Why Expensive EVs Are on Back Order and Cheap Ones Aren't Selling

In the automotive market, we see that the biggest number of units sold come in the low- and mid-priced ranges. Millions of Toyotas are sold every year while top level BMWs sell in far smaller numbers. But an interesting situation is playing out in the electric vehicle, or EV, space. Despite a high number of lower-priced EV and plug-in hybrid electric vehicle, or PHEV, offerings, automakers are being forced to discount these cars and sell them below cost in some cases. And while this is happening, Tesla Motors (NASDAQ: TSLA  ) can't produce its Model S (costing two to three times as much) fast enough to clear its back orders. Let's take a look at why people want the expensive EVs but not the more fairly priced offerings.

Detroit's all-electric play
Despite the popularity of Tesla's all-electric Model S, the only all-electric offering from Detroit's Big Three is the Ford (NYSE: F  ) Focus Electric. With an estimated range of 76 miles according to the EPA, the Focus Electric comes in with a far smaller range than the Model S, which boasts over 200 estimated miles of range. Along with significantly less power than a Model S, a price point in the $30,000 range, and an appearance that barely differs from the gas-powered Focus, the Focus Electric clearly signals it is competing for the middle class buyer and is not targeting the same performance levels as the Model S.

In an effort to spur sales, Ford slashed $4,000 off the Focus Electric's list price back in July, cutting it from $39,995 to $35,995. However, even at this price point the electric hatchback still has a premium of $10,000 or greater when compared to the gas model.

Range issues
A primary factor hurting sales of the Focus Electric is the relatively low range. Despite the average American's daily drive being well within the Focus Electric's range, range anxiety still grips buyers preventing them from buying the car. In this case, Tesla has inadvertently managed to provide a real life example of range versus sales.

When the Model S was first announced, a version of the car was available for just under $50,000 (after federal tax incentives), setting the Model S up to have a major selling point by being available in the sub-$50,000 segment. Even with a 40 kwh battery pack providing an estimated 140 miles of range (nearly twice that of the Focus Electric), the base version of the Model S was by far the worst seller of the model's battery options, collecting only 4% of Model S reservations. Ultimately, orders for the 140-mile range Model S were so low that Tesla cancelled that version and gave the few who did reserve it a free upgrade to the 60 kwh version (electronically limited to 40 kwh but buyers could upgrade later if they choose to).

Based on the failure of the Tesla Model S 40 kwh version -- and considering that many Model S buyers are wealthy enough that the EV could even be used as a second car, yet they still chose higher range options -- it is pretty reasonable to assume that a range around half of that offered by Tesla in a car priced at a significant premium to its gas equivalent would have difficulty selling. For electric cars to be seen as practical by the general population (even though the range of a Focus Electric could serve the needs of a majority of them) the market seems to have reached a consensus of demanding more than 140 miles of range.

Range extension solution
General Motors
(NYSE: GM  ) has taken a different approach to the matter. Instead of producing a low-range all-electric, GM has instead produced the PHEV known as the Chevrolet Volt. I personally drive a Volt and I would definitely say it's a nice car overall. However, not everyone's commute fits within the Volt's 38 mile all-electric range, so these owners would still use some gasoline. Additionally, the presence of the internal combustion engine removes one of the key selling points: the fewer moving parts of an all electric vehicle make for lower maintenance costs.

Would I say the Volt is a failure? Not by a long shot. It serves the needs of many people who want to eliminate range anxiety or regularly travel on long trips but would still like to cut fuel consumption for shorter distance driving.

But the biggest benefit for GM and Ford is not going to show up in earnings in the short term. The Focus Electric and Chevrolet Volt allow Ford and GM to test and improve a technology that someday could power a profitable line of cars. This again comes with a real life example where Toyota lost money on its Prius program in the beginning but today the Prius is one of the company's top sellers leading Toyota to expand the Prius from a single model into an entire Prius lineup.

We want range
Although the average consumer probably does not need the range of a Tesla Model S, most are comforted by the fact that it's there. The automobile has always represented a symbol of freedom in the public's imagination and a range limit of 140 miles or less has not sat well with buyers, even when offered in an otherwise highly popular vehicle. Unless Ford or GM wants to move their EV offerings to a higher price level where more range could be added, selling an all-electric with a range under 100 miles is not likely to produce much profit for the auto giants in the near term.

However, a forward-looking view from Detroit is positive and shows that they are committed to the R&D it will take to remain competitive. After all, in the auto industry, those who stand still get left behind. In the next few years, Tesla is expected to launch its third-generation sedan into the $30,000 price range targeting a range of 200 miles. Auto industry investors are advised to keep an eye on EV developments whether or not they have any positions in Tesla.

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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 September 27, 2013, at 3:21 PM, gjsuhr wrote:

    The low fuel light on my gasoline powered Honda Accord goes in when I have perhaps 75 miles of range available.I tend to fill up because I don't want to be stranded somewhere if I have to go out of my way or wasn't paying attention, and there are gas stations nearly everywhere so that isn't a huge problem. Conversely, an electric vehicle with a 75 mile range would be like driving around with your low fuel light on all the time, and if you run out you can't walk to the next gas station to get a gallon of volt/amps. I know I don't want to be running on empty all the time, and apparently my view is shared by the majority of driers.

  • Report this Comment On September 27, 2013, at 3:31 PM, gadeko wrote:

    Tesla succeeds where the rest fail because Elon Musk built a "real" car that's fast, good looking and practical with a battery range that far exceeds most drivers daily requirements. All the elements most people want. Then he backed it up with further innovations like his charging/battery change stations. With the nutty looking short-range cartoon cars the others have been producing he hasn't had any competition. The patents are already filed for the 2017 Model E. At half the price of the Model S when that car hits the streets Musk will own the electric car market.

  • Report this Comment On September 27, 2013, at 3:48 PM, captainccs wrote:

    >>>Let's take a look at why people want the expensive EVs but not the more fairly priced offerings.<<<

    A lower priced car is not necessarily "more fairly priced." The word 'fair' is not a synonym of 'cheaper."

  • Report this Comment On September 27, 2013, at 3:50 PM, speculawyer wrote:

    Because we have a lot of income inequality . . . and the cheap ones ARE SELLING. More than 11,000 plug-in vehicles sold in August in the USA and only about 1500 of them were Tesla Model S cars.

  • Report this Comment On September 27, 2013, at 3:52 PM, speculawyer wrote:

    gjsuhr . . . how many times do you actually run out of gas? It is not hard at all to deal with a 80mile range EV.

    But perhaps your cellphone dies all the time too. Well, for people that can't handle looking at a fuel guage, there are plug-in Hybrids like the Volt, Ford Fusion Energi, Ford C-Max Energi, Honda PHEV, etc.

  • Report this Comment On September 27, 2013, at 4:22 PM, carboy17 wrote:

    It must have been quite a challenge to write an article on the state of EV sales without once even mentioning the all electric vehicle that has outsold all of the others combined: Nissan Leaf.

    And no, the Volt isn't an EV. It has a fuel tank, radiator, tailpipe, belts.....

  • Report this Comment On September 27, 2013, at 4:26 PM, rjhogan1 wrote:

    Isn't the Chevy Spark a 100%electric car from the Big 3. Hard to put any weight into anything the author has to say when can't get simple facts correct.

  • Report this Comment On September 27, 2013, at 4:49 PM, schmartguy wrote:

    @rjhogan1, The author probably didn't include it because it isn't available everywhere. From Chevy's site:

    "The all-new 2014 Spark EV is available to residents of Oregon and California." "in limited quantities."

    The industry refers to this as a compliance vehicle.

  • Report this Comment On September 27, 2013, at 5:07 PM, speculawyer wrote:

    "Tesla is expected to launch its third-generation sedan into the $30,000 price range targeting a range of 200 miles." I'm a fan of Tesla, but this is a steaming pile of bovine feces. The economics of that just doesn't work. Perhaps they can do a car in the $40s which will cost in the mid-$30s after the tax-credit. That boastful claim that cannot be achieved is one of the reasons why Tesla has a valuation bubble. People don't understand engineering and the costs of things.

  • Report this Comment On September 27, 2013, at 5:11 PM, speculawyer wrote:

    All of the big 3 have pure EVs. The Ford Focus Electric, the Chevy Spark EV, and Chrysler has the the Fiat 500e.

    The Focus Electric is a kludgy conversion largely engineered by part-supplier Magna.

    The Spark EV is only available in California, Oregon, and soon to be in Canada and Korea. It is a conversion but it is a nice little spunky version that got great reviews.

    The Fiat 500e is nice but it is a limited edition conversion done by Bosch. CEO Sergio has been vocally anti-EV but apparently Chrysler is now realizing that was a bad move as they need EVs for CAFE standards, ZEV mandates, and it is a fast-growing market.

  • Report this Comment On September 27, 2013, at 6:29 PM, RussellL wrote:

    "Tesla is expected to launch its third-generation sedan into the $30,000 price range targeting a range of 200 miles."

    To be more accurate, Elon said their 3rd generation car will be half the price of the Model S.

    The base price of the Model S is slightly above $71,000.

  • Report this Comment On September 27, 2013, at 6:38 PM, RussellL wrote:

    "I'm a fan of Tesla, but this is a steaming pile of bovine feces. The economics of that just doesn't work. Perhaps they can do a car in the $40s which will cost in the mid-$30s after the tax-credit. That boastful claim that cannot be achieved is one of the reasons why Tesla has a valuation bubble. People don't understand engineering and the costs of things."

    Elon expects to have this car ready in 3 to 4 years.

    http://www.bloomberg.com/video/tesla-repays-u-s-early-musk-w...

  • Report this Comment On September 27, 2013, at 7:37 PM, Barmil wrote:

    Elon Musk can sell his Model S car to upper income levels that can pay for the novelty and the inherent higher price because this customer base still has fluid funds to work with.

    In the bargain basement were most of the rest of us live do not have money that is in excess, every dollar has been earmarked to live on.

    So it does not make sense at this time to shop for a new vehicle that is small in size,low useable battery range and does not have the appeal that the more luxurious and sporting Tesla has.

    The cost is still to high too offset the more common I C powered cars.

    And I am still waiting for real world numbers of how an all electric vehicle can cope with a sever winter. What does the range drop to when you have the headlights on, the heaters on high and the wipers going.

    I don't think those numbers are going to be impressive.

  • Report this Comment On September 27, 2013, at 8:58 PM, Pakirk53 wrote:

    two different markets Tesla is a status symbol toy for the rich and not driven as a primary vehicle thus at a minimum doubling its carbon foot print

  • Report this Comment On September 27, 2013, at 9:14 PM, EdwardInFlorida wrote:

    @Pakirk53 With all due respect, your comment is just plain ignorant. Most Model S owners DO drive their Model S as a primary vehicle. When you use the car to get to work, to do the shopping, to run errands, what is that then?

    To me you seem to be bitter that you are not in the income bracket to afford this car, or any car no matter what the fuel source is, but don't say that it's a "status symbol toy for the rich". Anyone who earns at least $75,000 a year can afford one, and that is not rich especially at today's standards.

    In addition, the Tesla has a far, far lower carbon footprint than even the most fuel efficient engine. Please do a little more research before you write such comments. Thank you!

  • Report this Comment On September 27, 2013, at 9:54 PM, altmd71 wrote:

    At this point a Tesla is a status symbol for the well off. It is not their primary auto I can guarantee you.

  • Report this Comment On September 28, 2013, at 1:32 PM, coll1951 wrote:

    Tesla's are not on back order. If you place an order today, it will be produced and shipped to you in 3-4 weeks, anywhere in North America. There is no backlog. This is called regular production rates. It take 4-6 weeks to order any domestically produced vehicle from Ford, GM, Chrysler, Nissan etc. 2 unintended acceleration complaints filed with NHSTA in less than 5 days, where there's smoke, is there fire.

  • Report this Comment On September 29, 2013, at 4:32 PM, speculawyer wrote:

    It is not their primary car? Why not? Why do you think they bought it? To stare at it? I drive 101 in Silicon Valley and the HOV lane has lots of Tesla Model S cars (and Volts, Leafs, Energis, Honda Fit EV, Think City, Plug-in Prius, etc.) EVs are great daily drivers . . . smooth, cheap to fuel, quiet, clean, almost no maintenance, no fill-ups, no oil drips, etc. . . . why drive a gas car?

  • Report this Comment On September 30, 2013, at 9:55 AM, ffbj wrote:

    This article touches on some interesting points in a general way, but does not go into specifics enough.

    Certainly any vehicle with two engines (all-hybrids) are going to cost more than the gas equivalent car.

    The all electric mid-range cars have the limited range, causing the now familiar 'range anxiety', and being new expensive technology they cost more.

    Howsoever mid price range electrics are coming. We must remember that many models are only available on the west coast. Lets see how well the spark is received. Aimed at segments of the population that are more hep, environmentally conscious...etc, but also penniless. Also they, ev's, could find a niche as a primary commuter car with the old gas hog garaged and rolled out only for long distance trips, in the more traditional 2-car family.

  • Report this Comment On October 06, 2013, at 6:14 AM, martinwinlow wrote:

    @ gjsuhr - Sure, it's not like there aren't any 110VAC outlets anywhere these days!

    @ speculawyer - Are you an engineer? If you aren't then that explains why you haven't got the faintest idea what you are talking about. As a replacement for our fossil fuel-based transport system or what will, in the future, become known as 'The century humanity raped Earth' (or something similar), the EV is a total no-brainer and if you spend 10 minutes looking at a cost comparison of the constituents of EVs Vs ICEVs you would see that there is a lot of room for EVs to fall in price - especially in the motor/drive train and battery.

    MW (EV driver for 3 years - Have either of you even *sat* in one?))

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