Electric cars: niche technology or the auto industry's future?

Are electric cars a Niche?  Or just coming into their own?  I’ve been asked that question twice now in the last week in various forms, so thought I’d blog my answer.

Electric Drive Transportation Association has the total number of US sales at just under 400,000 this year, or 3.3% market share including hybrids.  Hybrids they have up 33% YTD compared to the whole of last year’s sales, and EVs/PHEVs up 375%.  But the EVs still make up only 10% of that total number.

In June The Street did a great article on EV sales forecasting line by line an estimate of 62,000 for the year, already at 18,000 at that point.

And while sales have been sluggish, they have been creeping up, with more and more and cheaper and better versions coming out in 2013 and 2014.

The price gap, somewhere between $8K and $25K, is closing.

Nissan just announced a cheaper and longer range Leaf version in Japan (yes it can be done, why didn’t you have the guts to do this last year Nissan?), Tesla’s 160-300 mi range Model S just started shipping and garnered the 2013 Motor Trend Car of the Year Award. 

The Chevy Volt, for it’s struggles, as Forbes reported in September, is outselling the “Audi A6, BMW 7-Series, Porsche Cayenne and Mercedes-Benz S-Class, and it outsold most hybrids including the Toyota Prius plug-in, Honda Civic, Kia Optima, Toyota Highlander and Lexus RX 450h”.  Not yet high volume success, but then when you operate in small volumes and only send your dealers 1 or 2 at a time to start, it’s hard to blow sales numbers away.  Forbes comment was “If indeed the Volt is a “failure,” as some of its critics have contended, we’re sure there’s several auto executives out there that would like many of their slower-selling models to suffer the same fate.”

And how does this compare to the Prius?  The car that in many ways redefined the car industry and helped push Toyota to the top?  The first fours years of sales it struggled well south of 20,000 per year, the next 3 years globally shipping 30-40K/year, respectable, and strong, not earth shattering.   It took 6 years and price cuts and a second and 3rd generation to make it to the 100K/year mark.  Over 10 years to get a million sold.  Two years to get the second million sold.

But now every major car company and over half the top car models have a hybrid version now, barely 15 years (about two car design cycles) after initial launch.  Toyota shipped a million hybrids in ten months this year, 14% of sales for the world’s largest car company.  Honda reached the 1 mm number in hybrids shipped, Toyota is at 4 mm.  Does that sound niche to you?

Anyone really want to bet that in 6 years NO EV or PHEV has made it to the 100K level?

So why do we like EVs?

Among other things, 1) electrics cars run dead quiet, 2) electric cars have instant torque and terrific acceleration at low RPMs, performance which cannot be matched by gasoline engines, 3) electric cars have platform flexibility, turn radius/handling that can be amazing, since you can use distributed motors, all electric control etc, the same promise that fuel cell cars had, but couldn’t deliver, and 4) maintenance goes WAY down, virtually no fluids fewer moving parts.

Bottom line, once an EV or PHEV comes close on range and cost, it’s a better car than a gasoline car.

On the downside, cost is still cost, charging is still charging, range is still range.  But let’s look at those:

Best I can tell, we’re at an $8-$35K price difference to hybrids and conventionals, depending on the assumptions.  Since we’re still measuring at 10s of thousands of cars a year, I don’t think direct cost comparisons are yet fair.  Eventually one of these is going to take off in one market or another.  When it does, it’ll drive volume, and continue to collapse cost.  In addition the R&D work on EVs is paying off, manufacturers are finding ways to bring costs down in interim anyway.

I’ve had a couple of discussions about fast charging.  Charging is not a huge limitation, its a technology and cost choice.  Charge time is effectively a function of battery size, onboard charger size, and volts.  Let’s start out by saying we’re not going to be charging EVs at 110.  Too slow.  But charging at 220 is very doable.  220V home chargers today are in the 1-2K range. They will not stay that high for long.   Onboard charging The Leaf chose a 3.3Kw onboard charger.  Big mistake, done to skim $2K off the price of the car and keep it inline with the conventional Camry price point after tax credit.  They should have offered multiple options.  The Focus and Volt noticed this went with a 6.6 kw job,  the Tesla Model S comes with a 10 – 20 kw.  Faster charging is pretty much an ask and you shall receive issue.

Range.  Range matters.  Big time.  I contend the sub 100 mi car is idiocy and poor product management and fear of high costs.  Tesla, and the Volt and now Nissan is showing we can bring to market medium and long range EVs.  Betting against ranges getting longer is a bad bet.  I predict by 2015 the average EV/PHEV range will approach 200 mi, and range anxiety will be a thing of the past.

Scale.  Most of these are scale issues.  EVERY manufacturer of EVs started out viewing this as a few tens of thousands per year volume car platform.    In my first discussion on the Leaf with their Leaf product head, I kept asking whey they didn’t roll out faster charging options and longer battery range options for the consumer to start, and why spend all that marketing if only 10K were going to be available year one in the US.  The real answer, no guts no glory, they weren’t sure enough of success to roll this car out like they would have any other.  Even Tesla figured out the multi option idea!  In my first test drive of the Volt, the dealer admitted they had only 1 salesman trained to sell it.  And they could only get 1 car at a time in their allocation.  Not exactly setting their channel up for success.  Frankly guys, we’re not getting anywhere with that.  These are better cars, GO BIG OR GO HOME.

Niche? High cost? For today yes, but that’s how technology disruption happens.  Their parent cars broke through that ceiling, and they will too.  I think these cars are underperforming sales expectations that were all hype.  I think they are overperforming what we should have expected.  And I think we’ll look back on 2012 and 2013 as set up years.  It won’t be forever.  Electric is just a better platform once we get it right.