Don't look now, but a price war is breaking out in the electric-car market.
The latest move comes from General Motors (NYSE:GM), which is boosting incentives on its Chevy Volt amid rising inventories of the innovative plug-in hybrid sedan.
GM last week began offering big discounts of $4,000 or more on Volts, hoping to clear out an inventory that has swelled to 140 selling days' worth; 60 days' worth of inventory is considered healthy. Volt sales have been down in each of the last three months.
While political controversies have followed the car since its launch, there's nothing wrong with the Volt itself: It's a very nice sedan with some of the highest owner-satisfaction ratings in the auto business. If you want a comfortable commuter car that is exceptionally easy on gas, you could do a lot worse.
So why isn't it selling better?
Will price cuts be enough to boost sales?
The Volt is just the latest in a round of electric-car discounts that started when Nissan (NASDAQOTH:NSANY) slashed the price of its battery-electric Leaf by 18% at the beginning of the year. Honda (NYSE:HMC) and Ford (NYSE:F) both followed suit, cutting lease prices on the Fit EV and Focus Electric.
The discounts have done wonders for the Leaf's sales here in the U.S., which had slowed considerably. Leaf sales in May were up more than 300% over year-ago totals – enough to put the Leaf just ahead of the homegrown Volt in sales for the year so far.
Unlike the Leaf (and the Fit EV and Focus Electric), of course, the Volt isn't a pure battery-electric car. It has a gas-powered "range extender", essentially an on-board generator that runs on gasoline and gives the Volt range comparable to a regular gas-powered car.
Many owners rarely use the gas engine, preferring to charge the Volt's batteries and drive it like a pure electric car – an ideal situation if the car's electric-only range (EPA-rated at 38 miles) works for your commute. But the gas engine is intended to ease the "range anxiety" caused by pure EVs like the Leaf.
That would seem to make the Volt an easier sell than a pure battery-electric. But sales have never come close to GM's original targets, though it has done better than many EVs.
Will this price cut help get things going, as it did for the Leaf?
Is there a big enough market to support these cars?
Electric cars in general have proven a tough sell for the most part, much tougher than many experts were predicting just a few short years ago. The relatively short range of most mass-market EVs, a dearth of recharging stations, and the high price of the cars compared to fuel-efficient, gas-powered alternatives have all contributed to hold back sales.
Tesla Motors' (NASDAQ:TSLA) battery-electric Model S sedan is the one EV that has managed to break out, at least in the public perception. But the Model S is a car that was designed from the ground up to give the best range in the business – and Tesla is working on the infrastructure problem (in a small way, at least) with its fast-growing network of solar-powered Supercharger stations.
So far, it's a clear success: The Model S's sales have met the company's ambitious targets, customers are very happy, and Tesla even reported a small profit last quarter.
But here's the thing: At least right now, Tesla as a company is scaled to serve a small niche market. If all goes well, the company will build and sell 21,000 cars this year. That's an impressive total for a start-up, but it's a very small number by global automaking standards: GM was originally hoping to sell 45,000 Volts last year (it actually sold 23,461).
It still remains to be seen whether the market for battery-electric cars is ever going to be more than a small niche market. For the time being, at least, battery technology (and pricing) is the biggest sticking point. Until that changes, EVs could remain a tough sell in the mass market – even with more price cuts.
Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. The Motley Fool recommends Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford 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.