The Big Question

The Coming EV Glut


This story has been updated. A previous version read that the Tesla had a range of 160 miles.

Ever since last month’s bankruptcy of Solyndra, the Fremont (Calif.) solar panel maker that received $535 million in federal loans, government support for green-tech projects has been under fire. Republicans already want to cut back on a program that has approved $9.1 billion in loans from the Energy Dept. to carmakers who are willing to boost fuel economy or put electric power under the hood of future models. It’s way too early to say that the program will turn up another Solyndra. In fact, Ford (F) and Nissan (NSANY) qualified for the bulk of the money, and both are plenty capable of paying off the debts.

The bigger problem may be that the government is helping to create a market that could soon be swamped with more electrified vehicles than consumers want. Nissan and two cheeky upstarts—Tesla Motors (TSLA) and Fisker Automotive—all got government money to help bring their electrified rides to market in the next couple of years. All told, the industry’s newcomers and established players will be bringing 14 plug-in hybrids and 15 electric cars to market by the end of 2014, according to J.D. Power & Associates. It will be difficult to fulfill every carmaker’s ambitions, especially when you consider that the 181,000 hybrids sold in the U.S. this year make up only 2 percent of the car market. “We think there is potential for a glut of EVs and plug-ins,” says J.D. Power analyst Mike Omotoso. “These manufacturers have really optimistic sales plans, so we have to inject a dose of realism.”

Ready or not, here come the cars. J.D. Power forecasts that next year, consumers will buy about 50,000 plug-in hybrids in the U.S. Well, General Motors (GM) plans to sell 45,000 Chevy Volts in the U.S. Toyota (TM) has plans to sell 16,000 of the plug-in Prius, which costs $32,400 and $29,900 after a federal tax credit. Fisker plans to build up to 15,000 of its $100,000 Karma sports cars with about 40 percent earmarked for U.S. buyers. That’s a plan to try to sell at least 65,000 cars, and it doesn’t count the Ford C-Max plug-in compact SUV and the slew of EVs coming that could steal some green-minded buyers.

DOUBLE THE MARKET

The EV market will also be hotly competitive. J.D. Power predicts that 27,000 EVs will sell next year, and another 58,000 will be sold in 2013. In late 2012, Nissan will be building the Leaf electric-car at its plant in Smyrna, Tenn., with capacity to make 150,000 of them. Nissan plans to sell most of those in the U.S., says Brendan Jones, director of sales and marketing for the Leaf.

In other words, if J.D. Power is right, Nissan in 2013 will be building more than double what the market wants—to say nothing of the other 14 EVs that will come to market between now and then. The challenge for EVs is that people fear they will drive 100 miles and discharge the battery before they can find a place to recharge. “Pure EVs will be a tough sell,” says Jim Hall, principal of 2953 Analytics, a consulting firm in Birmingham, Mich. “Some EVs will be winnowed out unless they are kept alive by government subsidies. Americans want high fuel economy cars.”

Manufacturers are still trying to find out what consumers want. Nissan and Tesla think full electrification is the way to go. The Tesla Roadster can go about 245 miles before needing a recharge, and the Leaf gets about 100 miles on a charge. An electric car such as the Leaf is less complex than a plug-in hybrid, and most people don’t drive enough in a day to run the battery down before they get home to recharge, says Nissan’s Jones. Nissan is trying to pitch consumers on the fact that the average commute is 32 miles, and the Leaf can get up to 100 miles before needing a charge. In certain conditions, a Leaf can get less but still enough to cover many drivers’ daily needs, Jones says. “We’re working to educate consumers,” he says. “Our vehicle overwhelmingly suits the average American’s needs.”

As more people learn that an EV meets most of their driving needs, sales could grow faster, Jones surmises. Plus, more public charging stations are being installed all the time. About 15,000 will be installed nationwide in the next year, says Jones—which he reckons will make consumers more comfortable with the technology.

APPEAL OF HYBRIDS

Consumers would rather have some gasoline power on board so they don’t have to worry about running out of juice, says Henrik Fisker, co-founder and chief executive of Fisker Automotive. His $100,000 Fisker Karma plug-in hybrid goes on sale later this year. In 2013, the smaller Nina plug-in will start selling somewhere between $50,000 and $60,000. Once all three Nina body styles are on sale, Fisker plans to build 90,000 Ninas a year, Fisker says. Why so bullish? “People will use this as an everyday driver,” he says. “We’re going after market share where some people will come from regular gasoline cars.”

Even when carmakers agree on which technology they think consumers will want, their sales expectations can differ greatly. Fisker thinks he can sell 90,000 Ninas a year. When General Motors looked at the Cadillac ELR—a luxury two-door car that will ride on the Chevy Volt’s plug-in hybrid system—some product planners said they could only sell 2,000 a year, GM Vice-Chairman Steve Girsky said in an interview last July.

Some experts think that newcomers such as Fisker and Tesla will have the toughest time. Tesla, which already sells a $109,000 electric roadster, will start selling a battery-powered Model S sedan for $57,400 a year from now. The car will be able to drive 160 miles on a charge. A $67,400 version of the car will be able to go 230 miles on a charge. The price point of both models will obviously put them out of range for many consumers. Tesla got a loan of $465 million and Fisker received $529 million. Both will have to keep generating funds for marketing, vehicle warranty, and service, says Hall.

At the same time, they do have a good start on establishing their position in the market. Tesla has been selling its electric Roadster since 2008. GM’s Chevy Volt beat the Karma to market, but Fisker says his car is chasing wealthier buyers. The average Volt buyer makes about $175,000 a year. The Karma’s big price tag and bold styling will make it a higher-end offering. “In the premium market, we are two years from seeing any real competition in the market,” Fisker says. When the competition arrives from such rivals as Cadillac, Mercedes-Benz (DAI) and BMW (BMWA), there will be plenty of it.

David_welch
Welch is a reporter for Bloomberg News and Bloomberg Businessweek in Detroit.

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