Waiting for the EV market to materialize

It was a tough week for electric cars. Chevy Volt’s sales fell short for 2011, and the week closed with EV startup Aptera filing for bankruptcy, less than six months after another niche EV startup, Think, imploded. The EV market wasn’t looking so hot.

There has been a great deal of investment in EVs, and there will be some inevitable failures, more than just Think’s and Aptera’s bankruptcies. Fisker, for example, has raised well over $1 billion, but my colleague Earth2Tech editor Katie Fehrenbacher has expressed her belief that with production delays, unrealistic profitability expectations and a nascent EV market, the company could be in for some rocky times.

Despite the heavy expectations and diverse investment, forecasts have been relatively conservative for EV sales, with global annual sales expected to be around a million in 2015 for plug-in hybrid electrics (PHEVs) and EVs combined, compared to the global auto market, which is in the neighborhood of 70 million vehicles today.

In the back of everyone’s mind is the hope that more EVs will be like the Prius, a car that sells in excess of 400,000 units per year and makes up a significant part of global auto sales leader Toyota’s overall business, which was 8.42 million vehicles in 2010.

The barriers to EV adoption are widely known but center around a few major issues, including range anxiety, charging time and initial cost. The Prius had none of these problems. A Prius can easily do 450 miles, and the battery is always charging itself. It’s actually better than a similar sedan with an internal combustion engine and costs as little as $23,100.

Seventy-five percent of Europeans surveyed who were open to buying an EV said they expect an EV to have a range of 300 miles, and 67 percent said the battery must not take longer than two hours to charge. This is a classic case of people’s having accumulated expectations of what a car is. Even if they don’t actually need a 300-mile range and a two-hour charge (the average commuter needs 40 miles and can charge overnight), they still are hesitant to give up the familiar.

Range anxiety and unease about charging time will decline as consumers get more comfortable with the product. This will take at least five years, but it is a solvable problem. Tesla, an EV technology leader, says its sedan, due out next year, will have a range of up to 320 miles.

The real long-term issue is initial cost. The overall auto market is rebounding, and despite $4 gas, SUV sales are doing well, particularly at Ford and BMW. On the compact side, GM has also seen great numbers from its Chevy Cruze, which starts at $17,000 and can get 42 mpg highway. So how do EVs like the Chevy Volt, which costs $39,145 but is eligible for a tax credit up to $7,500, find a place in the market?

The obvious start is with the economics. The initial cost has to fall below $30,000, preferably $25,000. EVs will get some help over the next five years from gas prices too. UCSD Professor Tom Murphy did an excellent analysis of peak oil in November, and while it’s complex, the most compelling graph is the one that shows that despite the increasing cost of oil, production is not increasing, because it can’t. The effect predates the global financial crisis, reaching back to 2004. Put simply, oil is going to get even more expensive.

When we look back in 5 to 10 years, we likely will view Chevy as an automaker that made a strategic decision to be early to market with the Volt. Let’s hope that the market arrives quickly enough for the innovation and investment to continue.

Question of the week

What do electric vehicle makers need to do to succeed?