Falling Electric Car Prices Are Saving — Or Destroying — the EV Market

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Ford is the latest automaker to drop prices on its electric cars, slicing $4,000 off the 2014 Focus EV. The move will undoubtedly succeed in getting more drivers to take a second look at the car. But how long can Ford—and other automakers slashing EV prices—keep on losing money with each electric car sold?

“The new starting MSRP keeps us competitive in the marketplace and is an important part of our commitment to provide customers with a range of electrified vehicles to choose from,” read a statement from Ford regarding the $4,000 Focus EV price drop.

Quite frankly, before the decrease in MSRP, the vehicle wasn’t competitive. Ford sold only around 900 Focus EVs during the first half of 2013. After the price drop, the Focus EV has an MSRP of $35,995. Consumers who’d consider the Focus EV are surely also looking at vehicles such as the Nissan Leaf, which lowered its sticker price by $6,400 in 2013, bringing it under the $30K retail mark, and can arguably be driven for free once state and federal incentives are factored in—and a little creative math is employed, taking into account savings on gasoline. Other automakers have also been aggressive in pricing their electric vehicles, with lease deals for the Fiat 500e and the Chevy Spark EV starting under $200 per month.

“Price-dropping offers on EVs, including this latest one on the 2014 Ford Focus Electric, are good news for consumers,” Edmunds pointed out.

(MORE: Let’s Hope You’re Not Trying to Sell an Electric Car Anytime Soon)

“If you’re a buyer looking to try out an electric car there are some excellent deals to be had,” Karl Brauer, senior analyst at Kelley Blue Book, told USA Today.

OK, so falling prices and cheap lease deals obviously benefit consumers. But what do the relentless price decreases do for automakers? Isn’t this a race to the bottom?

For the time being, Ford, Nissan, Honda, and the other competitors are focused on getting drivers behind the wheels of EVs, rather than concerning themselves with making profits. “Manufacturers are realizing that selling an electric car at a loss is better than not selling one at all,” said Brauer, noting that automakers don’t have plans to sell all that many EVs so it’s fairly easy to absorb these losses.

The price drops also show that there is a market for battery-powered vehicle, so long as the price is right. In the first half of 2013, Nissan sold nearly 10,000 Leafs—which is about the same as it sold for all of 2012. Drivers in California have been having a hard time finding Fit EVs available after Honda dropped its lease price to $259 per month, down from $389, with no money down.

(MORE: Ford Is Slashing the Price of the 2014 Focus Electric, But It’s Still Pretty Pricey)

Automakers can’t go on losing money with each EV sale indefinitely, though. The hope is that, within a few years, production prices on electric cars (batteries especially) will decrease, allowing automakers to lower MSRPs without taking a bath on each sale. Driving range is expected to increase, the time required to recharge cars will fall, and the infrastructure of charging stations should improve, all of which will make EV ownership more attractive to drivers. It’d help the EV cause if gas prices rose as well, making the cost of recharging a vehicle cheaper and cheaper compared to filling up at the pump.

For the near future, however, very few drivers are likely to bite on EVs even as prices drop by $4,000 here and $6,000 there. “Even after taking the federal tax rebate of $7,500 into consideration, electric vehicles remain a costly proposition for most consumers,” Kelley Blue Book senior analyst Alec Gutierrez said via e-mail.

What’s more, the price-slashing pattern that’s been set will only make it tougher for automakers to turn a profit down the line. “With prices coming down, consumers already on the fence may continue to wait and see if even greater discounts will come later in the year or next year,” said Gutierrez. “This will make it quite difficult to command higher prices in the future, which will make profitability more difficult to achieve. Until battery costs come down, manufacturers will continue to find it difficult to make a profit on EVs, especially knowing that consumers are really only jumping into the segment when the price is right.”

For those interested in EVs, leasing seems the smartest way to go, not only because lease deals are so inexpensive nowadays, but because consumers who lease don’t risk getting stuck long-term with outdated technology. More than 70% of EVs on the road are leased, according to Gutierrez, compared to the industry average of 20%.

(MORE: Tesla Beat the Odds — and the Haters — But Now Comes the Hard Part)

Prices still have a long way to fall before mainstream buyers are interested. “With the possible exception of Tesla, which has found success in the sporty luxury car niche, manufacturers have found that consumers are simply unwilling to pay a significant price premium for a vehicle that’s main selling point is saving money at the pump,” said Gutierrez.

17 comments
mattpetelicky
mattpetelicky

In the works right now, according to published reports, is a battery design being tested and funded by GM and others, that triples the battery capacity of the Leaf and almost doubles the Tesla battery capacity. http://e-sportfogadas.com/bet365/

CHLPatent
CHLPatent

A pretty one-sided story. Remember, costs are also coming down, and will continue to as the EV technology advances and scales up for mass production. With over 100,000 EV's being driven on US roads today, EV's are making headway.  Ignore the nay-sayers.  I love my 2012 Leaf, so far.  When we bought our 2005 Prius, even the salesman was tentative about hybrid technology.  Seems silly in retrospect, doesn't it?  These anti-EV promulgators will look pretty silly some day, too.

jpwhitehome
jpwhitehome

I find it interesting that initial reviews of EV's pointed to high prices as a barrier for consumers to purchase. Now prices are moderating the cry is that car makers will lose money at these lower prices (which are incidentally, still too high according to this article).

Another EV FUD article.

EV's are here to stay. Get used to the idea.


AllanDeLaubenfels
AllanDeLaubenfels

Mark,  Electric cars like the Tesla may turn out to be "Black Swans" in that they are disruptive to the status quo, but not for the reason that the are perpetual motion machines. Your example proposes that they will create energy for sale. That would require the offsetting input of energy. There is not such a "free lunch" out there. 

Electric cars may turn out to be a great idea after all, but not that great. 

What is really great about electric cars is that electric motors have only one moving part making them very durable. Except for the battery, electric cars will raise the level of auto dependability to levels which have never been known before. Improvements to the battery will, therefore, be truly revolutionary. Any pain now will be paid for in fantastic results later.

GeraldF.ShieldsJr.
GeraldF.ShieldsJr.

The worry here is that automakers won't replace the electric cars sold.

MarkGoldes
MarkGoldes

Black Swans - extremely improbable inventions with enormous implications - are likely to give electric cars unlimited range and the ability to become substantial power plants, selling electricity to utilities when suitably parked. No wires needed. These cars might pay for themselves. See more at www.aesopinstitute.org

Cost-competitive green technologies will generate great numbers of jobs and open surprising paths to a much stronger economy.

the.sargon
the.sargon

@CHLPatent I have two gas powered vehicles, a 2005 Corolla that gets 32 mpg combined and a Chrysler minivan that gets 20 mpg combined.  Both are paid off, the corolla was bought used in cash.  Why would anyone want to pay a premium for a DEPRECIATING "asset"?  

Replacing the Chrysler (which has, at current mileage accrual, about 15 years left before it passes 200K miles) with an EV would take decades to achieve pay off.


Why switch?  There is no compelling reason to.

ummm1
ummm1

you're calling the author one-sided for accurately pointing out that every EV sale loses money for manufacturers? As the article points out with extensive factual examples the recent EV price drops are not due to lower costs, they are just a result of companies taking an even bigger loss in the effort to get more people behind the wheel.

CHLPatent
CHLPatent

@AllanDeLaubenfels Good point.  I look forward to changing the battery on my Leaf after 8-10 years, and upgrading to the latest battery technology.  In the works right now, according to published reports, is a battery design being tested and funded by GM and others, that triples the battery capacity of the Leaf and almost doubles the Tesla battery capacity, for the same size and weight. As an engineer, I have a better appreciation of the higher efficiency of an electric motor and the electric distribution grid, for example, as compared with the internal combustion engine and the gasoline production industry, than the general public.  But they are beginning to 'get it' too.  Despite the seeming media bias against EV's.

CHLPatent
CHLPatent

@MarkGoldes Induction based charging is not as efficient as a plug-in (wire) connection and thus would lengthen charging time, and it generates wasted and perhaps dangerous (for Lithium based batteries) heat. But perhaps the convenience will produce the demand that will overcome these drawbacks.  There are also benefits, for example, no one can come along and unplug your car when you're not around while it is charging.  Someone needs to work out some security system for public charging stations, since an EV driver is not going to want to have to sit and watch their car charging for 30 minutes (DC fast charger) or more.

CHLPatent
CHLPatent

@the.sargon @CHLPatent If you drove 80 miles a day, at 20 mpg, and gasoline averages $3.65 per gallon, according to one calculator online you save about $3800 per year in energy costs with a Nissan Leaf over buying gasoline.  Don't forget to add in the costs of maintenance for an ICE not required for a Leaf, oil changes, tune ups, parts, etc.

CHLPatent
CHLPatent

@the.sargon @CHLPatent I don't get your point about depreciating asset - unless yours are antiques, they're depreciating all the time, eh?  And I can't evaluate when pay-off would happen for you, it all depends on how many miles you drive, mostly, and the price of a gallon of gas in your area.  There are some on line calculators where you can try the numbers:  http://energy.gov/articles/egallon-how-much-cheaper-it-drive-electricity  Try it out and them post your result.  Remember, no oil changes, no air or oil filter, no emissions inspections, no tune ups, no gasoline, no tail pipe emissions, etc.

CHLPatent
CHLPatent

@ummm1 One-sided in that he sees the glass half-empty and draining - no mention of economies of scale, for example, reducing costs.  Nissan now makes Leaf's in the US - are you (and the author) trying to tell me that hasn't reduced the costs of delivery to the US market?  Forbes ran an article pointing that out recently:  http://www.forbes.com/sites/peterdetwiler/2013/05/08/the-innovation-curve-nissan-leaf-moves-beyond-early-adopters-to-the-cost-conscious/  "Moving the Leaf assembly line to Tennessee may have helped Nissan to cut production costs..."

the.sargon
the.sargon

@CHLPatent@the.sargonGood points...and if it weren't coming out of my pocket I'd happily switch to an EV if it could fulfill the same role has my current cars, i.;e.,  400 mile range and 10 minutes to refuel.  

 The van gets driven to a park'n ride lot where I catch the bus to get to work.  An average year sees about 7500 miles driven @ 20mph overall @ $3.45/gallon.  A total cost of  $1300/yr.  Oil gets changed every 10,000 miles (mobil 1) at a cost of $25.  Plugs every 100K ($15) and one water pump ($40 - I do the work myself). 

The Corolla is likewise a cheap drive- 11K/yr, 32 mpg, $1200/yr.

To replace either with a $30K new car would be financial folly.  $30K invested EARNS money.  $30K spent on a car loses money over time.  The cost of electricity (ignoring the house wiring that would need to be upgraded and the 'fast' charger which also isn't free) to run either car would be (based on the excellent website you provided, and reduced since I don't drive 15K miles/yr, about $350.  Thus a net savings of about $1000/yr/auto.  Which means a pay-back period of roughly 20-30 yrs.

Perhaps, when prices come down, and there are used EV's on the market (and I've driven the wheels off of these two), I'll consider them.