Has the Electric Car Revolution Stalled?

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Has the electric car revolution stalled?

Much-hyped battery maker A123 Systems (Nasdaq: AONE  ) filed for bankruptcy this week, hoping to get its assets sold to big-league auto supplier Johnson Controls (NYSE: JCI  ) . Meanwhile, one of A123's key customers, Fisker Automotive, said that production of its next model – originally slated to start this quarter – was unlikely to get rolling until 2014 or 2015, as it confronted a whole series of problems.

Fisker and A123 were both recipients of funding made available by the Obama administration, which put $5 billion behind its pledge to get a million electric cars on U.S. roads by 2015. Other recipients have fared somewhat better, but it's still a fair question to ask: Has the revolution stalled?

Or perhaps more to the point, was the promise of electric cars overblown?

So far, just one success story
Proponents of electric cars have one promising success story to point to, of course: Silicon Valley's Tesla Motors (Nasdaq: TSLA  ) is actually producing an all-electric car that is getting good reviews – and Tesla has plenty of eager customers lining up to get one.

There's no doubt that Tesla CEO Elon Musk and his team have executed very well on their audacious plan to roll out the Model S, an all-electric luxury sedan with impressive range. But despite its popularity with the well-heeled gadget-geek set, it remains to be seen whether Tesla can break out of its technophile niche and into the mass market.

The challenges that Tesla, and any other maker of pure electric cars, will have to overcome are formidable. Consumers who are used to gasoline technology – and who are finding that new cars get better and better fuel economy with each passing year – have so far decided that the hassles of an all-electric car aren't worth the savings.

But the electrification of the car is gaining ground – with hybrids.

Hybrids have upstaged electric cars... for now
General Motors
(NYSE: GM  ) just announced a $35 million investment in a Detroit factory that will build the Cadillac ELR, an upscale coupe set to use the same drivetrain technology found in the Chevy Volt. While the Volt is often perceived as an electric car, it's actually an unconventional hybrid: A four-cylinder engine serves as an on-board generator to recharge the car's battery pack.

The ELR will be an interesting niche product, one that should help GM recoup more of its expenditure on the Volt program. But more and more mainstream hybrids are being sold. Sales of Toyota's (NYSE: TM  ) Prius – now a family of three hybrid models – have nearly doubled year-ago U.S. totals through September.

Meanwhile, Ford (NYSE: F  ) – which has invested heavily in improving the fuel efficiency of its conventional gas-powered models -- has also been ramping up its hybrid offerings. The Ford C-MAX, a direct competitor to the large Prius v, began arriving at U.S. dealers in September. And the hybrid version of Ford's hot new Fusion sedan has just hit the market, and sales are expected to be strong.

Contrast with Ford's own electric car, the Focus Electric, which has sold just 236 examples through September.

The upshot: A long way to go for EVs
Toyota, Ford, GM, and the other major automakers will continue to cover all of their bases by developing EV technology (as well as other alt-fuel technologies like fuel cells). But clearly the momentum is with hybrids. Unlike EVs, hybrids require no changes in consumer behavior – they're functionally "normal cars."

While there will always be room for a well-executed niche product like Tesla's Model S, better hybrids, along with improved internal-combustion drivetrains like Ford's EcoBoost engines, seem likely to keep the electric-car revolution from gathering steam for quite a while yet.

Tesla's execution remains impressive, but its long-term prospects remain cloudy. How will the company preserve its margins once better-funded competitors take aim at its niche? Even as I admire Tesla's achievements to date, I'm not high on its chances of long-term success. But while Tesla Motors is a recommendation of the Fool's Rule Breakers newsletter service, there's a different multibagger that has the growth stock service's attention these days. Find out what that stock is with a free report.

Fool contributor John Rosevear owns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford, General Motors, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (1)

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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 October 19, 2012, at 9:51 AM, TMFDarwood11 wrote:

    It was recently reported that Tesla may be able to produce between 2,700-3,250 of the Model S in 2012.

    It has also been reported the GM has pushed year-to-date 2012 sales of the Volt to 13,500.

    Neither has broken through.

    Tesla, with a full refund policy for deposits, has "pre-orders.....expected to reach around 3,200 by the end of the year, " according to an article at Seeking Alpha website. I don't know if that is indicative of "plenty of eager customers lining up to get one."

    The electric car appears to be a question mark. I've seen some numbers for replacement battery packs. For the Volt it's $8,000 and for the Leaf it's $18,000. That's a lot of money for what is essentially a very high tech gas tank. I don't know what the replacement cost will be for the Model S.

    Is this relevant? In my case it is. I drive my vehicles for up to 10 years and 180K miles and they are very well maintained. I generally drive my vehicles until the costs per mile rise to a level that a new vehicle would be an attractive alternative.

    It's been reported via Reuters that there are a few Volt owners who are leasing one for "just $5,050 to drive around for two years..." Is that an attractive price? Of course, there is also the installation of that charging station installation.

    The gasoline tax in my state is about 58 cents a gallon, combined federal and state. At 25 mpg that is about 2.32 cents per mile.

    In an electric car at 6,000 miles a year, that's $139 in taxes not paid. Who is going to pay for highway maintenance?

  • Report this Comment On October 19, 2012, at 1:50 PM, TMFMarlowe wrote:

    @Darwood11: Seeking Alpha is wrong.Tesla says that it has well over 10,000 preorders (with deposits) for the Model S, and there's no reason to think they're making that up. That's barely a drop in the bucket of the overall US overall market, but it counts as "plenty of customers lining up", all things considered. Tesla's a startup, after all.

    But to your larger point, I agree. That's why I've been skeptical of Tesla's long-term prospects, and indeed of the EV market as a whole.

    Thanks for reading.

    John Rosevear

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