Phil Biggs covers the automotive industry for NewsTalk 1340 WJRW
January 3, 2013 1:30 P.M. ET
DETROIT, Mich.– As 2013 begins, what is the commercial future for the electric vehicle? Will it ever be an industry success? When can we expect to see increased demand and appropriate volume growth? Here are a few observations of the path forward for the electric vehicle and its cousin, the plug-in hybrid…
EVs are a very expensive alternative for the OEMs. There is no question that the electric vehicle will remain part of the “mix” of powertrain alternatives. But it is clear that the significant dollars required to continue to develop the integrated technology, plus the inability to bring battery costs down, has severely dampened consumer interest. Most of the automakers have a considerable stake in seeing the EV succeed. But with vehicle prices ranging 35-40% higher than traditional cars, it’s no wonder that the take-rate hovers below 2% among U.S. consumers. This lack of demand has serious side effects, as evidenced by layoffs (California-based Coda Automotive), chronic shutdowns (Chevy Volt), and numerous bankruptcies that have littered the EV segment the past few years.
With Obama’s re-election there are mixed signals regarding government involvement. If we are to see the private sector unleash financial support in the electric vehicle segment, the government must first reject its fanciful notion that acting as a business owner is appropriate. A much wiser role for Washington is to put relevant, comprehensive federal energy and industrial policies in place that drive EV growth and private investment. Instead, the past four years we’ve seen the current administration “cherry-pick” winners and losers.
High-profile bankrupt battery manufacturers A123 Systems and EnerDel, as well as EV manufacturer Fisker, received sizable government-backed loans. All have failed or performed poorly, which leaves most Americans wondering whether our government should be using tax dollars in this manner. So, will the Obama administration focus on the business of meaningful policy-making and leave sales, profits and losses to the professionals, or will they continue to unwittingly dabble in the private side where they don’t belong? Exiting its significant position at General Motors and enabling GM’s return to a traditional public company balance sheet is a good first step.
Lack of solid infrastructure planning continues to block investors from coming into the space. While progress is being made to build EV infrastructure in some places in the U.S., notably California and Tennessee, there is still much to do to attract new investors to the segment. Electric utilities have excess electricity generation capacity during off-peak hours – typically at night – but the key challenge is in distribution of power.
Local outages remain a negative threat, and the majority of EV customers seek Level 2 (220 volt) charging at their homes and businesses. Besides current high cost and slow time to market, the challenges of installing Level 2 charging capability include complex interactions among cities, utilities, contractors, customers, OEM and dealers. Outdated transformers cannot accommodate multiple EVs charging in one neighborhood, and the plans for public venue charging facilities are unclear, leaving investment opportunities uncertain. Clarity will come when markets are assured that a consistent public policy supports EV growth, one that links the key alliance partners together in a business ecosystem.
Consumer demand remains negligible and is preventing real growth. “The EV markets are going to be a slow slog,” said John O’Dell, senior green car editor at industry research firm Edmunds.com. “Maybe there’s too much expectation of more and quicker success than might realistically be expected of a brand new technology.” O’Dell is right, but why? A few reasons come to mind, the first being that Americans don’t really like electric vehicles. Second, with the Ford F-150 the best-selling American vehicle, and the Chevy Silverado and Dodge Ram ranked in the top five, there is no disputing our love affair with these stylish trucks. Right now, it is impossible to convince truck buyers to switch out these long-standing relationships for an electric car. And finally, as gasoline prices have dropped below $3.30 per gallon in many locations across the country, it makes the EV buying proposition much less economically feasible.
To further complicate matters, expenses to operate EVs just keep piling up. Additional tooling is now required of dealers, a cost that will likely be passed on to consumers. Last month, General Motors notified Chevrolet dealers of the added cost for tools, among other requirements, to keep selling and servicing the Volt. According to Automotive News, some Chevrolet dealers have stopped carrying the Volt after deciding that their sales didn’t justify an additional $5,100 for tools to service the plug-in hybrid.
The alternatives to EV powertrain include hydrogen cell, compressed natural gas (CNG), and, to some extent, biofuels. All have potential, but they won’t be realized until late this decade or next and will require government support…not government interference.
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