Electric Cars Disappoint, Despite Having Every Advantage
Jillian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Electric vehicles continue to be a flashy part of automakers’ lineups. Given that taxpayers have invested more than $6.5 billion in this sector over the last five years, it’s at least viscerally rewarding to see products hitting the market. But there’s still plenty of reason for investors to be wary.
Electric vehicle manufacturers have had almost every advantage they could dream of -- lavish loan guarantees, tax credits and other subsidies from federal and state governments. Yet their crowning achievement thus far is... not that impressive. Sales have been weak, and electric cars are way too expensive for the average American driver. Fundamentally, the product fails to stand on its own merits.
Tesla Motors (NASDAQ: TSLA), which is just now debuting its Model S luxury sedan, received a $465 million federal loan in 2009. Consumers get a $7,500 tax credit, but even so, the cheapest model still costs $49,900.
While it’s true that more than 10,000 buyers have already made a down payment on the Model S, this is a teeny, tiny niche market, considering that U.S. auto sales last year totaled 12.7 million.
And Tesla’s the success story here.
Compared to the Model S, the plug-in Chevrolet Volt by General Motors (NYSE: GM) is much more affordable-- $33,500 after the federal tax rebate.
Yet earlier this spring, Volt’s sales were so disappointing that GM ended up shutting down production for five weeks. The car also failed to reach sales targets last year.
Nissan Motor Co. (NASDAQOTH: NSANY.PK) did even worse with its Leaf. Consumers bought less than half the number of the electric car it had projected. That’s after the Department of Energy gave it a $1.3 billion loan guarantee to for an electric car battery plant and manufacturing line.
Meanwhile, battery manufacturer A123 Systems, Inc. (NASDAQOTH: AONEQ) hasn’t seen profits since it went public in 2009. Despite receiving $390.1 million in federal and state subsidies, it’s already shed at least 125 employees.
A123 is presently struggling to raise more money, and has warned regulators that its woeful current financial situation creates "substantial doubt [about] the company's ability to continue."
These cautionary tales have one fundamental theme: As long as there are cheaper, safer, more reliable cars on the market, Americans don’t have much reason to spend more on an electric vehicle. (Where's Don Draper when you need him?)
But beyond lackluster sales, investors have yet another reason to back away.
Electric cars are largely dependent on generous green subsidies, which have already generated a major political backlash. Especially with an election approaching, electric cars are an unsafe bet.