Auto Execs Differ on Electric Car Economics

Chrysler-Fiat C.E.O. Sergio Marchionne said, "The economics of EVs simply don't work."

The number of electric cars delivered to customers is making a slow and steady climb. Not including Tesla—which doesn’t report official sales numbers—the current count of Chevy Volt, Nissan LEAF, and Smart ED units just passed 2,000 units. The key question is where we go from here, and how fast.

The answer to that—as with many questions in life—will come down to economics. If you want to know about a car company’s commitment to electrification, don’t look at the razzle-dazzle of prototype vehicles. Instead, examine what their executives say about the dollars and cents of electric cars.

Sergio Marchionne, C.E.O. of Chrysler/Fiat, made his opinion known last week when he said, “The economics of EVs simply don’t work.” Referring to the electric version of the Fiat 500 that Chrysler could start selling next year, he commented, “We will lose over $10,000 per unit despite the retail price being three times higher.” Apparently, that means selling the diminutive electric Fiat 500 for more than $40,000. That will place Chrysler alongside Coda Sedan, Think City, Volvo 30 Electric and Smart ED, all of which will be selling electric cars at prices beyond what the market indicates is reasonable—mostly because these companies lack the deep pockets and/or the commitment to withstand a sustained period of heavy losses.

Upfront Costs and Getting Ahead

Should it come as a surprise that a new electric car requires pricing below what it takes to manufacture and market it?

I remember cornering Bob Lutz at the 2007 Detroit Auto Show moments before the Chevy Volt concept was first unveiled, and asking him if General Motors was willing to take a loss on the Volt. He replied that G.M. would be willing to lose money with each Volt purchased “at least as long as Toyota was willing to subsidize the Toyota Prius.” Most observers believe that it took Toyota about a decade to start making money on hybrids, after first introducing the Prius in Japan in 1997. (Take note: Toyota now dominates the hybrid market.)

So, if G.M. is willing to invest in the future of electric cars—at least, one that features a gas engine on board—and Chrysler-Fiat’s Marchionne says it doesn’t make sense, then where does the third of the Detroit Three stand? On the fence.

Ford Motor’s chairman Bill Ford recently expressed doubts that a ground-up electric vehicles would appeal to enough consumers—and thus force the company to put big incentives on dedicated EV in order to “shove them out the door, somehow." Instead, Mr. Ford, C.E.O. Alan Mulally, and Nancy Gioia, Ford’s chief of electrification, are good at staying on message: the company will produce as many Ford Focus Electric units as customers demand. The Focus Electric will be built with the same platform and on the same production line as gas, hybrid and plug-in hybrid versions of the Focus. “These [Focus EVs] are going to be the most affordable electric vehicles you can get,” and produced with “more scale than anybody else,” said Mulally.

That sounds like a commitment, but with a caveat. Ford cleverly built a backdoor in its electric plans—it’ll produce gas or hybrid versions instead of electric models when the economics and markets dictate. (Let’s reserve judgment until an official price is announced, and customers try to place orders.)

In contrast, we know Nissan’s take-no-prisoners attitude about electric cars. You don’t hear C.E.O. Carlos Ghosn talk about how much money Nissan will lose with each LEAF. Regardless if and when profitability might happen, Ghosn and other gung-ho EV-makers are thinking about a different economic equation: What will it cost an automaker to be left behind in the shift to electricity? What's the price for not meeting increasing vehicle emissions standards? What happens when the cheap gas is gone for good?