Nissan's electric vehicle 'Leaf' will cost $25,000, including a $7500 government subsidy financed by taxpayers.
Shizuo Kambayashi/AP Photo
What is the price elasticity of demand for "green" products such as electric cars? We know that there are lots of different companies hard at work on producing electric vehicles. As they conducted their R&D, they must have formed a subjective guess concerning what price they would sell their first generation of vehicles for. No company enjoys losing money.
Now, Nissan has shook up this nascent green market by promising to offer their vehicle to consumers for $25,000 (net of a generous government subsidy). So Nissan will be paid $32,500 for each vehicle and each consumer who buys "a Nissan Leaf" will pay $25,000 and taxpayers such as my wife will finance the subsidy of $7,500. Given the fixed cost of designing the first generation of these vehicles ; companies must have an expectation of the scale of sales to lower their average fixed cost of production. For details on Nissan's Leaf see this and this .
This raises an interesting advertising issue. Up until its safety problems, the Toyota Prius was "the green car". Now with electric vehicles all the rage, how will these vehicles compete? Simply on price? A price war won't benefit the producers but consumers will be happy and so will environmentalists as people trade in Hummers for Leafs. Advertising firms could get rich here as they use their clever tricks to try to "help" consumers to distinguish between these various vehicles.
If there are 10 different makers fo electric vehicles, how will each search for its own market niche? From their perspective, each would like a small monopoly so that they can charge a price markup over their cost of production (i.e earn real profits). But, in a globalized economy --- will this happen?
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