A lot of arguments are put foward of why consumers would not want to buy electric vehicles, such as “range anxiety” or worries about lack of infrastruture. But according to Eduardo Avendaño of cleantech startup Ozone Drive, there is only one thing that really matters in the end: the price. Both policymakers and industry should focus on bringing down the sales price of electric cars. This is all the more important as government subsidies for electric vehicles are falling worldwide.
Photo: Renault Zoe (photo by ERO_)
While leading Bill Clinton’s 1992′s succesful presidential campaing, the political strategist, James Carville, coined the phrase ‘It’s the economy, stupid‘, to bring public attention towards the recession of the economy during the last years of Geroge Bush’s administration. Ever since, the phrase has been modified to several different contexts and is widely used in American politics. The concept behind its use is the need to point out the importance of ideas that might seem obvious, but somehow are overlooked.
In this sense, the concept is also useful to illustrate a point about electric car market adoption; a point that is often neglected: ‘It’s the price, stupid’.
Reducing prices is the best way to foster greater EV adoption. This might sound like a truism, but sometimes it seems to be disregarded by both policymakers and OEMs (original equipment manufacturers).
Electric vehicles have manifold benefits that range from their lack of tailpipe emissions to their potential to promote the use of renewable energy. Worldwide sales of EVs have more than doubled from 2011 to 2012. However, their way towards massive adoption has been steep. Depending on whom you ask, the main obstacle facing adoption is: limited range, lack of infrastructure, insufficient offer or price.
Recent developments in automotive markets, especially in America, prove that prices are, by far, the most critical item affecting adoption.
Last June, Nissan Leaf sales increased 315%, compared to June 2012. Overall, Nissan managed to sell three times as many Leafs as what it did at this same time of 2012. This increase is the result of cuts that put the starting price for a less equipped entry versioin of the Leaf at $28.000. Nissan was able to achieve such cuts after it started manufacturing the LEAF at its plant in Smyrna, Tennessee. Before that, the Leaf was assembled only in Japan. Now it’s also manufactured in the UK and the US.
Ford recently announced a 4000-dollar cut of its Electric Focus to boost sales.
Fiat’s approach to electric cars is, however, halfhearted, to say the least. The same can be said of most major car manufacturers worldwide
After announcing a $259 a month lease price with no down payment and unlimited miles, Honda was able to sell more Fit EV units during the month of June 2013, than it did the entire year of 2012.
Fiat and GM also offered leasing deals of $199 per month with a downpayment of $999 for the 500e and the Spark EV respectively. The 500e is sold out for the rest of 2013.
On the other side of the Atlantic, Renault is breaking sales records with its affordable ZOE. Considering the €7,000 subsidy that the French government offers, the price tag of this vehicle in France is €13,700, with the battery offered under a leasing contract. Similar subsidies are in place in several other European countries. In June 2013 alone, Renault reported record sales of 1358 units for the ZOE. In the meantime, Citroën and Peugeot have experienced terrible sales of its pricier electric models: the C-Zero and iOn.
These are several instances of how – ceteris paribus – if you drop prices down, sales will increase. People will always find ways to deal with the other issues: limited range and lack of infrastructure.
To cope with range anxiety there are a lot of apps available that help drivers locate and book public charging points. There is also a vast amount of information and tips on internet forums with advice on how to get the most of your vehicle’s range. And in little time, drivers of electric cars learn to better estimate real-life range and plan their charging strategies accordingly.
Public charging infrastructure is steadily growing in most European countries and the US, and as more EVs get on the roads, more businesses are going to start offering charging points to bring more customers in. Moreover, efforts to make payment of public charging more convenient are already taking place in several countries.
Nevertheless, both car manufacturers and governments often forget the important issue of prices.
The 500e is strictly a compliance car, that is, a vehicle produced with the only intention of meeting legislation in California requiring the biggest companies to sell a certain amount electric vehicles in order to continue to be able to sell their vehicles in this state. The 500e is, therefore, only offered in Calfironia.
Other compliance cars include Honda’s Fit EV, and Toyota’s RAV4 EV. Fiat’s CEO, Sergio Marchionne, claims that with every 500e they sell, the company loses up to $10,000. With a limited production like this, Fiat cannot build economies of scale and for this reason production costs remain high. But what if Fiat decided to push an otherwise amazing electric car, like the 500e, to other markets as well?
As the Roland Berger E-Mobility Index reveals, government subsidies for EVs are falling worldwide
Larger production volumes would translate into lower costs and more attractive prices without the need to lose money on every car sold. This is a viable alternative, and the Nissan-Renault alliance is showing it can be done. The problem is that it requires sacrifing short-term gains and focusing on the long term. Fiat’s approach to electric cars is, however, halfhearted, to say the least. The same can be said of most major car manufacturers worldwide.
Governments are also neglecting the important role of prices for EV adoption. In order to foster adoption, policymakers the world over have developed subsidies to reduce prices of electric vehicles. Some of these policies may bring the total cost of vehicles close to zero. However, in several cases, the subsidies don’t bring the expected results for several reasons: limited budget; lenghty processes to reclaim the subsidies; lack of long-term governemental commitment to support subsidies, among others.
More importantly, as the Roland Berger E-Mobility Index (of the first quarter of 2013) reveals, government subsidies for EVs are falling worldwide. The study reports that in none of the countries analyzed, the subsidy programs due to finish at the end of 2012 were renewed. Moreover, the analysis shows that subsidies are growing at a slower pace than GDP.
This is definitely not a good sign at this point of the adoption curve. We are on the verge of crossing the chasm between the early adopters and the early majority and subsidies can play a critical role at this stage.
Another tool that policymakers could leverage is to correctly tax the negative externalities of gas guzzlers making, therefore, prices of EVs more competitive. Nevertheless, it is reasonable to suspect this alternative would be far less popular among voters.
The takeaway here is that prices are the most critical factor impacting electric vehicle adoption. Tesla S huge sales might suggest otherwise, since it was the best sold EV in the U.S. in the first quarter of this year, and it is also the most expensive (starting at $60k +). However, Elon Musk, its CEO, recognizes the importance of bringing the prices of EVs down as the key for mainstream adoption. Accordingly, Tesla is already working on an electric car whith a target price starting at $35,000, that should make it to the market between 2016 and 2017.
Underscoring the importance of prices for market adoption sounds like a platitude, but it is often disregarded. For this reason, a reminder always comes in handy: it’s the price, stupid.
Eduardo Avendaño is Corporate Communication Director of Ozone Drive He has a Master in Public Policy from Willy Brandt School of Public Policy at the University of Erfurt, Germany, a Bachelor’s Degree in Political Science and Public Administration from the Universidad Nacional Autónoma de México.
Eduardo is an expert in European policy and legislation, renewable energies and sustainable mobility. He has worked as Corporate Communications Director at Ozone Drive since the beginning of 2011.
Ozone Drive is an innovative startup offering mobility solutions in Mediterranean islands through a rental fleet of 100% electric vehicles.
Note that Roland Berger publishes an informative quarterly E-Mobility Index that is freely available on the internet. The most recent one can be found here.