What Is the Future of Electric Vehicles?

Electric vehicles have been a hot topic in 2013 after Tesla Motors (NASDAQ: TSLA  ) became a market darling. The rest of the industry has taken notice as well, with Ford (NYSE: F  ) , Honda, General Motors (NYSE: GM  ) , Toyota, and others making strides in EVs.  

For as much attention as EVs have gotten, they're still in a very nascent state of their development, accounting for a tiny fraction of auto sales. The challenge now for the industry, and investors, is figuring out what the future of EVs looks like and how to get ahead of the curve. Here's where we stand today and where I think EVs are going in the future.

How big is the market?
Right now, the electric vehicle market is a small fraction of the overall vehicle market. In October, 1.23 million passenger cars and light trucks were sold in the U.S., just 10,100 of which were either plug-in hybrid or fully electric.  

EV sales have been picking up, primarily because of the Model S's popularity, but even with that success, the market is tiny.

Source: Electric Drive Transportation Association.

From these humble beginnings, you can see that the market has huge potential. Last month's industry sales rate puts U.S. auto sales alone at around 15.4 million units. Globally, 81.2 million cars were sold last year, so the electric vehicle market could crow 100 times and it would still be a minority of auto sales.

The question for EVs long term is whether they'll be attractive enough for consumers to buy them over internal combustion vehicles. 

Can EVs compete?
When cars like the Chevy Volt and Nissan Leaf were released, they were essentially trial runs for automakers. They needed to test the technology that went into EVs and see what the market wanted. The results were bland products that inspired very few buyers and failed to prove any sort of potential in the market.

Tesla Model S battery and chassis. The design brings be battery close to the ground, lowering the center of gravity and improving handling.

That's where Tesla came in. Tesla was able to rethink the automobile from the ground up, redesigning the chassis, drive train, and manufacturing process to conform to electric cars. The result was the Model S, Motor Trend's Car of the Year.

Tesla proved that an attractive EV can be made, but will the industry learn from what Tesla has shown?

One challenge for carmakers now is building vehicles that get enough range to satisfy customers. The Model S is successful in large part because it gets more than 200 miles of range even at highway speeds. By contrast, the Ford Focus Electric gets 76 miles per charge, the Nissan Leaf can go 75 miles, and the Chevy Volt can go just 38 miles all electric. That'll have to be improved by leaps and bounds for EVs to be more than a bit player in the auto industry.

Electric vehicle killer app
If range remains under 100 miles, EVs will only appeal to a small percentage of buyers. But if that can be increased to more than 300 miles and charge times are reduced from hours to minutes, there is a lot of potential. That's the killer app for electronic vehicles and there's progress in that direction.

  • IBM (NYSE: IBM  ) is working on lithium-air batteries, which it says can increase energy density tenfold.
  • The Illinois Institute of Technology and Argonne National Laboratory recently won a $3.4 million federal grant to develop technology that could bring EV range to 500 to 1,000 miles per charge. Lead researcher Carlo Segre said a rechargeable liquid could reduce charging times to just a few minutes.  
  • Liberty Electric Cars in the U.K. is already marketing a 200-mile range SUV and claims that 1,000 miles in range is on the horizon.  

These are just a few of the research projects going on right now, and with demand for EVs proven, there's now an economic incentive to perform even more research. 

Tesla hasn't released a projected range for next-generation batteries, but you can bet that it will push the limits on range as well. The range challenge is the biggest facing the future of EVs right now. If a 1,000 mile range is truly on the horizon and charging times come down, I could see sales growing 10- to 100-fold. Without a big improvement in range, charge time, and cost, EVs will be a sideshow in the auto market.

Foolish bottom line
Are EVs the next big thing? It's too early to give a definitive answer, but there is huge potential. The first challenge of showing that EVs can be made efficiently, with significant range, and be attractive to customer has already been proven by the Model S.

The next challenge is building more attractive vehicles that offer significant range. BMW, Ford, Nissan, and GM may have more to do with that next step than Tesla, which doesn't have the scale to make EV technology ubiquitous. In that sense, all EV manufacturers need each other. 

If I had to bet on any disruptive technology in the auto industry, it would be electric vehicles. There's no major infrastructure needed to go electric, and I think the technology challenges facing the industry today will be answered in time. Time will tell if that opinion is right, and EVs will hold more than a small percentage of auto demand. 

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Read/Post Comments (11) | Recommend This Article (4)

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 December 04, 2013, at 9:36 PM, rotorhead1871 wrote:

    electric cars are here to stay this time......except they will be powered by FUEL CELLS...not batteries.....batteries are a huge liability......everywhere.....

  • Report this Comment On December 04, 2013, at 10:00 PM, SkepikI wrote:

    ^ yah and fuel cells dont require batteries.... ; - )

    AND Hydrogen is perfectly safe.... ;-)

    AND we're off to see the wizard.....

  • Report this Comment On December 04, 2013, at 10:12 PM, mattmosa wrote:

    Nice article Travis. Very simple and very sound. Its all about the batteries. If the engineers can solve the range and charging time challenges, the EV will be a serious contender in the auto market.

    Big opportunity

  • Report this Comment On December 05, 2013, at 7:05 AM, skip69009 wrote:

    It appears to me that with the charging difficulties that someone would figure out a way to attach a solar chaging system to the roof of the vehicle. Leave it out in the sun for a couple of hours and it charges back up. Is that possible?

  • Report this Comment On December 05, 2013, at 8:05 AM, jvibora wrote:

    As an owner of an EV, I beg to differ with the observation that "There's no major infrastructure needed to go electric."

    Home installation of a four hour charge port cost me 2500 bucks with inspections...both the power company and the city needed to inspect/permit. The power grid in my locale is already taxed, so more heavy overhead lines will need to be installed if too many more folks on my block go EV.

    Fast charge sites will need to be built in a helva lot of places for that option to be viable for the masses, and again the power grid isn't set up to charge millions of cars in a metro area each day. Four hour charge sites are OK if they are at work, but what employer is going to install more than a token few of those? You can't hang out in the service station mini mart that long.

  • Report this Comment On December 05, 2013, at 8:52 AM, thegreentreefrog wrote:

    The Future of cars is CNG Compressed Natural Gas, Inner city busses and the big Trains out west have already converted to CNG and the good news is its Cheap $1.30 Gal on average.

  • Report this Comment On December 05, 2013, at 10:43 AM, vet212 wrote:

    until battery life is improved recharge time lowered charge increased and price for replacement brought down electric automobiles have no chance of being more than a toy a rich person's toy

  • Report this Comment On December 05, 2013, at 12:04 PM, gsned57 wrote:

    To vet212. Today's 75 mile EV's are perfect for anyone who commutes less than 60 miles a day. and you recharge it at home every night. You don't have to be a rich person to be a multi car household. I could very easily get rid of my current car and trade up to an EV and keep my minivan (current second car) for long trips. I don't need a 220 charger in my garage. I can use a normal 110 plug and the 12 hours a day my car is parked will be enough to charge it.

    The current crop of EV's is a great start and practically could fit many peoples needs. better range, recharge times, and quick charging will only help.

    My next car purchase will be electric.I can't wait to stop supporting oil barron dictators and terrorists and instead send that fuel money to American created energy (Nat Gas, Nuclear, Coal, Wind, Solar, ....).

  • Report this Comment On December 05, 2013, at 1:46 PM, CrazyDocAl wrote:

    To all those who say 100 mile range is more than enough for most commutes just shows the lack of understanding of the problem. The vast majority can't afford a separate car just to commute with. For them they need a vehicle they can take trips with or when something sudden comes up and they need to leave in a hurry and travel with.

    The short comings of EV vehicles is still too large to be a viable option without massive subsidies. Until a breakthrough in battery technology is made it doesn't look like it's going to change. If anything Solar installation companies that are trying to use the same batteries will reduce the availability of the Lithium and drive prices up.

  • Report this Comment On December 05, 2013, at 10:33 PM, RxPro wrote:

    I drive a volt; there is a great platform there. It could be modified to incorporate any new fuel that may become available and still be partial all-electric which is nice for my daily commutes but if I want to take it to the beach (80 miles) I can, no problem.

    Being EV only is a big disadvantage, especially with a measly 75 mile range. To pay $30k for a car that limits me to a 37.5mile radius is insane.

  • Report this Comment On February 07, 2014, at 7:18 PM, list wrote:

    Great article and I absolutely agree that logically this is where the industry is headed whether oil companies like it or not. All the arguments about how EVs lack the range to make them attractive just show a complete lack of imagination. Imagine there is a fast charge station at every supermarket, at every public building, at parking lots, along the highways. Yes, there is some initial capital investment, but so is building a new gas station and we got plenty of those. Plus imagine the commercial opportunity for charge stop where every driver needs to kill 20 to 30 minutes to charge up their car - coffee shop's dream!

    We recently got a Nissan Leaf, it takes only 20 minutes to charge it from 0 to 120 kms range. Our family doesn't do more than 2 road-trips per year and I would not mind taking a 20 minute break to charge up our car for every hour of driving. Some might consider this a bit of an inconvenience, but I would argue that living in smog-covered cities is much more inconvenient.

    As far as the statement that an electric car is rich person's toy is silly. When leased, many of these cars end up being cheaper to operate than regular gas-guzzlers.

    The more EV cars are out there, the faster the charging technology will catch up - more stations, easier and faster charging. Personally, I'll take a bit of initial inconvenience in order to break free from the foreign oil dependance and to hopefully achieve a decline in greenhouse gases.

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