Electric Cars Won't Sell Until They're Cheaper: Duh

By · November 09, 2012

Model T production line

The Model T on the production line. Prices dropped from $850 to $298, and sales soared from 18,000 to 1.8 million. (Ford photo)

J.D. Power and Associates isn’t exactly breaking new ground when it says in a survey released Thursday that electric vehicle sales will remain “a very small part of the U.S. market” unless they get cheaper and “demonstrate the economic benefits to consumers.”

Learning from Henry Ford

Well, duh. Of course they’re too expensive. If you go back to the transition from the horse to the horseless carriage, you’ll also see that early cars were absurdly costly compared to the average person’s salary. Automobile sales didn’t really take off until Henry Ford put them on an assembly line and dramatically cut the cost of his Model T.

From 1908 to 1913, Ford’s innovations allowed it to cut the price of the car from $850 to $600. Sales jumped from $18,000 to 168,000. Nobody knew you could sell that many cars in a year. By 1923, a Model T touring model cost an incredible $298, and sales reached a peak of 1.8 million.

According to Henry Ford and the Triumph of the Auto Industry, “At that time, well over half the cars on the roads were Model Ts, and Ford had become a billionaire. Not only did he put America on wheels, he changed the way businessmen priced their products and paid their workers.”

The Prius Started Slow

OK, here’s a more modern example. In 1999, when I was writing my first book, Forward Drive, I became intrigued by early test versions of the Honda Insight and Toyota Prius, and asked the Big Three (and folks from the obsessed-by-horsepower car magazines, too) if they planned anything comparable. They were united in believing hybrids both impractical and too expensive, and likely to remain that way.

2000 Toyota Prius

The modest Toyota Prius of 2000 sold just 12,000 in the U.S., but much better days were ahead. Now it's the third best-selling car in the world. (Toyota photo)

Early sales of the Prius justified their skepticism. The Prius sold 12,000 in its first U.S. year, 2000. (The Honda Insight also trickled out of the gate.) Time, reflecting the conventional wisdom, wrote at the time: “A major obstacle: the price trade-off for being green.” Yadda-yadda. Today, the Prius is the third-best selling car in the world, a niche vehicle no more.

A No-Brainer

Of course the prices of electric cars are going to come down, and of course when they do more people will buy them. It’s a no-brainer, no? We’re looking at likely breakthroughs in both battery cost—the big Achilles Heel—and range—a big obstacle for nervous consumers today.

“The way for manufacturers to take EVs to the masses and increase sales is to address the economic equation,” said Neal Oddes, a senior director at JD Power. “There’s still a disconnect between the reality of the cost of an EV and the cost savings that consumers want to achieve.”

Agreed, but it's no big insight—it’s just a snapshot of where we’re at now, not a prediction of the future. Obviously, the automakers know this, which is why they're working 24/7 to bring costs down and repeat the Model T story.

My view of the future for EVs? Well, that's so bright I gotta wear shades.

Comments

· · 2 years ago

A friend of mine recently signed a lease on a 2012 Nissan Leaf. He's done all the math (he's a retired math teacher) Compared to his present car, a Hyundai Accent, his payment will be $8 more per month but he will be saving $150 per month on fuel.

· · 2 years ago

1+ Jim Smith

JD Power needs to have your Math Teacher show them something they do not grasp. Arithmetic. Then compare.
Hint..... It is not even close.

Tom

· · 2 years ago

I just purchased a 2011 Leaf SL from a Buick dealer for $20,500 with only 585 miles on it so the prices are coming down on the used ones. I have a friend that works at a Nissan dealership that let me drive a 2012 leaf for the weekend and I was hooked. I work nights and my wife works days so we are sharing the car ,we have saved an average of $250.00 a month in fuel. We both work within 20 miles of our house and my son drives it on the weekends.

· · 2 years ago

Not sure if Jim mentioned it but I saw on "Automotive News" that NEW pure EV's worldwide are outselling NEW plugin hybrids.. Interesting.

Notice in the picture how modern that Ford production line is for the time... No ceiling mounted line shafts and leather belts down to the line, merely neatly spaced ELECTRIC motors where neeeded.

· OppChg (not verified) · 2 years ago

Prices have already been coming down. The Chevy Volt is now available for around $28k (less than the current average price paid for a new car, $31k) And the Volt is anything but average, it is exceptional.

· · 2 years ago

Great headline! That's exactly the same thing I thought when I saw this "news" from JD Power. It's a total no-brainer that more EVs will sell as prices come down.

In fact, it's already clear that great lease deals for the past 6-8 months have had a major effect on climbing Volt sales and the same is clearly true of the LEAF, after Nissan finally got the message that people will come -- if the deals are good enough.

Of course, if automakers pull back on those deals, expect to see accompanying drops in sales that very closely mirror the changes in price. Small increases will mean small drops in sales, big increases in monthly lease costs, etc. and you'll see big drops in sales. Simple as that.

· Paul Scott (not verified) · 2 years ago

I sell the LEAF for a downtown Los Angeles Nissan dealer. I've sold about 250 LEAFs so far, so I have a good handle on the real numbers.

About 2 months ago we were told there were 1,200 2012 LEAFs at the Port of LA. We'd been leasing them, in small numbers, for about $400-$500/month. People were happy to get their LEAF, but there too few of them for the production capacity Nissan has. Economics 101 tells you to drop the price, which is what Nissan did. Nissan gave the dealers several thousand off the price and reduced the money factor for the leases. Immediately, sales took off. I quadrupled my sales in the first month.

When we were able to get the lease price to $260/month, people woke up. This is less than many people pay for gas each month, so they essentially got a free car. I tell them they are letting the oil companies pay for their car, and they LOVE that!

This is the price point Nissan needs to hit. We might get that help if Obama can push through the extension of the $7,500 tax credit to a $10,000 rebate. I can guarantee that will make things jump.

Nissan is about to open their Tennessee plant which has capacity to build 150,000 LEAFs per year. We need to get demand up enough to max that out. We have two ways of doing this.

We can use the "stick" approach. We can internalize all of the external costs of oil in the price of gasoline and diesel. These are the hundreds of billions representing the value of the human lives lost because of oil. Thousands of Americans die prematurely every year from the effects of internal combustion pollution. Thousands of our soldiers are dead because of oil, tens of thousands seriously wounded. Our land, air and water are poisoned by the stuff.

None of these costs are in the price of gas. So, the stick is that we pile on the true costs of oil in taxes.

Or, we can do what Obama suggests and raise the $7,500 to $10,000.

· Anonymous (not verified) · 2 years ago

All these research groups are stooges of OPEC & Oil companies and provide this type of info. Tesla is able to sell more with a sophisticated car. If every company follow their model, they can slowly ramp up the capacity and bring down the cost.

Luckily EV chargers are popping up everywhere.

· Anonymous (not verified) · 2 years ago

Gee, I'll bet if they could bring the price for Tesla S & Volt down to about $15k, they'd sell a bunch too! Or build them in China & sell them here for that amount....right.

· Bret (not verified) · 2 years ago

I believe the Envia type bateries will have a huge impact on EV costs and sales. Increasing the energy density lowers both the cost and weight of the battery, which changes the equation completely. When EVs cost $20-25K with a 200-300 mile range, they will sell in the millions, instead of the thousands. The good news is this technology is only a couple of years away.

· Modern Marvel Fan (not verified) · 2 years ago

"I just purchased a 2011 Leaf SL from a Buick dealer for $20,500 with only 585 miles on it so the prices are coming down on the used ones"

That is b/c the 2011 owners already took the $10k tax incentive. $7,500 Federal + $2,500 CARB rebates (that rebate was about $5k in early 2011). A brand new 2011 Leaf SL was around $32k. So, you are just paying the after Rebates price....

· · 2 years ago

@Bret - You say the Enivia technology is "... only a couple of years away." Really? Not to be a party pooper, but I've heard so many claims and wonderful breakthroughs over the years (just read a few Scientific American issues from 10-15 years ago with gobs of unfulfilled claims and you'll see what I mean). I remember the claims in 1980 or so that by the year 2000 we'd all be driving cars getting 100 mpg. The reality is, aside from a few electrics, that's still not close to happening.

I hope I'm wrong ... but I'm not holding my breath and insted I'm trying to see what today's technology can do for us with just a little more social and public incentive. I think part of that social pressure is to use total cost of ownership numbers when speaking about EVs. As several posters here have said, right NOW, EVs actually are cheaper to own and operate over a 5 year period in a lot of scenarios than comprably equipped new vehicles. That's the kind of story we actually should be seeing in the press.

· Modern Marvel Fan (not verified) · 2 years ago

"EVs actually are cheaper to own and operate over a 5 year period in a lot of scenarios than comprably equipped new vehicles"

I am NOT sure about that...(assuming only the Federal Tax credits) I don't think any EVs is cheaper to "own" or operate than comparable equipped Toyota Prius (50MPG) @ $3.80/gallon and $0.15/KWh standard E-rate. Typically, it takes about 6-7 years to break even. But you do get better driving experience in those 6-7 years.

However, with the recent attractive "leasing" rate, then it is true for a 2-3 year lease rate.

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