The Electric Car Revolution Now Faces Its Biggest Test

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Are electric cars ready to stand on their own?

If you took a spin down to the New York International Auto Show last week and ensure the $37,500 Chevy Bolt( electric) parked next to the strikingly similar $17,000 Chevy Cruze( gasoline ), the answer is probably a hard. The Bolt is arguably a better car than the Cruze–but not $20,000 better.

Edmunds, the car-research company, recently weighed in with a hard no of its own, warning that the elimination of a $7,500 U.S. taxation credit is” likely to kill[ the] U.S. EV market .” Edmunds pinned its argument on what happened in Georgia, a state that became an unlikely leader in electric cars thanks to an extra $5,000 incentive. At one point, almost four percent of new vehicles being sold in Georgia were electric. Then they pulled away the punch bowl.

But a very illuminating thing happened after Georgia& apos; s incentives expired. Unlike the Nissan Leaf, which made up the majority of the EV market there, sale of electric-luxury Teslas were barely affected by the loss of the tax credit. In fact, more people are buying Teslas in Georgia today than during the subsidy years.

The Tesla exception shows what happens when an electric car reachings parity with fuel-burning challengers in both cost and function. Unlike the Leaf and the BMW i3, the Tesla Model S is quicker than similarly priced gasoline automobiles, has a long driving scope, extensive fast-charging network, and is packed with unrivaled tech advances like Autopilot and wireless software updates.

As a outcome, the Model S is now the best-selling big luxury vehicle in America. Changes to country or federal incentives are unlikely to alter that fact. But those Teslas are premium automobiles that start around $70,000. For plugins to actually pass government subsidies test and take over the auto industry, they’ll need to prove themselves in cheaper class of automobile, and there will have to be more producers besides Tesla.

When might that happen?

The primary expense for an electric car is its battery, responsible for almost half the pricetag of a mid-sized plugin. If you take that away, electric cars are much cheaper to produce and maintain than internal combustion vehicles.( That’s why French carmaker Renault sells its popular Zoe without a battery, which clients pay a monthly fee to lease .) 1 The battery rental changes the way customers think about the price of their automobile. Customers view the battery lease like a monthly fuel charge, which encourages them to consider the gasoline savings in the overall cost of ownership.

For true mass-market appeal, the up-front sticker price is what matters most, and battery costs must come down further. Fortunately, prices are falling fast–by roughly 20 percentage a year. The manufacturing cost of electric cars will fall below their gasoline counterparts across the board around 2026, according to a recent analysis by Bloomberg New Energy Finance. 2 Some vehicle class will take a bit longer, including compact economy automobiles and SUVs in Europe.

The question of when electric cars will cost the same as their combustion equivalents isn’t academic. The $7,500 federal incentive is set to taper off as each manufacturer reaches its 200,000 th U.S. sale. For Tesla, that day will arrive sometime next year. Nissan and GM won’t be far behind–and any extension of the subsidy by the Trump administration seems unlikely.

Another thing that induces electric cars more expensive is that, at lower volumes( less than 100,000 a year of the early models ), even the traditional components of a automobile come at higher expenses. Low production numbers and high battery development expenses created a valley of hopelessnes for EVs that lasted decades, which is why subsidies have been critical to giving the sector enough breathing room to eventually stand on its own.

Government incentives were crucial to the birth of the EV industry, and many countries and local governments will continue to offer them because of the critical role electric cars play in reducing pollution and combatting climate change.

But even where governments are less enlightened, the valley of desperation is coming to an end. Tesla, the first to approach price and function parity in the Model S sedan and Model X SUV, will attempt to recreate that magic subsequently this year with the Model 3, a $35,000 entry-level luxury sedan. A longer-range Nissan Leaf is likely to be unveiled in September, and depending on its pricetag, it could begin to approach the parity zone in the sub- $30,000 marketplace. 3 The 2017 Leaf has been outselling the new Chevy Bolt this year thanks to massive discounts by the automaker that have brought the subsidized price of the car down to less than $15,000. Nissan hasn& apos; t disclosed the price of the longer-range 2018 Leaf yet.

And then watch out: In 2018, Volkswagen plows into electrification with an Audi SUV and the first high-speed U.S. charging network to rival Tesla’s Superchargers. Jaguar and Volvo both have promising cars on the way too, and by 2020, the avalanche truly begins, with Mercedes, VW, General Motor and others releasing dozens of new models.

When the U.S. incentives begin to expire next year, don’t expect a Georgia-sized collapse in the market. The period of greatest peril is objective for EVs, and the time of greatest promise is beginning. All the top carmakers are expending billions of dollars to electrify their drivetrains, and the smart ones will compete aggressively on pricing in the short-term in order to establish market share for the long haul. Incentives are important, but they won’t define the market for much longer.

Read more: www.bloomberg.com

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