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Electric Cars Could Be In For A Rough 2015

Matthew DeBord
Tesla Drive

Matthew DeBord/Business Insider A Tesla Model S "D" hooked up to charger. Electric cars were all the rage five years ago. New car companies were springing up all over the place, promising a futuristic liberation from the internal-combustion engine.

Gas was expensive. General Motors and Chrysler had gone bankrupt. Climate change was freaking people out.

Electric vehicles provided an exciting alternative to business as usual. EVs were coming from both the established automakers and a spate of startups. There was a strong sense that consumers were finally ready to go electric in significant numbers. The lessons of GM's failed EV-1 had been learned. The electric car would not, this time, be killed.

Now it's early 2015 and we have over a dozen EVs for sale in the US. Tesla's market cap is $26 billion. For comparison, Ford's is $57 billion and GM's is $53 billion, but Tesla is selling mainly one car model.

Everything should be great, except that it isn't.

The bestselling EV in the US is the Nissan Leaf. About 30,000 were sold in 2014. Respectable. But also a 0.18% share of the 17 million vehicles that were sold in total last year.

nissan leaf

High Gear Media Nissan Leafs.

Tesla should sell about the same number of cars — 30,000 — in 2014.

Quite a few gas-electric hybrid vehicles are also on the US market, and plug-in hybrids have begun to pick up speed.

But apart from the theoretical environmental benefits — reduced or eliminated emissions are a good thing, although you have to take into account how cleanly the electric power was generated — there's the obvious factor of not buying gas.

In this sense, it's hard to separate the renaissance of EVs from the rising price of gas.

And one other thing: The US government's insistence that automakers raise the overall fuel economy of their fleets over the next decade. The corporate average fuel economy, or CAFE, standards stipulate that major automakers achieve 55 mpg for their entire fleets — cars and trucks — by 2025.

So if you want to keep building profitable big trucks and SUVs, you need to build some high-MPG electric cars and hybrids. 

But rising CAFE standards and falling gas prices, not to mention Americans' desire to replace their aging cars with new ones (the average age of a car on US roads is 11 years), and low-interest rates on auto loans, well, all these factors are colliding in increasingly unpleasant ways.

US Gas Prices FRED

FRED Gas prices are falling.

The automakers want to take another look at the CAFE objectives, with the very unsurprising aim of renegotiating them so that the focus can be on selling the lower-mpg cars and trucks that Americans want to buy — that is, lower-mpg cars that don't run on electricity.

Tesla's stock price, which was pushing $300 a share in mid-2014, has dropped more than $100 in recent months. Cheap oil means cheap gas, which in turns means that while plenty of wealthy EV enthusiasts may ardently want Elon Musk's $100,000 Model S sedan, fewer customers may be interested in the mass-market Model 3 car that's scheduled to arrive on 2017 — and that's key to Tesla not being a niche automaker.

Ford CEO Mark Fields addressed these market realities on Thursday during the company's fourth-quarter earnings call. When asked about CAFE standards by Morgan Stanley's lead auto analyst, Adam Jonas, he stressed that US consumers need to adopt new technologies for them to be successful, but that consumers haven't adopted EVs in anywhere near the numbers predicted, rather hopefully, a few years ago.

"We're looking forward to the midterm review," he said of raised CAFE standards.

Translation: We're looking forward to putting the brakes on rising CAFE standards.

Mark Fields Ford

REUTERS/Rebecca Cook Ford CEO Mark Fields. That's not an electric car.

It's important to note that none of this means that the electric car is over. Even though EVs have captured a very small percentage of the US market, that small percentage is bigger than zero. Tesla could be sustainable as a luxury brand, even if it doesn't achieve its mass-market goals or fulfill the save-the-planet dreams of Elon Musk. Companies such as Google, with its self-driving car experiment, could remake mobility and power the brave new world with electrons.

But all the signs point toward electric cars being in for a rough 2015. The captivating startups of five years ago have mostly failed. Tesla stands alone. The SUV, threatened by the 2008-09 meltdown in Detroit and the subsequent runup in gas prices, is back.

And gas prices are likely to remain pretty low for much of the year.

Maybe this is the way it has to be. Electric cars were really nowhere to be seen for the first 100 years of the automobile's history. Then they staged a modest comeback in the 1990s, before fading into legend and lamentation. By the late 2000s they were back. This time around, EVs secured a tiny market foothold. 

That will probably be enough to keep them around, regardless of what happens with government regulations or in the global oil markets.  But 2015 is going to be a challenge.


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