Beyond First-Year Bumps, Electric Car Market Poised for Growth
This time last year, there was a lot of anticipation about the electric car market, particularly given the imminent release of two bellwether products—the Nissan LEAF and Chevrolet Volt. In the intervening year, a lot has happened in the economy in general, and the automotive and electric vehicle market in particular. (As a point of clarification, we define “electric vehicles” to include conventional hybrids, plug-in hybrids, and battery electrics.)
Context matters, so let’s run down the major developments of the last year:
- The U.S. economy has had a rough year with growth slowing from the levels of late last year and early this year
- Japan suffered from the human and financial losses of a huge earthquake and tsunami, with particular impact upon hybrid and electric vehicles, which are mostly assembled in and/or receive key components from Japan
- Gas prices have increased almost one dollar over year-ago levels
- The framework for fuel economy regulations in the U.S. from 2016 to 2025 has been defined, with proposed regulations expected soon
- The launch of some new products, many from startup companies, have been delayed
- Sales of hybrids have trailed last year’s volumes
- Many observers have expressed their skepticism of the market given this shortfall
Volatility in this nascent market should not be surprising. Short-term hiccups, particularly given the factors listed above, do not mean the market segment will fail. Conversely, the plethora of new higher mileage gasoline engine options remind us that electric vehicles must meet consumer expectations for value and performance to grow to the share of market that many advocates seek.
Sales On Track
First, let’s examine the Volt and LEAF, both of which were first delivered to customers in December 2010. While volumes have been modest—U.S. sales through August totaled about 3,500 for the Volt and about 6,200 for the LEAF—these volumes are in line with expectations. Calendar year 2011 volumes are at or above our expectations of sales of these vehicles from a year ago. The ramp up of these vehicles was expected to be slow, and those plans have been met. But both vehicles are growing in availability, which will continue to improve next year as the cars move from regional to national markets. The biggest issue for these two vehicles is not the short-term, but the medium-term through 2015 and beyond. Our forecast is unchanged, with the Volt reaching 100,000 customers and the LEAF selling 75,000 in that year. While the Volt will not reach the (unrealistic) levels hoped for by G.M. CEO Dan Akerson as the vehicle was launching, improving supply and market forces should result in strong sales.
Regular hybrid volumes are down from year-ago levels, due almost entirely to a shortage of product from the Japanese earthquake. The Prius, which remains the market leader, is coming back as availability improves while the newly released Sonata is doing well. The Prius family is about to grow dramatically, with the launch of the Prius V hybrid wagon, the Prius Plug-in Hybrid, and the Prius C compact hybrid. Regular hybrids will continue to grow in both total volume and number of entries, as each of the technologies in the electric market serve a particular niche.
Just as important, the current and forthcoming fuel economy regulations will require automakers to adopt an “all-in” approach, with automakers adopting different technologies, resulting in growth of the full range of electric technologies, from hybrid to full EV. Regular hybrids will grow from just short of 300,000 this year to more than 500,000 in 2015, which will represent 55 percent of the electric segment. Full electrics and plug-in hybrids will each represent more than 200,000 sales in 2015 from volumes of approximately 15,000 in each category this year.
The growth is predicated in part on a number of new products from a variety of makers. The supposed travail of the last year has not slowed the development of new products from both established and niche companies. We expect 110 to 120 electrified products in the market in 2015—although many will be sold in low volume.
Some observers look at low-volume sales of some of the cars and take it as evidence that the entire market is not meeting expectations. However, fleet sales in low volumes were the plan all along for many of the vehicles during the early stages. Through 2015, the market will be defined by key products, namely the various versions of the Toyota Prius, the Nissan LEAF, and the Chevy Volt. In that year, our forecast includes only a limited number of vehicles with sales exceeding 10,000 annually: three pure EVs (Ford Focus Electric, Nissan LEAF, and Tesla Model S); three plug-in hybrids (Toyota Prius PHEV, Chevy Volt, and Fisker Nina); and 12 hybrid models.
The delay in product launches and/or failure of specialty automakers like BYD, Coda, and Think is not surprising given the start-up nature of the companies and the market, but more importantly is not particularly consequential with respect to the overall size of the segment since the volumes offered by these makers is modest. As the market matures, it will not be surprising if some companies fail, while others are purchased by more established automakers.
Some Bumps in Road, But Blue Skies Ahead
While the growth in the medium-term is up for debate, the longer term seems quite clear. Regulatory standards across the globe are moving towards similar mileage and emission requirements. While the automakers might protest these toughening standards, global harmonization allows for predictable levels that result in greater production volume and spreading of costs across the vehicle fleet. Moreover, global products that are more similar to one another reduce development costs and enable greater profits. The world’s leading automakers are moving in this direction, aided by significant financial investment and allocation of key personnel from both current and potential suppliers.
Is the road ahead a smooth one? Certainly not, with product cost representing perhaps the most significant unknown. The industry—and academia and government—is of course hard at work on this issue, which will heavily affect the growth rate of the market beyond 2015. Just as important is the extent to which internal combustion-based vehicles will improve their mileage, thereby defining the comparison in cost and performance for mainstream buyers—beyond the early adopters—between electric vehicles and internal combustion powered vehicles.
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