Business

06.01.13

Are We at the Electric Car’s Tipping Point?

Tesla’s making money, sales have doubled, and prices for plug-ins and hybrids are coming down in a big way. Is this the green market’s Model T moment?

“I would build a motorcar for the great multitude.”

That’s what Henry Ford proclaimed early in his career. Ford, of course, is associated with the democratization of the automobile; the Model T was the first mass-owned car. But Ford started off as a luxury-car maker—making high-tech, impractical, very expensive vehicles for the very rich.

That’s how it often goes when new technologies hit the market: they’re produced in small batches at a high cost. But as the companies increase production, as unit volumes rise, and as competitors enter the field and innovate further, the cost of the products falls, and falls, and falls again—to the point where the middle class can afford them. That’s what happened with the telephone, the car, the television, the personal computer, the mobile phone. A century after the Model T took the nation by storm, could the same process be happening with electric cars?

Well, maybe.

Look at what Tesla is up to. The electric sportscar manufacturer has been on something of a tear—notching its first profit, ramping up production, and paying back the big government loan it took.

The high price of the Tesla Model S—about $60,000—is inhibiting more widespread adoption. But the more practice it gets making cars, and the more volume ramps up, the greater the ability to cut prices. This week, Tesla CEO Elon Musk said the company is aiming to produce a version of the Tesla that would retail for about $30,000 in “probably three to five years.” 

Meanwhile, other electric and plug-in hybrid makers aren’t sitting still. With the advent of the Nissan Leaf, the Chevrolet Volt, the Tesla, and plug-in hybrids from Toyota and Ford, there are now more than a handful of cars on the market that rely in part, or entirely, on electricity. (Cadillac appears to be joining the fray as well.) And as they ramp up production and fight with each other for customers, they are effectively lowering the price of the vehicles.

So, for example, Nissan this year cut the sticker price of the Leaf to $28,000—a reduction of $6,400, or 18 percent. And that’s before the $7,500 federal tax credit. Last month, General Motors CEO Dan Akerson said that customers should expect that the Volt, which retails for about $39,000 before the federal tax credit, will get significantly cheaper. “In this next generation, we think we can decrease the price on the order of $7,000 to $10,000, without decontenting,” he said.

According to Hybridcars.com, plug-in models accounted for 7,138 sales in April 2013. That’s tiny. But it’s about double the number sold in April 2012.

The process is continuing, even though electric cars still account for a tiny sliver of the auto market. According to Hybridcars.com, plug-in models accounted for 7,138 sales in April 2013. That’s tiny. But it’s about double the number sold in April 2012.

This week, Honda reduced the cost of a no-down-payment lease for its Fit EV to $250 per month, down from $389 per month—a 33 percent reduction.

So, yes, government subsidies and tax credits are helping to make electric cars more affordable for American buyers. But time and competition are also doing their part.