Could Lower Gas Prices End the EV Revolution?

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In the last few years we have witnessed the beginning of the rise of the electric car with the introduction of cars including the Chevrolet Volt, the Nissan (NASDAQOTH: NSANY) Leaf, and of course Tesla's (NASDAQ: TSLA) Roadster and Model S. But much of the economical argument to promote the EV was based around gas prices at four dollars and rising. While there is still an ongoing debate as to where gas prices are headed, this article is designed to examine the potential impact of sub three dollar gas on sales of EVs.

EVs for the Middle Class

In many ways, the Chevrolet Volt is the best example of a broad based EV for the average Joe. Unlike Nissan's all electric Leaf, the Volt has a range extending gas engine to eliminate range anxiety and allow more flexibility for long family trips. With a price roughly equal to that of the Leaf, both cars cost more than their most similar gas powered competitors. And in both cases their competitors are typical middle class cars. However, 2012 sales of the Volt are expected to be more than double those of the Leaf. On this basis, the Volt best defines the EV for the middle class.

But what drives the sales of General Motors (NYSE: GM) Chevrolet Volt? Even with tax incentives, gas savings have resulted in only negligible economic gains for Volt buyers when the additional purchase cost is factored in. Would even lower gas prices crush Volt sales? Not necessarily.

Many buyers of the Volt buy it for environmental reasons and lower gas prices wouldn't stop them from doing so. Of those who have driven the Volt, reviews are overwhelmingly positive meaning this group of buyers has a higher chance of becoming repeat customers to drive future Volt sales. Sales have increased strongly year over year signaling the market may be warming up to GM's electric car even though gas prices have not shot past four dollars a gallon. While Volt sales would likely be helped by higher prices at the pump, there is a dedicated base of electric car buyers made up of environmentalists and early adopters of technology who can continue to sustain sales numbers. This will ensure an electric car remains available for the middle class.

EVs for the Wealthy and Upper Middle Class

While most Volt owners agree their car serves their needs relatively well, Tesla Motors has tried to bring a whole new type of EV to the scene. After producing the Lotus based Tesla Roadster, the start up automaker has moved on to the production of the Model S. With seating for up to seven and a starting price just south of $50k, the Model S is definitely at the upper limit for most middle class families.

But that's not Tesla's only audience. The Model S is not an electric econobox designed only for gas savings. It is a Porsche and BMW competitor that snapped up Motor Trend's Car of the Year award. Tesla has done what EVs struggled with before. Build an EV that wins in both price and performance. Tesla's buyers are flocking for the car's handing abilities, near instant torque, and quick acceleration.

The Model S is not a vehicle threatened by the potential of falling gas prices. With a diverse and performance oriented market, gas prices are icing on an otherwise delicious cake for their buyers. After the launch of the Model X, Tesla expects to offer another sedan in the $30k range to compete head on with cars such as the BMW 3 Series. If Tesla can execute this car as well as their Model S, it too should be able to sell based solely on performance negating any gas price threats. Overall, Tesla has done a fantastic job building a high performing EV that has insulated the automaker from the external threat of falling gas prices. Yet another box checked on Tesla's plan.

Here to Stay

Like them or not, more EVs are soon to be on the roads. Tesla has over 10,000 reservations for their Model S, over a thousand for their Model X, and both numbers are growing by the day. Additionally, stronger Volt sales are making EV sightings more frequent and if sales trends continue even more Volts could be sold next year.  At this point the future looks bright for EVs with GM planning to expand their offerings and Tesla building out its product line. I, for one, will continue to drive my Chevrolet Volt, a great car to drive with over a hundred gallons of gas saved and counting.


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