Has Springtime Come for the Electric Car?

With the Tesla (Nasdaq: TSLA  ) Model S due out later this month, excitement for electric cars is likely to mount once again. The first unit of the all-electric sedan was delivered last week, and shipments to the public will begin June 22. Priced between $49,900 and $97,900 (after a $7,500 federal tax credit), it represents the next step in Tesla's "skimming" strategy to target wealthier early adopters. This is the second model the company's released, following the sporty Roadster, and more than 10,000 prospective buyers have already plunked down deposits for the Model S. Tesla plans to make more than 5,000 of the sedans this year and over 20,000 in 2013; CEO Elon Musk expects the breakeven point to be at around 8,000 cars.

While Tesla seems to have proven that there's a market for the high-end, electric car, the central question with the futuristic automobile is if it can make the transition to the mainstream. Sales of General Motors' (NYSE: GM  ) Chevy Volt, which runs on gas after a 35-mile electric range, have come in under projections since their debut. The carmaker had hoped to sell 10,000 last year but only moved 7,671, and had earlier been aiming for 45,000 in 2012. However, through May of this year, only 7,057 had been sold, and GM now says it intends simply to meet demand. Nissan, which makes the fully-electric Leaf, sold nearly 10,000 of its EVs last year. That company has set a goal of selling 20,000 Leafs this year, but has only tallied 2,600 through May.

Though the electric car market still looks like a guessing game, other companies are jumping into the race. Honda (NYSE: HMC  ) , which is set to release its Fit EV later this year, has designed the most efficient car sold in the United States. The Fit EV will get the equivalent of 118 MPG, and will cost the average driver just $500 a year in electricity bills. The car carries a price tag of $29,125 after the federal tax credit and is set to roll out in California and Oregon this summer.

Still tethered to the charger
EV ranges have improved -- Tesla's Model S is listed at a range of 160-300 miles depending on the version -- but remain a key limitation. Infrastructure similar to Clean Energy Fuel's "Natural Gas Highway" might be necessary for EVs to take off. The warehouse chain Costco notably installed 90 electric charging stations at its stores in 2006, but removed them last year due to lack of demand. It looks like a classic chicken-and-egg problem.

According to the Department of Energy, there are currently over 10,000 electric charging stations across the country, but some projections say that there will 1.4 million (public and residential) charging stations by 2016. About a third of those would be open to the general public. By comparison, there are only about 115,000 gas stations in the U.S., though that number doesn't include individual pumps.

Hybrids still rule the (green) road
Electric vehicles may still be in a nascent phase, but their hybrid cousins have made the transition to the mainstream. Toyota (NYSE: TM  ) , the maker of the top-selling Prius, said that hybrids have accounted for 15% of its global vehicle sales so far this year, and the company has now sold 4 million total hybrids since their introduction in 1997. The Prius has dominated the U.S. market, accounting for about half of the hybrids on the road. Some economists see its popularity as evidence of a new kind of conspicuous consumption they call conspicuous conservation. Unlike other hybrid models like the Honda Civic or the Ford Escape, the Prius looks distinct from traditional cars, adding value for those who want to be seen being green.

With a Prius C that now gets over 50 mpg with a price tag of just $21,600, the new hybrids could render the EV obsolete, especially considering the head start they have in market share.

The natural gas option
With natural gas at rock-bottom prices, a third option has emerged for alternative-fuel vehicles. According to the Department of Energy, 112,000 vehicles in the U.S. are powered by natural gas; though, because of a lack of infrastructure most of those are short-haul trucks, buses, and other vehicles that make up a centrally located fleet. The drop in commodity prices has led to a boom for companies like Westport Innovations (Nasdaq: WPRT  ) , a designer of natural gas engines, which partners with manufacturers such as Cummins and Caterpillar. Westport also has agreements to build natural gas engines for Ford pickup trucks so the company could see more growth in commercial vehicle market on the way. A natural gas version of the Honda Civic has been available for years, but was up for sale in just a few states until recently. Despite the spread, the carmaker is targeting sales of only 4,000 of the natural gas sedan for this year. Compressed natural gas takes up more space than gasoline, so it is in some ways less amenable for smaller vehicles.

Foolish takeaway
Unsurprisingly, oil companies don't see a bright future for EVs. BP and Exxon recently released studies showing that electric cars will only take 4%-5% of the global market in 20-30 years, arguing that electric cars will remain more expensive than their gasoline-powered equivalents. Of course, technological advances could change the feasibility of the electric car, but these projections affect government policy and guide billions of dollars in capital investment for the oil majors.

A small company like Tesla could find a niche in EV's, but electric vehicles seem unlikely to take over the mainstream any time soon. Advances in hybrid technology will make filling up cheaper, and help bring down oil prices by lowering demand. Oil consumption is already on the decline, falling from 90.4 millions of barrels per day to 88.5 millions of barrels per day in just the first four months of the year, and the natural gas boom should further ease oil demand as adoption increases in the truck and bus market. Americans' historical reluctance to adopt new forms of transportation, whether it be the ballyhooed high-speed-train network of the early days of the Obama administration or the flop that was the Segway, is another reason to look skeptically at EVs. It looks like oil prices would have to skyrocket in order for EVs to take off, and under current market conditions that seems unlikely. If consumers can purchase a 50-plus mpg Prius for $21,600, EV prices are going to have to plummet before they can be truly competitive.

With oil prices near three-year lows, now is a good time to look into oil stocks that are likely bounce back. Our experts at the Fool have found an undervalued gem that has a near monopoly in the rig equipment market but trades at a P/E of just 13. Revenue and profits have been growing at a strong pace and once oil prices pick up, demand for its services are likely to soar. Get the name of this hot stock and find out all the other details you need to know in our special free report: "The Only Energy Stock You'll Ever Need." You can get your copy by clicking right here.

Fool contributor Jeremy Bowman holds no positions in the companies in this article. The Motley Fool owns shares of Tesla Motors, Ford Motor, Costco Wholesale, and Westport Innovations. Motley Fool newsletter services have recommended buying shares of Tesla Motors, Ford Motor, Westport Innovations, Cummins, Costco Wholesale, Clean Energy Fuels, and General Motors Company Common S.Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (7) | Recommend This Article (4)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 12, 2012, at 2:24 PM, FarrisKhan wrote:

    I drive a Volt.

    With all due respect, the Volt is extremely cost effective TODAY.

    The average car today gets 23MPG and costs $29,000.

    The Chevy Volt costs $31,625 after tax credits. The window sticker (using EPA results) details how the car can save $7600 in fuel compared to an average car. That makes its effective price actually only $24,045 or about 25% LESS than the average car today.

    I lease my Volt. My payment is $170/month higher, and I save $170/month in fuel (even including electricity costs). My costs are exactly the same as a comparable car. The only difference is that I have a bigger payment and I give less to Exxon. I have a longer than average commute (55-60 miles per day).

    You can get a Chevy Volt lease for $350/month today. What kind of car can you get for $180/month (factoring in fuel savings)?

    I do not think it will take others to simply do the math.

  • Report this Comment On June 12, 2012, at 8:35 PM, SuntanIronMan wrote:

    The primary reason for the lack of demand for the Costco chargers was because those chargers used the AVCON standard. Problem is the AVCON standard isn't actually a standard anymore. It is an old standard that was been completely replaced years ago.

    Modern electric cars don't use the AVCON standard. Modern electric cars in the US use the SAE J1772 standard and modern charging stations are SAE J1772 stations. Nissan Leaf, Chevy Volt, Ford Focus Electric, Toyota Prius Plug-In, Tesla Model S (and so on) all use SAE J1772.

    If you have all the new modern cars that use the current standard, but old charging stations that use the old standard, of course there will be a lack of demand.

    Most charging stations that previously used the AVCON standard have already converted (or will convert) to the SAE J1772 standard.

  • Report this Comment On June 13, 2012, at 4:21 AM, Delowe wrote:

    What has not been taken into consideration are vehicles and systems that are not yet available in North America.

    One is Better Place who have teamed up with Renault to provide a medium size sedan that has a range of 100 miles. WHat is unique about this all electric car is that Better Place provides battery switching stations so that if one drives beyond the range of the battery, one merely has to switch batteries and then continue on your way. it takes less time to switch batteries than to fill up at a gas station. The other advantage to the Better Place setup is that the car is sold "batteries not included." This keeps the cost of buying the car much lower.

  • Report this Comment On June 13, 2012, at 11:07 AM, DaroldB1940 wrote:

    Dartmouth professor Ron Adner’s makes the contention that the existing business model for today’s first-generation electric cars is unworkable.

    The dead zone lying between today’s limited selection and availability of EV’s and the prospect of mainstay market entrenchment centers on replacing the gas pumps of right now with the re-charge outlets of a futuristic tomorrow. It’s going to require scale, and that kind of scale doesn’t happen fast. Putting the old-fashioned gas station out to pasture won’t come about easily.

    Emerging economies could theoretically skip the high costs of a transition from gasoline to electric, much like China has seen with an explosion of first-generation cell phone users --- China never had much in the way of land-line infrastructure to render obsolete in the face of new technology so they had it relatively easy.

    Thinks scale, now think scale again, and a third time. Scale up any idea you or your professors have and you find there isn't enough money in the world to do what you imagine needs to be done. When it comes to highly-developed economies, instantaneous transition technologies can create logistical nightmares.

  • Report this Comment On June 14, 2012, at 2:28 PM, quinnway wrote:

    The battery technology isn’t good enough to make electric a fully viable option. The current manufacturing of the cars and the bank of batteries to power them has a larger “carbon footprint” than a gas fueled Escalade, so they aren’t green yet either and after all that you will need to spend 7K to 10K to replace the batteries depending on the make and model of “shiny forklift” you chose to own in the very neer future. Just not for me...

  • Report this Comment On June 15, 2012, at 1:04 AM, tcsonic wrote:

    FarrisKhan,

    I am curious, and do not know any Volt owners to ask my questions. I live in a rural area and a 50-60 mile per day commute is probably about an average drive to work and back, which might be one reason I haven't had the opportunity to ask.

    *How much has your residential electricity bill increased monthly?

    *How many miles do you get on a full charge?

    *What happens as the battery nears full discharge, does the vehicle lose power?

    If you would share your thought's on the car in general, IE.. handling, well/not well built, likes, dislikes, etc... Your remarks would be appreciated.

    Thank You,

    TC

  • Report this Comment On June 15, 2012, at 10:59 AM, catoismymotor wrote:

    No. 100% Electric cars are not feasable. Hybrid vehicles or CNG conversions are more within reach.

    Given the opportunity I'd convert my twelve year old car to run on CNG. If WPRT could do the work and arrange for my local natural gas provider to install a pump in my garage for a reasonable fee I'd do it tomorrow. This would work well because my car is the one that never travels more than 100 miles away from home. I would not have to worry about *infrastructure* issues so long as I was sure to top off the tank before heading out.

    My current annual fuel cost is $1,833 at $3.50 a gallon for 87 gasoline. My fuel cost with CNG at $1.75 a gallon would be $916. If the conversion by a company like WPRT and a CNG pump installation at home added up to no more than $2,500 it would pay for itself in a little less than three years. For me that would be worth it.

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