Tesla shocked Wall Street last week when it managed to squeak out a minor profit, going against most investors’ and analysts’ predictions.
Only a few years ago, the Obama administration forecast there’d be a million plug-based vehicles – plug-in hybrids and pure battery-electric vehicles – on the road by 2015. So far, however, the numbers have fallen short of expectation and, if anything, several once promising battery suppliers and battery-car makers have gone broke, and others are teetering on the brink.
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The unexpectedly strong demand for the new Tesla Model S battery sedan (base price: $62,400) this year has given hope that consumers just might plug into electric vehicles after all. But there remain skeptics who warn that potential buyers are still turned off by such factors as limited range, long charging times and high prices.
While it will take some technical breakthroughs to deal with the first two issues, some manufacturers are taking steps to cut battery car costs – and there are signs that’s charging up the market.
Just this week, General Motors announced it would trim the price of the Chevrolet Volt plug-in by $5,000. For 2014, the “extended-range electric vehicle” will carry a $34,995 sticker – including delivery charges – 12.5 percent, less than what GM was demanding at the start of the 2013 model-year.
“Dropping the Volt's price removes one of the primary consideration barriers for most buyers,” said Karl Brauer, senior analyst at Kelley Blue Book.
As with most of the new plug-based vehicles on the market, Volt will also qualify for a $7,500 federal tax credit, as well as additional incentives in states like California and Colorado, GM officials bet that will further enhance its appeal.
Volt clearly needs a lift. Although sales rose 9.2 percent for the first seven months of 2013, they lagged behind the overall growth of the U.S. new car market – as well as sales gains by key competitors such as the Tesla Model S and the Nissan Leaf battery-electric vehicles. Volt had outsold both last year, though the Chevy plug-in still missed it original target of 45,000 U.S. sales by a wide margin.
Nissan sold more Leaf battery cars during the first six months of 2013 than it did all last year, and volume jumped a whopping 372 percent in July compared to the same month the year before, making it the nation’s best-selling battery vehicle. Two factors appear to be influencing its rapid growth. Nissan launched production on a new U.S. assembly line in Smyrna, Tenn., for one thing. But most observers give credit to the launch of a new base model and a sharp price cut on other versions of the Leaf.
So it’s likely no surprise that most other battery-car makers are following suit. Honda cut the monthly lease price of its new Fit EV by almost a third, from $389 to $259. Ford took aggressive cuts on the Focus EV, as well.
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Smart, the microcar division of Daimler AG, this week announced it would reduce the lease price of its third-generation Electric Drive, or ED, model to just $139 a month. That price includes a new Battery Assurance Plan that will, among other things, provide a replacement for the ED’s lithium-ion pack if its range drops to less than 80 percent of the original 76 miles in city driving.
Tesla CEO Elon Musk announced his own “bullet-proof” battery warranty over the spring, and Nissan has one of its own. Battery life is one of the key concerns of potential buyers, research shows.
But price is generally considered the single biggest obstacle, according to various consumer studies.
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The good news is that as production volumes increase – albeit slowly – and more suppliers and manufacturers get into the field, the cost of actually building a battery-car has begun to drop. The lithium-ion batteries in the Volt cost as much as $1,000 a kilowatt-hour when the project got underway, according to various project sources. With 16.4 kWh in batteries, that was a significant burden.
While the maker won’t discuss cost details, the generally industry consensus is that lithium batteries are now heading down towards the $400 range.
Read more: Chevy Slashes Price on Volt Plug-in
“We have made great strides in reducing costs as we gain experience with electric vehicles and their components,” hinted Don Johnson, U.S. director of Chevrolet sales and service.
That said, batteries and the rest of the electric drive system on a plug-based vehicle is still far more comparable than a comparable gasoline drivetrain, stresses Mark Webster, general manager of the Smart brand. In fact, if a customer chose to buy a Smart Electric Drive outright, the cost of the battery alone would account for “almost all” of the MSRP.
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Indeed, Chrysler CEO Sergio Marchionne has publicly estimated the automaker will lose $10,000 for every Fiat 500e it sells. And the Volt and Leaf, some analysts believe, may run even bigger deficits.
Why would manufacturers bother with electric cars? There is the desire to place a “green” halo around your brand, much as Toyota has done with the wildly popular Prius hybrid.
There’s also the practical reality that California regulators are requiring automakers to produce a set minimum percentage of so-called Zero-Emission Vehicles. Fall short and you could be barred from doing business in the nation’s largest automotive market – and seven other states who have copied California guidelines. The losses on vehicles like the Fiat 500e seem marginal by comparison.
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Instead, makers continue to look for ways to get their battery-car sales up by targeting the sweet spot in terms of price. The next few months will reveal whether Chevrolet and Smart, among others, now have the formula right.
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