How electric cars got stuck in first gear - Macleans.ca

How electric cars got stuck in first gear

Electric cars are hitting showrooms, but people aren’t buying

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Stuck in first gear

Rick Bowmer/AP

On a recent autumn day, employees of Tesla wheeled their latest electrified creation, the Model S sedan, into the concourse of a bank tower in downtown Toronto. Over the lunch hour, a handful of curious passersby ogled the dark-red vehicle’s sleek lines, leather interior and giant touch-screen monitor.

The Model S is the second production vehicle built by the Silicon Valley-based carmaker founded by American entrepreneur Elon Musk. Its first effort, the US$109,000 Roadster, was launched in 2008 and immediately grabbed eyeballs—not only because it was the first production vehicle to use lithium-ion batteries like those found in laptops, but because it looked car-magazine cool and was capable of zero to 60 mph in as little as 3.7 seconds. Tesla, which has yet to turn a profit, built and sold only 1,800 Roadsters, but that was hardly the point. “We needed to build a proof of concept that put itself on the map pretty quickly,” says Ricardo Reyes, a Tesla spokesperson.

Mission accomplished—sort of. With Tesla leading the way and governments throwing money at “green” industries, electric cars have gone from auto-show concept vehicles to production models, seemingly overnight. There’s only one problem: consumers have so far shown little interest in vehicles that are perceived as expensive, time-consuming to recharge and having a limited driving range. “The buzz around electric cars in the marketplace is far greater than what’s actually being purchased,” says Michelle Krebs, a senior analyst for the car website Edmunds.com. “Electric cars are not catching on.”

Krebs, who appears in the documentary Revenge of the Electric Car—a sequel to Who Killed the Electric Car?, which explored GM’s decision to recall and destroy its fleet of electric EV1 cars in 2003—points to sales data that showed just 21,394 “advanced drive” vehicles (which also includes hybrids and diesels) sold in the key U.S. market in October. That’s down 12 per cent from the previous year. Meanwhile, sales of conventional gas-powered cars and trucks were up 7.4 per cent during the same period, suggesting that a bevy of smaller, more fuel-efficient models are blunting demand for alternative powertrains at current gas prices.

It’s potentially bad news for carmakers like GM, which spent more than US$1 billion on the development of its plug-in hybrid Volt (the car runs on electricity but can switch to a gas-powered generator when the battery is depleted). Despite positive reviews, it now looks doubtful that GM will realize its 2011 sales target of 10,000 Volts, a number it has stubbornly refused to revise, even though since January it has moved just 5,544 of the cars, which each cost $41,545 before incentives. By contrast, GM’s gasoline-powered Chevrolet Cruze ($15,495) has outsold the Volt by roughly 20 to one, globally.

GM has suggested it’s a problem of supply, not demand. It recently gave U.S. dealers permission to sell their demo models, which were supposed to remain on showroom floors to attract customers. Adria MacKenzie, a spokesperson for GM’s Canadian arm, says GM has sold about 200 Volts in Canada, and another 111 have been pre-sold and are now en route to dealers. “We are building as many Volts as possible to keep up with consumer demand,” MacKenzie says. “These sales numbers are in line with our expectations.”

Perhaps. But it’s difficult to see how the situation will improve as GM’s competitors rush into the space. In addition to Tesla, Nissan-Renault offers an all-electric car, called the Leaf—17,000 of which have been sold around the world. Ford Motor Co. has as many as five electrified vehicles in the works, while Chrysler-Fiat is planning an electric version of the Fiat 500. Mitsubishi and BMW both have electric cars coming, too.

It’s shaping up to be a sequel to the “if we build it they will buy it” approach that nearly cratered the auto industry during the last recession—only this time it’s pricey electric cars instead of cheap-to-make gas-guzzling trucks that are taking centre stage. Though having a high-tech electric car in the lineup makes for good “green” marketing and helps automakers satisfy stringent fuel economy standards, analysts note electric cars aren’t cheap to develop. At some point, consumers need to do more than just marvel at them.

Yet recent studies show a chasm between what consumers expect from an electric car and what engineers are actually able to deliver at an affordable price. A Deloitte survey of 13,000 consumers in 17 countries found that only 63 per cent of Americans would be satisfied with being able to drive 480 km before a car’s battery pack was depleted, and that nearly 60 per cent of U.S. respondents wanted a car that could be recharged in about two hours. By contrast, the Nissan Leaf advertises a range of just 160 km (closer to 117 km in “real world” driving conditions), and can take up to eight hours to achieve a full charge using a special charging station that can be installed in a garage and runs off a 240-volt circuit. The Leaf can also plug into standard 120-volt outlets, but the charging time is twice as long. A third option is 480-volt “fast-chargers,” which would ideally be made available along highways or rest stops, and which are capable of achieving an 80 per cent charge in about 30 minutes. As for the range issue, Nissan has pointed to study after study that shows most commuters drive less than 80 km per day. But that assumes people buy cars based on what they need—a fallacy exposed by the enduring popularity of vehicles like the Ford Mustang or anything made by Hummer.

Tesla believes it can solve the consumer psychology part of the puzzle. Its Model S has been described as the first electric vehicle that’s neither too expensive (the base model will be just over $49,000 after government incentives) nor too limiting (it has a range of 260 km, which can be boosted to 480 km with an extra battery pack that adds $20,000 to the purchase price). It has also embarked on a unique retail model by putting some 20 stores in high-end malls across North America, with the first Canadian store to open in a “premium Toronto mall” next year. The idea is to educate consumers about the technology and let them play around with it (there are cars nearby for test drives). If it sounds like the approach used by another Silicon Valley company—the one known for its iPhones and iPads—it’s no coincidence. Tesla’s retail strategy is being led by former Apple retail guru George Blankenship. “Apple stores are a place where people can go if they want to purchase a product, but also just sort of want to experience it and play around,” says Reyes. “That’s the same sort of feel we’re going with for our stores.”

Even so, the industry faces huge hurdles that may prove impossible to overcome—even if gas prices creep higher. They range from a lack of charging infrastructure to the slow pace of innovation in battery technology. And questions remain about whether electric cars can be mass-produced at a profit. Manufacturers depend heavily on government subsidies, including the kinds of loans now being reviewed as part of a wider White House probe in the wake of the scandal surrounding bankrupt solar panel maker Solyndra.

While the cost of building electric cars is bound to come down as the technology matures, critics point out that many of the materials needed to produce electric cars, including lithium and rare earth metals, are actually far less abundant than oil. “We’re at the very pioneering stage of this,” Krebs says. “We’re just getting electric vehicles out on the roads and we don’t know what consumer acceptance will be. But the big challenge is whether it can work as a business model.”

In Toronto, the Tesla display continues to draw curious looks. Though Tesla says it has orders for all 6,500 of the vehicles that will be built next year, it’s still a drop in the bucket for an industry that sold 11.7 million cars and light trucks in 2010 in the U.S. alone. It’s too soon to say whether the electric car will be killed off this time around, but if it is, it will be because consumers—not Detroit or some shady lobby group—pulled the trigger.

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