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What Did We Really Expect From Electric Vehicles?

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Nearly everyone watching the electric vehicle, or EV, market has been disappointed by the industry's ramp-up. President Barack Obama pinned his hopes on 1 million vehicles on the road by 2015 and at one time investors thought that number didn't seem all that crazy. Tesla Motors (Nasdaq: TSLA  ) , A123 Systems, and even Polypore International (NYSE: PPO  ) have taken their turns being the next hope for investors in the EV market, but hope is fading for investors.

But the question is what should we really be expecting from EVs? They're so new that few consumers are accustomed to the advantages and drawbacks, and the infrastructure is still in a fairly early phase.

Nearly everyone jumped on the bandwagon early, unlike with hybrids, so capacity doesn't seem to be the issue. In fact, it may be one of the problems right now. The industry built so much capacity and demand ramped so slowly that companies were left with massive losses on unproductive equipment. This drove Ener1 to bankruptcy earlier this year and by the look of it A123 Systems may be next. Battery makers aren't the only companies involved in EVs, but they're more dependent than most on their success so they're a good proxy for the industry.

The problem, so far, has been demand. But should we really be surprised in the current economic environment that few people can afford to buy vehicles that have very real range limitations? In a day and age when the financial argument for a hybrid is questionable, those who buy EVs are going to be those with some extra cash and an eye on the environment, not a desire to save money.

Maybe this is a good thing
There are a few good things that may come out of the industry's turmoil. Companies that go bankrupt aren't liquidating like they are in other emerging industries, such as solar. This is because it isn't usually the technology that's led to their demise, it's the balance sheets companies built by ramping capacity faster than needed. Ener1's bankruptcy was unfortunate for investors, but the company doesn't have any plans to leave the market. From a competitive standpoint, bankruptcy may help lower costs and help the company become profitable.

The industry has also learned a lot about what works and what doesn't. Tesla Motors appears to have massive successes with both its Roadster and Model S, paving the way for EVs, but few others have taken a similar strategy. General Motors and Nissan tried to make EVs for everyone with the Volt and Leaf, respectively, only to find buyers unwilling to spend the extra money on a vehicle that had little appeal outside of its efficiency. Ford's (NYSE: F  ) Focus Electric appears to be on a similarly disappointing path, but it's too early to call its electric version dead on arrival.

What we have learned is that the buyers willing and able to purchase EVs, at least early in the adoption cycle, want an efficient vehicle, but they also want something sexy and inspiring, hence the success of Tesla and the disappointment over the other vehicles. Fisker is another example of a company that had great demand for a high-cost, sexy product that is the high-end version of the Chevy Volt. Fisker was brought down by its own inability to get the Karma into production.

The industry is learning and adjusting on the fly and that has led to some successes and some failures. If our expectations weren't so high maybe we could see this for what it is, a normal growth spurt that weeds out the real competitors from those who were bound to fail.

One foot in front of the other
The industry has been in something of a chicken-egg conundrum on infrastructure as well. You need a large infrastructure of charging stations to make EVs truly competitive on a national basis and that's just rolling out. AeroVironment (Nasdaq: AVAV  ) and General Electric (NYSE: GE  ) are rolling out large networks of chargers, but our fueling infrastructure wasn't built overnight and neither will an EV infrastructure.

Manufacturers will also learn from their mistakes early in the process. The Focus Electric looks more appealing than earlier models, Tesla has built an attractive second model, and manufacturers like BMW are just starting to dip their toes in the water. This is a normal progression, something that hybrids went through, and we shouldn't be surprised that there have been bumps in the road. Did we really expect a home run right away?

Foolish bottom line
Our expectations were high for EVs, both as a country and as investors, but the industry is still chugging forward. Tesla appears to be turning into a more stable carmaker capable of weathering the current questions the industry is facing.

Polypore is also taking a long-term approach and still has high hopes for the EV market. After releasing first-quarter earnings, management said that demand for EV products should pick up in the second half of the year, so maybe, just maybe, the growth everyone was looking for is just around the corner.

Ener1 and A123 Systems may be casualties, but when you set your sights so high there's a long way to fall. One million EVs by 2015 appears to have been overly optimistic, but the bottom line is that even though we'll fall short of that number, EVs aren't dead yet.

Similar to the solar industry, the electric vehicle market has tremendous potential, but it could take years for the economics to make these cutting-edge products viable. However, there's one company investing millions in both of these sectors – General Electric. For GE, strategic bets in alternative energy are the name of the game. If you're a GE investor, you need to understand the risks and rewards behind each of these bets. To help, we're offering comprehensive coverage for investors in a premium report on General Electric. Download now and you'll receive continuing updates as major events unfold during the year.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Tesla Motors and Ford Motor. Motley Fool newsletter services have recommended buying shares of Tesla Motors, General Motors, AeroVironment, Polypore International, and Ford Motor. 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 (9) | Recommend This Article (7)

Comments from our Foolish Readers

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 July 31, 2012, at 3:31 PM, epeon wrote:

    It was not surprizing to me that EV cars have bombed. When they said that the price for the VOLT was $41,000, I knew it wouldn't sell.

  • Report this Comment On July 31, 2012, at 4:08 PM, boogaloog wrote:

    Does anyone know (and I mean KNOW, not just have snarky politically-slanted baseless opinions) if there is any reliable prediction/estimation of rate of improvement in EV range, like Moore's law for computers? I assume that the current EV range probably beats the range of early gas powered cars. And presumably with modern technology it won't take a century of development to get EVs up to current gas ranges. Or are we up against a hard wall with battery designers scratching their heads looking for a breakthough that could come next week ... or next century?

    Personally, I'm optimistic. I'm also realistic about the current state of EVs. But I bet if, for whatever reason, gas cars had to go away tomorrow, EV performance gains would accelerate massively. Either that, or our transportation infrastructure would change very quickly to accomodate the issue.

  • Report this Comment On July 31, 2012, at 7:47 PM, NO2OIL wrote:

    Anyone owning more than one vehicle, both requiring gas or diesel in order to operate are throwing their money away. Such extravagance comes not only as a high price to their wallet, but the environment and society.

    The average America drives under 40 miles in their daily commute. As a highly satisfied VOLT owner that falls within the category, I can testify that in 9 months of daily driving and I have burned less than 1 gallon of gas, while experiencing marginally higher monthly electric bills - a cost that translates on average to $1.25 per gallon equivalent.

    GM got it right with the VOLT, providing a great driving experience and range of over 325 miles per fill up, competitive with any conventional vehicle. While never requiring to be plugged in, while plugging in means no gas required. When burning gas via a highly efficient on-board generator to charge the battery system, the VOLT maintains the greater efficiency of an all-electric drive-train (EV). Speaking of EV's, I saw the Tesla S yesterday for the first time close up, a beautifully crafted and engineered vehicle - who's time has come.

    The efficiency, performance, and joy of driving an EV and PHEV ensures the market share for these vehicles will continue to grow, time is on the side of the EV -- no matter what vested interests in fossil fuel do or say...

  • Report this Comment On July 31, 2012, at 8:07 PM, Latinus wrote:

    There is no Moore's law for batteries, boogaloog .

    Gasoline simply is a much better of storing energy than a battery of the same volume.

    All you can expect are minor gains in the range of EVs.

    But it should be possible to bring down the price of EVs and batteries.

  • Report this Comment On August 01, 2012, at 9:27 AM, svenhh60 wrote:

    couldn´t it be the case TESLA beeing too early with their e-cars ? The people being early-adapters, early buyers are peopel with deep pockets...they can affrod buying a Tesla because they have more than one car in their when Tesla makes problems or distance-risks these people use their Porsche or.....well....In some years all big players will have e-cars, the infrastructure will be there...and the pricing is all between fuelcell-cars will take over.....2014 with Daimler, Toyota and infrastructure (hydrogen stations) are build in time....Good luck, Tesla but I am very sceptical....

  • Report this Comment On August 01, 2012, at 10:55 AM, Cencio wrote:

    There is no Moore's law, but Elon Musk of Tesla believes there will be an 8-10% increase in energy density per year, for at least the next several years. This will make affordable 200-300 mile range cars possible very soon.

    As a Tesla Roadster owner and Model S reservation holder, I know that range anxiety disappears with a car that can be driven 200 miles and charged reasonably quickly.

    As the author indicates, Tesla took the high road, and that will prove to be the right road, just as it was with cell phones, laptops, flat screen TVs etc. Early adopters are really investors, having the way for mass adoption.

  • Report this Comment On August 01, 2012, at 11:37 AM, fernandave wrote:

    Re the author's statement, "You need a large infrastructure of charging stations to make EVs truly competitive on a national basis ", I completely disagree. The underlying premise is that some NEW infrastructure needs to be built. We already have a very comprehensive infrastructure. There is electric power delivered to virtually every home and other building in America. We might need to add a new outlet to our garage, but we don't need new power stations built and high power transmission lines run. If every suburban family with a single family home, a garage, and more than one car, swapped only one of their ICE cars for an electric, that would put millions of EVs on the road. The problem is that, until Tesla, nobody has built a car that will make a round-trip high mile commute. If I have a low-mile commute, I don't have a financial incentive to switch. I can keep driving my 10 mpg Suburban, because I still only burn 2 gallons per day. But for my wife's 55-mile commute, an EV would be great, and the higher price of the car would be off-set by the savings, except that everyone, (but Tesla), keeps offering pathetic little weenie-mobiles that are incapable of getting her home from work. If you aren't going to give an EV a 150-mile range at minimum, don't bother to build it. It'll never achieve more that anemic sales volumes.

  • Report this Comment On August 01, 2012, at 1:28 PM, robertba wrote:

    I think Commenters should expand their horizons and look at China's KANDI.

    This company has a rental program, a battery replacement program, and apparent support from the Chinese Government.

    Please do you research and compare.......

  • Report this Comment On August 06, 2012, at 9:08 AM, whitgallman wrote:

    I've got an Electric Ford Focus and it's really fun to drive, handles great, looks sporty AND costing only 2 cents a mile to run means that ‘joy riding’ is affordable again. My employer let's me plug in at work so my daily commute costs only 1 cent per mile. I get to use the diamond lane on the interstate and have a dedicated parking spot at work. All just icing on the cake.

    Besides that, there is no engine oil to change, no fuel or air filters, no noise. Nothing could be finer than to drive the Carolinas in my Focus Electric.

    “OUTOFGAS and loving it”

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