Are Electric Cars Really a Risky Business Strategy? The Big Picture Says Otherwise

As we get closer to the impending launch of the next generation of electric cars from manufacturers like Nissan, Mitsubishi, Ford, GM, Tesla and Fisker, the chorus of commentators claiming they will be a flop and are likely to never pay back their investment for the automakers that choose to build them is getting larger.

In the past couple months alone I’ve seen two rather high profile “parade rainers” — from Forbes and Ward’s Auto — come right out and say they think electric cars are an overly risky business bet which the overwhelming odds favor losing. But I don’t think these folks are looking at the big picture and they haven’t gotten their minds around the reality of our situation.

Once you take these things into consideration, EV manufacturers have nothing to worry about.

3% of 118 Million is Still A LOT

One of the most common arguments I hear is that it took hybrid cars the better part of 10 years to capture roughly 2.5-3% of the total vehicle market share in the U.S. and, using that model, it will take at least a decade for electric cars to capture that much of their own market share. A recent opinion piece in Ward’s Auto proclaimed, “So, if after a decade, [hybrids] can capture only 2.5% of the market, it seems likely EVs will have a slower growth curve. That means the EV pie will get sliced mighty thin.”

3% may not sound like much, but if we look at global statistics the picture gets better. In 2008 there were roughly 70 million vehicles sold in the world, this was down from the 79 million vehicles sold in 2007, but we’ve been hammered by a recession. Prior to 2008, the new vehicle market was growing by roughly 4% per year, with that percentage accelerating due to rapid growth in China and India. So let’s say the global new car market is around 80 million this year (2010) and we can conservatively say it will grow by 4% each year for the next decade. By 2020 there will be 118,000,000 cars sold per year. If 3% of those are EVs, that’s 3,450,000. Maybe I’m crazy, but I don’t think that a 3.5 million-vehicle-per-year market share is a losing proposition.

Plus, between now and then a bunch of EVs will be sold. The first few years it may not be more than 0.1-1% of the market share, but after that it will start to ramp up quickly. Let’s say that by 2014 it’s 1%, by 2016 it’s 2%, and by 2020 it’s 3%. Using those numbers, between now and 2020 there will likely be at least 16,000,000 EVs sold worldwide. And that’s just using the same curve that hybrids saw. How anybody could see that as a gamble, I don’t know.

But is 3% Market Share a Decade From Now a Realistic Figure?

The early years of hybrids saw relatively little in the way of worldwide government support. A decade ago we weren’t thinking about climate change or the environment. At that point the idea of running out of oil seemed like the script of a fantasy movie and the thought that gas could get anywhere near $4 a gallon in the U.S. was a joke.

For a long time, the only hybrid option was one car from Toyota. It’s only in the last few years that hybrids have started popping up all over the place and the hybrid market has been exploding. In fact, recent studies suggest that by 2020, the hybrid market share in the U.S. will be 20% of all new cars sold. If we extrapolate this to the rest of the world, it may not be 20% of all new cars sold, but it will be heck of a lot more than 3%… say 15% of all cars sold globally. That’s a growth of nearly 0.5% per year in hybrid market share over the next 10 years.

So, what are the reasons for this surge in hybrid popularity? A hedge against rising gas prices? A growing awareness of the environmental effects of driving? The knowledge that we’ll run out of oil eventually? Government incentives? All of those things play a role. If hybrids were introduced today, you can be positive that it wouldn’t take 10 years for them to account for 3% of market share, it would only take a few years. Applying this new consumer awareness and heavy government incentivization to the acceptance of EVs, it is clear that they will be accepted much more quickly than hybrids were when they were introduced a decade ago. The idea that they will only capture 3% of worldwide market share by 2020 is ridiculous. I’d put that number closer to 7%… or about 8 million EVs sold in 2020.

Clearly the American Consumer has Hybrids and Plug-ins on Their Minds

As I reported yesterday, a new poll indicates that the vast majority of Americans think that EVs and Hybrids are the way of the future. They are taking environmental considerations into account far more than ever before when making new car choices. Look, even if you don’t think climate change is real, we are going to run out of easy oil eventually. It could be as soon as NOW, or it could be in 2030.

Regardless, if we don’t start switching our gas-dependent cars off the road right now, when the time comes that demand for oil outstrips supply, we will be [email protected]#KED people. So before you go saying that the government should not be fiddling with the market and propping up sales of cars that use less oil (or none), consider that it is a necessity for us to begin the process of weening ourselves off our addiction before we trigger a real Armageddon (none of this non-Armageddon, “Armageddon” health care foolishness we’ve been hearing about).

Range Anxiety, Limited Ranges and “Long Refueling Times” are Not Going to Have a Big Impact

In a Forbes article in February, Jerry Flint said that the Nissan LEAF would be a flop because it takes “forever” to recharge, doesn’t have the range of a gas powered car, is expensive, and isn’t as fast as a gas powered car. He also said he “guessed” it would cost about $40,000, whereas I staked my reputation on it costing between 25 and 35K. In retrospect, who do you think has the better inside line? In addition to Mr. Flint’s rather standard list of complaints, we’ve heard a lot of ruckus about how people will suffer from range anxiety.

As I’ve said before, I don’t think EV range anxiety is going to be as big of a deal as people have made it out to be. You can read my stance on that in other posts. I also don’t think that having a range of “only” a hundred miles is going to be that difficult to get around either. Certainly if you only have one car it could present problems. But if you’re like the vast majority of Americans or people living in cities, you rarely ever need to drive more than a couple dozen miles a day and you already have more than one car. Just replace one gas car with an electric and you’ll never know the difference.

Also, thinking of EVs in terms of “refueling” times is so 20th century. How many of us actually like to go to the gas station? I tend to think of having the ability to fill my car with juice at home as being MORE convenient than going to a gas station. Would you like to have to go to a station to fill up your cell phone every day? No, it’s easy plugging it in at night. Same will go for cars, it’s just that we’re so ingrained in the habit of filling up at a station that it seems like a hassle. Plus, home charging stations (240V/60 Amp) that can charge a car with a 100 mile range to 80% capacity in less than an hour are already available… and that’s only going to get better.

And the argument that EVs aren’t as fast as gas cars… please. When people usually are talking about “speed” they really mean “acceleration.” Nobody needs to go any faster than 80 mph, but they want to be able to get there quickly if needed. And in this realm EVs whip gas powered cars in droves: with 100% torque available from 0 rpm, getting up to speed is easy.

When you take all of the above into consideration, I just don’t buy the argument that EVs are a risky business strategy. The pundits and commentators who say they are haven’t taken into account the vast changes that are occurring throughout society, in the industry and in the political sphere and they also haven’t switched their mindset to the world of Gas 2.0.

Nick Chambers

Not your traditional car guy.