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.
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.
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."
A new generation of consumers cares much more about megabytes of storage and clock speeds than horsepower or torque.
By Doron Levin
FORTUNE -- Can the iPhone help automakers sell cars? Or will cars help Apple sell more gadgets?
Perhaps both. Apple (AAPL) recently said it is working with a number of automakers, including General Motors (GM), Mercedes-Benz, Nissan (NSANY), and Hyundai to integrate its new iOS 7 operating system into cars. MOREJul 5, 2013 8:53 AM ET
Not only has the automaker gone through bankruptcy and restructuring, it is attempting to rebuild its technology organization.
By Doron Levin
FORTUNE -- General Motors' hiring of Randy Mott in February 2012 as the automaker's chief information officer had a lot to do, not surprisingly, with the breakdown of a crucial GM computer the year before.
Dan Akerson, GM's (GM) chief executive officer, told the Wall Street Journal in an interview that MOREJun 17, 2013 12:01 PM ET
GM CEO Dan Akerson is bullish on the Chevy Volt, shale, and America.Shelley DuBois, writer-reporter - Apr 30, 2013 3:52 PM ET
For decades, America has built its cities to accommodate cars. But automobiles will cease to hold sway over urban infrastructure, Fortune Brainstorm Green panelists predict.Shelley DuBois, writer-reporter - Apr 30, 2013 2:12 PM ET
As the sharing economy expands into transportation, Millennials are growing up with carsharing, a very different spin on car ownership.
By Kurt Wagner, reporter
FORTUNE -- When RelayRides CEO Andre Haddad isn't using his 2006 Porsche 911, he encourages strangers to drive it.
This willingness to share -- even something as valuable as a sports car -- is the premise behind carsharing, a growing industry that connects car owners with renters seeking MOREMar 12, 2013 1:07 PM ET
Is it a flash in the pan or one of those rare companies that defines an era?
Investors, analysts and business historians have been struggling in the weeks since Apple's (AAPL) most recent earnings report to make sense of this corporate oddity: a mega-cap company ($487.1 billion) that grows like a start-up (first quarter earnings up 115.7%).
Since November, when it pulled decisively away from Exxon Mobil (XOM), Apple has been the MOREPhilip Elmer-DeWitt - Feb 26, 2012 6:28 AM ET
Both of the green autos have been on the market for almost a year now, but only one will stay on the road.
By Alex Taylor III, senior-editor-at-large
FORTUNE -- Americans love a rivalry, whether it is Dunkin' Donuts vs. Starbucks, or the Yankees vs. the Red Sox. So it is not surprising that the simultaneous launch of the Chevy Volt and the Nissan Leaf late last year built anticipation for a MORESep 15, 2011 5:00 AM ET
The Japanese automaker was a perennial also-ran, behind Honda and Toyota. Until now. Nissan is making deft moves just as its rivals stall.
By Doron Levin, contributor
FORTUNE -- Japan's auto industry has been battered by disasters natural and unnatural unlike this year. A tragic earthquake and a steroidal yen have wreaked havoc on the bottom lines of major firms Honda and Toyota. The exception? Nissan. The perennial third place finisher has MOREAug 23, 2011 8:56 AM ET
The hot battery maker has a balance sheet problem -- lots of inventory of expensive EV batteries. It looks like the adoption curve for electric vehicles is flatter than anyone thought.
Battery maker A123 was supposed to rev up the electric vehicle revolution. When the company went public in September 2009, Wall Street loved it. But recently, A123 (AONE) has had a hard time pleasing the Street, missing earnings estimates even MOREShelley DuBois, writer-reporter - Nov 15, 2010 3:00 AM ET
|GM raising Corvette prices|
|Everything must go: There's a flood of store closings|
|Albertsons to merge with Safeway|
|Boeing reports wing cracks on Dreamliners|
|Bitcoin matters. Ignore the media circus.|