10 December 2013 ~ 0 Comments

Is it Time to Buy an Electric Car?

Electric cars are getting more affordable. In January, Nissan announced that they were slashing the price of the Leaf by $6,000. May saw Honda announce a cut of $130 in the monthly lease on their Fit EV, followed in August by GM taking $5,000 off the list price of the Chevy Volt.

electric car, alternative energy vehicles

Did the early adopters pay through the nose for the privilege of being first to ditch gasoline, or is this the automotive equivalent of an “everything must go” stock clearance? Is the electric car business booming or dying?

Range, prices and volumes

Electric car sales have been held back by limited range and high prices. GM thought they had range anxiety beaten when they put a gasoline generator in the Volt, but buyers weren’t persuaded. In 2012, just 23,461 Volts found homes, hardly a tsunami when the leading family sedans sell more than that each month.

Over at Nissan, it was a similar story. The 80-mile range was plenty for most folks, but perhaps buyers thought they’d need a second car for road trips, because 2012 sales totaled just 9,819.

Range matters, but economics is probably more significant. Spending less on gasoline is the main reason for buying an electric car, and with MPGe numbers around 100, the savings are there. But buyers did the math and found that even after the $7,500 federal tax credit the price premium was significant.

Judging by the latest sales numbers, those big price cuts have paid off. August Leaf sales were up 335% over 2012 and early reports are that Volt volumes are growing too. But let’s get back to how and why.

GM argues it can cut the price of the Volt because it is getting better at building them. All new products go through that kind of curve, and with an army of engineers striving to streamline manufacturing, GM’s point seems valid. But there’s another factor that they don’t talk about. It’s reported that Chevy dealers were already offering healthy discounts to entice Volt buyers. Seen from that perspective, the price cut is perhaps more an acknowledgment of market realities.

Nissan set out a different rationale for their price cut. The Leaf was originally built in Japan but production shifted to Tennessee in January 2013. That insulates them from exchange rate fluctuations and saves on shipping, but there’s been another change too. For 2013, there’s a lower specification “S” trim level. It’s hardly basic, but lacks some of the luxurious touches of the SV and SL.

New prices affect residual values

A lower price new usually depresses used prices. If you’ve just taken delivery that hurts, but it draws in buyers who can’t afford new, so the impact might be diluted. Shoppers looking for a deal can buy used at Drivetime.com, but previous buyers may be looking at a significant lose on these cars. There’s also the longer term worry: how long will the batteries last and what will that do to residuals?

The simple answer is that nobody knows. Car & Driver magazine reported that residuals on electrics aren’t strong but then Nissan recently announced a CPO program that should lift values. There are concerns about battery life and the cost of replacement. Bottom line: It’s to early to tell how the used EV market will evolve going forward.

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