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Everyone makes same mistake with electric cars



2018 Nissan Leaf
The 2018 Nissan Leaf.
Nissan


  • Electric cars are cheaper to own over the long term
    than gas-powered vehicles.
  • But consumers aren’t always guided by cost when they
    buy a vehicle.
  • Thus far, the EV value proposition hasn’t created a big
    market for the new technology.

Compared to just a decade ago, we have a lot more choices when it
comes to buying an electric car.

Short-range EVs such as the Nissan Leaf and the BMW i3 have been
around for years, and long-range, mass-market EVs like the Chevy
Bolt and Tesla Model S have started to arrive.

Electric vehicles continue to make up a tiny percentage of global
sales — only about 1% — but more are on the way, so presumably
that datapoint will improve over time. Unfortunately, much of the
analysis around EVs’ potential tends to lump all EVs together,
ignoring some of the obvious dynamics of the auto market.

On average, running a vehicle on electricity is over 50% more
cost-effective that running a car on gas. There’s really no
debate about this, and the simple fact was recently backed up in
a
University of Michigan study by Michael Sivak
and 
Brandon
Schoettle
.

Another rule of thumb that’s developed around EVs is that
although the initial cost to buy a vehicle is higher than what’s
needed to purchase a comparable gas-powered car, a crossover
point typically occurs at about 50,000 miles. At that juncture,
the EV owner has earned back the up-front cost and will see
cheaper operational costs for the life of the vehicle. 

I should point out that the cost-of-ownership analysis has to be
seen as somewhat unpredictable today, mainly because we know how
much it costs to maintain a gas-powered car, but we don’t know
how much it will ultimately cost to replace batteries on aging
EVs.

The luxury market is different


Tesla Model S
The Tesla Model
S.

Tesla

In the luxury market, the cost of ownership is more dramatically
divergent. Fleetcarma.com
took a look
at the cost of owning a Tesla Model S versus a
Mercedes C-Class (in the process giving the Model S a bit too
much credit for its luxury bona fides) and the cost of owning a
Model X versus a Porsche Cayenne.

The bottom line is that it’s much pricier to own the Mercedes and
the Porsche.

However, this welter of analysis runs smack into a wall when it
comes to actual consumer behavior. It’s currently
incontrovertible: very few people want to buy an electric car.
Range limitations and a host of additional lifestyle changes have
been cited to explain this. But competitive EVs have been around
for years and haven’t much moved the needle. 

We’re in the early days of seeing whether the $35,000 Tesla Model
3 and the similarly priced Chevy Bolt can change that. 

But then we have to more closely scrutinize the underlying logic
of cost-of-ownership analysis itself. The critical assumption is
that owning an EV is a no-brainer. Sure, you have to get used to
lengthy recharging times versus filling up on gas. But who
wouldn’t want to save $500 a year — or much more when it comes to
a luxury vehicle?

In the mass market, if charging infrastructure can be both faster
and more widespread, we might see a big change in the coming
decades. A lot of automakers are betting that EVs will witness a
future surge in popularity, and the entire industry is waiting to
see how much centrally planned muscle China, with its enormous
car market, puts behind EVs.

Sometimes you just want a BMW that runs on gas


BMW M2
Not
electric.

BMW

In the luxury market, the idea that a customer is cross-shopping
a Mercedes or Porsche with a Tesla and is somehow worried about
fuel costs is trickier to deal with. Mercedes and Porsche buyers
are probably less sensitive to fuel costs than Honda buyers — and
more invested in why they’ve chosen a particular
luxury brand. 

The luxury market is a segment of the overall auto
market, and blunt cost-of-ownership numbers can’t really address
why somebody might spend, say, close to $100,000 on a
high-performance BMW when they could get a perfectly good car for
about $30,000. The truth is that some customers
just want a BMW and they don’t entirely care how
big the sticker price is and how much the gas will cost them.

Folks who work in or have spent a lot of time around the auto
industry have a sort of innate understanding of this irrational
aspect of car ownership. Why would anybody want spend $400,000 on
a Ferrari? Because it’s a Ferrari. It’s the
same dynamic that makes a person covet an $8,000 Rolex when a
$200 Seiko can handle the same job. It’s also understood that
owning a car on its face is an irrational decision: the vast
majority of vehicles are bought with borrowed money and
depreciate to the point where they’re worth nothing.

It can get even more intense the more you learn about yourself,
your preferences, your lifestyle, and your needs. I’ve driven
just about every electric car on the market. I get the economics.
I’ve seen what happens with cost of ownership on numerous
gas-powered vehicles. I’m an ideal customer, in that I understand
all the advantages of EVs. And yet I have a used Toyota Prius,
because for me the car is cheap to own and easier to use than an
all-electric vehicle.

No straight shot to EV dominance


Electric cars charging
It
could take a while.

Dan Kitwood/Getty
Images


Don’t get me wrong — I’m not saying that an EV tipping point
won’t eventually be upon us. But it’s not going to be a straight
shot to that point. We’ve already seen this, as EV market
penetration is now pretty weak — much weaker than predicted 10
years ago. EVs are big money-losers for the carmakers, largely
because the scale of their production is small. Auto companies
are staying in that game because they have more strict
fuel-economy and emissions laws on the horizon and they’ve seen
the bottom drop out of diesel, thanks to the Volkswagen scandal.

There’s also a choice problem in the auto industry: when it comes
to choices, there are many of them. A single automaker, like
General Motors, makes dozens of different models. In the US
alone, no single carmaker controls even 20% of the market, and
some large global players, such as VW, are making do with a
meager share of less than 5%.

That makes it tough to be a car-company executive, but for
consumers, it means abundant choice. Electric vehicles are
entering that system as another option. So the
notion that there’s a purely binary decision at stake — EV versus
gas-powered car — doesn’t make sense and can’t be justified on
the simplistic grounds that EVs are in the end cheaper to
own. 

When you get right down to it, what we’re dealing with isn’t any
kind of bogus factual situation: EVs are clearly less expensive
once the up-front cost is overcome. The issue is an error of
interpretation: What does the lower ownership cost of EVs mean
when that fact hits the actual market?

Sadly for some EV enthusiasts, it doesn’t mean that electric cars
take over the world.


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