today’s levels.

Do you think battery replacement is an item that should be built into EPA’s expected cost of a hybrid system? If so, what would be a fair way to classify that cost

– would it be included in the up

- front costs, or considered O&M, or something else?

Battery Replacement A lot of work is going on surrounding battery chemistry and progress is being made. Allison expects that batteries will continue to advance. Gains are being made in performance, capacity, energy and power density. With those advancements being relatively immature, we would expect that battery replacement would be require d during the life of a hybrid vehicle. The timing of a battery replacement will be drive cycle and mileage dependent as the battery life is primarily determined by operating temperature, state of charge fluctuations

, and battery chemistry . We would categorize a replacement battery as an operating and maintenance cost.

We also want to fairly characterize the expected state of the technology that will be ready for deployment 7

- 10 years from now. Any help that your team can offer us in this area would be very much appreciated.

State of Technology in 7

- 10 Years
Rela tive to the state of technology and how that relates to reliability and durability, most commercial vehicle manufacturers do not release and produce vehicles with known immat ure technology. Commercial vehicles have to be reliable so the fleets can get their work done. Money is not available for fleets to have many spare vehicles on

- hand to use when a vehicle
breaks down. Most fleets want to try new capabilities on a limited number of vehicles before full adoption so they can find out how it impa cts their total experience from driver training to fuel economy, down

- time, etc. Some “early adopters” will tolerate more operational issues; however, most fleets will not unless ther e is some other factor that influences their purchase
decision. Manufacturers strive to produce products that will last for the life of the vehicle, but some parts do wear out and have to be replaced over time. This is true for any vehicle,
whether it is light duty or heavy duty. With the introduction of a complex system such as a hybrid, years are required for fleets and manufacturers to obtain the experience to know what to expect and plan for as normal operating and maintenance cost s of low volume com ponents

. As described earlier, a repair could be very costly when it happens, but fleets and manufacturers take steps to minimize part failures through encouragement of preventive maintenance practices . There are also special service kits and repair proc edures that are developed when a particular component is seen to have high cost and/ or frequent failures. For a high

- power system like a hybrid, personnel safety during maintenance and repairs is the
foremost consideration. Based on all the complexities of vocational v ehicles, Allison believesNovember 6, 2014 Allison Transmission, Inc. 3

that our hybrid system falls in line with the norms for other major vehicle components. Allison is not equipped with data to address the fleet experience of other manufacturers’ syste ms.

Looking at the evolution of technology, Allison believes that hybrids will remain to be a viable technology in commercial vehicles. The interest in p lug

- in hybrids is expected to grow as a step to ZEV. For most commercial vehicle fleets, range anxie ty is a significant limitation t o ZEV. The infrastructure to support commercial vehi cle charging is in its infancy. In addition to the cost challenges for the vehicles, cost challenges also exist for the infrastructure to support large,
commercial vehicl e fleets. Significant advancements in fuel cells are need ed before they will be adopted. ZEV adoption in commercial vehicles is expected to lag that of passenger cars.

Allison does not believe that the medium and heavy duty fleet should have stringenc ies established that require adoption of hybrids in the 7

- 10 year horizon. Transit buses have shown that the hybrids provide value based on a transit bus duty cycle. But, this value is only recognized with incentives in place to offset the overcost. Hyb rids have not been adopted in heavy

- duty trucks and we are not aware of any electric hybrids offered as original equipment in
Classes 6

- 8. Hino has a Class 5 hybrid truck introduced in 2013 with only about 500 sold, as
mentioned at the September HTUF meet ing, even with California incentives of $18,000

- $ 23,000 for a truck priced around $71,000. ( http://hinohybrids.com ) For volume production in the 2021 time frame, Allison believes that neither fleets nor manufacture rs have the business case and low cost technologies that will support a widespread hybrid fleet.