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1.0 Executive Summary

In September 2005, when gasoline prices in Los Angeles averaged $3 per gallon after Hurricanes Katrina and Rita, the Green Coast Foundation (“Green Coast”) surveyed more than 2000 residents of Los Angeles County to examine the local market potential for alternative fuel vehicles (“AFVs”). Our analysis revealed three key results:

1. There may be a viable early market for AFVs in Los Angeles County.
2. A majority of these Early Market consumers may prefer biofuel-powered vehicles.
3. Geographically the Early Market tends to concentrate in three regions: West Los Angeles, Eastern San Fernando Valley/Western San Gabriel Valley, and Long Beach.

Each of these results deserves further examination with additional research.

2.0 Introduction

The domestic market for AFVs appears to be at an inflection point. Given high oil prices, national security issues, and global climate change, Americans seem to be willing to explore alternatives that will reduce both their reliance on foreign oil and their impact on the environment. Many stakeholders, including policymakers, industry executives, researchers, interest groups, investors, and of course citizens, will contribute to fostering this shift to new fuel solutions.

Californians, who account for America’s largest consumer automobile market, may be leading this shift. The Green Coast Foundation is committed to researching California’s market for AFVs. We believe that better market intelligence will help stakeholders to make better choices to accelerate the market for AFVs in California. The growth of a market for AFVs will consequently generate public benefits such as cleaner air, energy independence, improved public health, and new jobs.

3.0 Survey Results

Our survey examined consumers’ preferences for the purchase of a new car. We sought to reveal their preferences with regard to six attributes for both vehicles and fuels:

• Vehicle Purchase Price
• Weekly Fuel Cost
• Air Pollution (Tailpipe Emissions)
• Time from 0-60 (Power)
• Distance to Refuel from Home (Convenience)
• Fuel Type (Fossil v. Renewable)

We combined the attributes into profiles for hypothetical car models. Green Coast asked respondents to select which car profile they would purchase among four different models and a “none” option. We asked them to assume that, beyond these attributes, each model was exactly the same (for details see Appendix A).

With these survey responses, Green Coast clustered respondents into three groups:

1. Eco-Friendly: expressed the highest preference for renewable fuels over fossil fuels, higher than average concern for pollution in their purchase decision, and the greatest concern about global warming, relative to other groups. They were concerned less-than-average about sticker price and weekly fuel cost, and self-identified more than others to be highly likely to purchase either a hybrid vehicle or an AFV in the next five years.
2. Price-Sensitive: expressed a much higher than average concern for both sticker price and weekly fuel cost in their purchase decision, and much lower than average concern for environmental benefits.
3. Want-It-All: seemed to value price, environmental benefits, convenience and horsepower as all relatively important in their purchase decision.

About one-third of our 2027 survey respondents fell into each of these categories: 725 Eco-Friendlies, 692 Price Sensitives, and 610 Want-It-All’s (for details, see Appendix B).

We then sought to identify the Early Market consumers who may be most likely to purchase an AFV. We characterized this cluster as consumers who would give greater importance in their purchase decision to the Air Pollution and Fuel Type attributes and less weight to Sticker Price and Weekly Fuel Cost. We ran another cluster analysis using only Eco-Friendly respondents, and identified one of these three new clusters as the likely Early Market. Representing about 11% of our total sample, these Angelenos were both more concerned about global warming than other clusters and more likely to state that environmental issues are Very Important to them. Perhaps most indicative, these consumers were the most likely to intend to purchase a hybrid vehicle or AFV: nearly 50% of them said that they were Very Likely to purchase a hybrid or AFV in the next five years, compared with nearly 40% for Eco-Friendlies and 30% for our Sample Average.

Green Coast then used the results from the cluster analysis to run market simulations. We combined the six attributes to approximate different vehicle models: a Regular Sedan; a Hybrid Sedan; a Natural Gas-powered Sedan with a home refueling mechanism; a Biofuel-powered Sedan; and a Hydrogen-powered Internal Combustion Engine (H₂ICE) Sedan. We then used a first-choice simulator to estimate the market share that each of these models would capture, using both the entire pool of respondents and each cluster.

The market simulation revealed that, given a choice, Angelenos seem to prefer AFVs to hybrid vehicles. Among all respondents, Green Coast found that consumers prefer both biofuel-powered vehicles and natural gas-powered vehicles more than regular sedans. Consumers also seem to prefer AFVs substantially more than hybrid vehicles. We also ran market simulations within each cluster: a majority of Eco-Friendly consumers (56.5%) seem to prefer biofuel vehicles; Price-Sensitive’s seem to prefer natural gas vehicles; and a majority of Want-It-All’s may also prefer to purchase an AFV, with an emphasis on biofuels. Finally, given the choice, 90% of the Early Market consumers prefer an AFV, with about 50% preferring a biofuel-powered vehicle and about one-third preferring an H₂ICE.

Geographically, Early Market respondents cluster in three regions, which we labeled:

• Golden Triangle: nearly 20% of our Early Market cohort lives in a triangular-shaped region in West Los Angeles. The vertices of this triangle encompass the cities of West Hollywood in the northeast, Santa Monica in the west, and Manhattan Beach in the south; and its hypotenuse envelops the eastern edge of Culver City.
• Valley Axis: Nearly 15% of our Early Market tends to live in East San Fernando Valley and West San Gabriel Valley communities along the transportation axis defined by the east-west 101-134 freeway corridor and the north-south 210-110 corridor.
• Long Beach: Nearly 8% of Early Market respondents live in the city of Long Beach and adjacent communities Lakewood and Bellflower.

These neighborhoods have higher median household incomes than many other parts of Los Angeles County.

4.0 Caveats

Although we are intrigued by our results, Green Coast remains cautious about drawing conclusions about the Los Angeles market. At least two factors are cause for greater research and discussion:

(1) Vagaries of the Market Simulation
As mentioned above, each vehicle in the simulation is represented by a proxy of six attributes, such as sticker price and smog index rating. The attributes in this simulation only loosely approximate each product, and may produce dubious market share results.

For example, hybrid vehicles and natural gas vehicles are extremely similar in our model. The two products are defined by the same levels in all attributes except refueling distance. Natural gas vehicles are currently sold with a home refueling system. In our simulation, we assume that these home systems offer more refueling convenience than gas stations. Consequently, although Price Sensitive consumers gave a relatively low weight to refueling convenience in their purchasing decision, this factor may have skewed their purchase preference substantially to natural gas vehicles over hybrids.

Small relative differences in attribute bundles may therefore explain why some vehicles, such as hybrids, performed poorly in the market simulation, while AFVs performed well. Hybrids garnered the lowest market share both among all respondents and within nearly every cluster. In the Price-Sensitive cluster, hybrids had the second-lowest market share, ahead of only H2 ICE’s, which had both a higher sticker price and greater fuel costs.

(2) Source Data Biases
Although we obtained more than 2000 responses to our survey, we deployed our survey via an online service. This online method resulted in a self-selected, non-probability sample. Online respondents are both tech-savvy and high-income, and therefore may also be more likely to be among the early market. It would be inappropriate to assume that our sample is representative of the general population: our respondents skewed far more white, female, and high-income than Los Angeles County’s demographic average. Our subsequent research must draw from a representative, random sample of the population, so we can draw meaningful conclusions about Los Angeles County.

5.0 Next Steps

Our results merit further research. Green Coast will continue its market research program activities, with greater emphasis on improving our data collection methods to strengthen the external validity of our results. We will share our analyses with all stakeholders, including policymakers, industry, other researchers, technologists, interest groups, and of course California’s citizens. We hope to help them to make informed decisions that will accelerate the growth of the local market for cleaner vehicles.

This work is Copyright © 2006 Green Coast Foundation. You are free to distribute, publicly display, publicly perform, or publicly digitally perform this work or any derivative work or collective work for personal and professional use provided that you (1) cite Green Coast Foundation as the original source and copyright holder; and (2) provide the title and year of publication followed by the words "Reprinted with permission."