electric vehicles

Electric vehicles still struggling to be cost-competitive

July 5, 2013: 10:23 AM ET

New emission standards and increased tax credits will be needed to make electric vehicles a financially smarter buy than traditional vehicles.

By Sameepa Shetty, reporter


FORTUNE -- Even with tax credits as high as $7,500 per vehicle, the total cost of owning an electric or hybrid plug-in vehicle is higher than its gas-run counterpart.

Based on 2011 prices, federal tax credits alone do not offset the higher lifetime cost of driving electric vehicles compared to traditional gasoline-fueled cars, according to the Congressional Budget Office's presentation at the 2013 Energy Information Administration conference on June 24. A key assumption underlying the analysis is that tax credits are responsible for an estimated 30% of electric-vehicle sales.

Currently, the federal government provides subsidies on purchases of full electric vehicles and hybrid plug-in vehicles, which have an externally charged battery that can be powered by gasoline. The federal subsidy varies from $2,500 to $7,500 in tax credits, depending on battery capacity.

According to the CBO report, the federal tax credit would need a substantial increase for greenhouse gas emission-free cars to be as cost-effective as traditional vehicles. It would take a federal tax-credit of more than $12,000 to make a 16-kWh battery-powered car commercially competitive with a traditional high fuel-economy compact car, according to Ron Gecan, analyst at CBO's microeconomic studies division. A 16-kWh electric vehicle currently yields a $7,500 tax credit.

MORE: 4 reasons to stay in your current job (for now)

Gasoline prices also play an important role in determining the cost-competitiveness of electric vehicles versus internal-combustion engine cars. At current levels of government support and with gas prices below $4 per gallon, according to the CBO analysis, "green" vehicles are not cost-competitive.

If gas prices crossed $6 per gallon and government support held constant, a 16-kWh electric car would become a competitive buy compared to a fuel-efficient compact car. There are government tax credits for both vehicle types, which reduce the initial purchase price of these cars.

Today's fuel economy standards are also designed to promote environmentally friendly auto designs. Indeed, the 2012 Corporate Average Fuel Economy (CAFE) standard requires a car-manufacturer to raise fleet-wide fuel economy, beginning in 2017, to 54.5 miles per gallon by 2025. Environmentally safe transportation is coming, and automakers today recognize that.

Car companies have adopted an "all hands on deck strategy," says Alan Baum, a principal at Detroit-based automotive market research and forecasting firm Baum & Associates. "They need to invest in fuel-efficient technologies, including electric vehicles, to not just comply with higher emission standards but also to be ready to seize the moment when changes in technology reduce electric vehicle costs and drive sales volume."

Despite the well-publicized troubles with GM's (GM) Volt, the electric vehicle market is growing. Between January and May of this year, 32,705 full electric and hybrid plug-ins have been sold in the U.S., compared with 14,226 of such vehicles over the same period last year, according to Baum & Associates research. "The numbers may be small, but the growth is significant," says Baum.

Much of the growth in the category, this year, has come from sales of Tesla Motor's (TSLA) Model S.

Launched last year, the Model S is the leading car in its segment. Having sold an estimated 8,850 cars this year, it has 27% share of the electric vehicle market, followed by the Nissan Leaf's 23%, and GM's money-losing Volt, at 22%, according to Baum & Associates.

MORE: Apple has its eyes on automakers

Analysts are also looking to tax-credit implementation changes proposed by the Obama Administration to further boost electric vehicle sales. Currently, when you buy an electric vehicle, you include the purchase in your tax returns, for a credit. With the new regulation, buyers would get a rebate on the price of the electric vehicle in the showroom, at the time of purchase.

Electric vehicles are more expensive than comparable gasoline versions largely because of the new technology that goes into these vehicles. For example, Ford's (F) full electric Focus model list price is $39,995 while its gasoline version starts at $16,995.

The industry is "reasonably content" for now, says Baum. "But increasing federal tax incentives, would definitely help an industry, which is creating an entirely new segment."

  • Don't count Elon Musk out yet

    Tesla's founder has suffered setbacks in trying to expand sales of his innovative electric vehicles across the U.S. Don't expect him to stop any time soon.

    By Doron Levin

    FORTUNE -- The always combative Elon Musk lost a round in his latest bid to sidestep the dealer-franchise system for selling vehicles. He may be down, but he's not out.

    Musk, founder and chief executive officer of Tesla (TSLA), was rebuffed last week MORE

    Apr 30, 2013 9:45 AM ET
  • How far can you go in a Tesla?

    A 700-mile California road trip in the electric Tesla Model S

    By Ryan Bradley, senior editor

    FORTUNE -- The car is fast and smooth: zero to 60 mph in four seconds with none of the rumble of internal combustion. It demands to be driven at high speed, on hilly, winding roads. We tried to oblige. This was a problem.

    The plan -- to drive the all-electric Tesla Model S from Los Angeles MORE

    Feb 6, 2013 5:00 AM ET
  • Can Coda's electric car survive?

    The EV automaker boasts a team of bigtime backers but is losing money and is on its third CEO. Is there hope?

    By Brian Dumaine, senior editor-at-large

    FORTUNE -- Creating an electric-car company from scratch isn't easy, even if you happen to be a master of the universe.

    That's what the star-studded backers of Coda Automotive learned, a roster that includes three former Goldman Sachs (GS) bankers, a founder of the software MORE

    Sep 12, 2012 5:00 AM ET
  • A green technology wish list for 2011

    By Michael Kanellos, Editor in Chief of Greentech Media. His colleagues Shayle Kann, Shyam Mehta, MJ Shiao, Rob Day, Eric Wesoff and Brett Prior also contributed.

    The green tech industry will fondly remember 2010. After enduring collapsing prices and lackluster demand in 2009, solar companies saw panel shipments grow by an astounding 93 percent to 125 percent this year. Waiting lists for the new electric cars from Nissan and General MORE

    Dec 29, 2010 1:05 PM ET
  • A new American electric car, via China

    By Brian Dumaine, assistant managing editor

    Chinese automakers have yet to crack the American market -- the quality and safety of their gasoline cars (never mind their electrics) don't pass muster in the U.S. One American entrepreneur, however, sees an opportunity to cash in on China's expertise in lithium-ion batteries and cheap manufacturing. Kevin Czinger, the CEO of startup Coda Automotive and a former VC and Goldman Sachs (GS) banker, has MORE

    Oct 19, 2010 3:00 AM ET
  • China charges into electric cars

    By Brian Dumaine, assistant managing editor

    Faced with scarce oil supplies and polluted cities, Beijing has ordered its booming auto industry to make a great leap forward in technology.

    If you want to get a sense of just how car-crazy China is today, visit Chengdu, a booming city of 5.3 million in the southwestern part of the country. On a crisp Saturday recently, tens of thousands of eager new auto MORE

    Oct 19, 2010 3:00 AM ET
  • China vs. the U.S. in electric vehicles

    The electric car is finally about to move from idea to reality. Currently there are barely more than 2,000 on the road in the world's two largest car markets (China and the U.S.) combined. But that number is about to soar. Beijing has demanded that its fast-growing auto industry put at least 5 million all-electric cars on the road by 2020. Will the U.S. keep up?

    Oct 19, 2010 3:00 AM ET
  • Electric car industry hitting the tipping point. For investors.

    Venture capital firms are staking late stage electric car startups with huge cash to help them scale up and IPO

    By Shelley DuBois, reporter

    The age of the electric car is upon us, or so the numbers would suggest.

    Companies in cleantech, especially those making cars, received over $400 million in funding in the second quarter of 2010, according to an Ernst & Young analysis based off of Dow Jones VentureSource data.

    A company MORE

    Aug 5, 2010 11:44 AM ET
  • Racing towards cars

    China, oil prices and the environment are pushing electric cars to the tipping point

    By Oliver Hazimeh, Director, PRTM

    The recall of Toyota's Prius has some observers questioning the prospects for the entire electric vehicle marketplace.  They shouldn't:  The fundamental forces for electrifying our cars and infrastructure are still in place.

    While Toyota (TM) and Honda (HMC) have found success with traditional hybrid electric vehicles (HEVs) that are powered by an internal combustion MORE

    Apr 7, 2010 12:15 PM ET
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.