Reuters Sees EV Doldrums, Barrons Sees Tesla Hit A Brick Wall

If TTAC would headline “Doldrums in U.S. electric car sales could linger indefinitely,” we’d come under screeching attacks by electric propulsion proponents, screaming “bias,” “slow newsday,” and “faux news,” along with choice invectives that would overpower our bad word filter. Well, we are sorry to disturb the peace again, but before the screeching starts, be advised that it’s not our headline. The headline is from buttoned-down Reuters. The wire doubts EVs will become a serious factor anytime soon, despite rounds of aggressive pricing.

In May, we recommended to “ prepare for a low intensity price war over electric vehicles.” By now, the war is in full swing, and it is fought with big artillery. Writes Reuters:

“With even more new EVs and hybrids on the way later this year, including the BMW i3 and the Cadillac ELR, manufacturers are stepping up discounts on their green cars.”

According to the wire, “General Motors Co is the latest company to offer aggressive pricing.” GM offers incentives of up to $5,000 on the Vol t. The new Chevrolet Spark EV was announced at a bargain price of $27,495 before government incentives. Nissan lowered the entry price for its Made-in-the–USA Leaf from $35,200 to $28,800. Honda lowered the lease cost for its Fit EV from $389/month for 36 months with 12,000 miles/year to $259/month for 36 months with unlimited mileage, free service, and a free 240V charger thrown in.

There are curious stories about bargain basement leases and a shortage of cars.

Then, there are people like Beau Boeckmann, whose family owns Galpin Ford, Ford’s largest U.S. dealership with locations all over California and Arizona, supposedly a hotspot for EVs.

Galpin sold only “very, very few” of Ford’s plug-in hybrid and electric vehicles, Boeckmann told Reuters. Only 2 percent of the vehicles Galpin sold last month were plug-ins. The national average is even lower: Only 0.56 percent of all cars sold in America in May could be plugged in, Hybridcars says.

To Reuters’ bafflement, “both the Leaf and the Volt have been outsold this year by the Tesla Model S, a battery-powered luxury sedan that is more than twice the price of the Leaf and nearly double that of the Volt. Sales of the Model S through May were 8,850, making it the best-selling plug-in car in the United States despite a starting price of $70,890.” An analyst interviewed by Reuters thinks it’s a short-term phenomenon, and that the cars are bought “by the same set that will buy a Ferrari.” There aren’t too many of those.

The same analyst doesn’t see EVs “getting too far beyond a couple of percentage points” of market share between now and 2020. The man is an optimist, considering the fact that hybrids have been at it for well over a decade, and had to contend with much lesser obstacles, only to hover at around 3 percent market share today.

Barron’s thinks (and I agree) that the big test for Tesla comes when it exits its cushy supercar niche to go mainstream, something it has to do to fulfill the projections of hundreds of thousands Teslas that fuel its $100 stock price. “The high price of the Model S lets it pack enough battery capacity to overcome the range limitations that stifle sales of cheaper electric cars,” writes Barrons. Volume however comes at a price low enough to compete with the bargain basement offerings of other makers. Volume is created by people like you and me, with limited funds, people who buy a car to use it, not to show it at Cars & Coffee.

Tesla and its stockholders will soon face price range anxiety. To get in the general vicinity of the real world car buying demographic, Tesla must make a “Grand Canyon leap to reach its goal of cutting its car’s $90,000-plus sticker price in half,” Barrons says.

“The challenge is battery cost,” the paper continues. Analysts hope battery prices will drop by half, and that consumers will accept a driving range below 140 miles. However, says Barrons, “the U.S. government and industry researchers say the cost performance of batteries is coming down slower than hoped. At GM, Director of Global Battery Systems Bill Wallace believes that battery-capacity costs can improve by about 20% in the next few years.”

A mass market maker can afford a few quota cars sold at a loss. If all you have is EVs, EVs sold at a loss will kill you.