Electric Cars Are Too Expensive For Most Americans
* EVs to make up only 1.5 pct of US market in 2017-analyst
* Henry Ford bought his wife electric cars
* Obama wants to boost consumer EV subsidies by a third
By Ben Klayman
DETROIT, March 21 (Reuters) - Scott Kluth has a love-hate relationship with his new Fisker Karma luxury electric sedan.
The 34-year-old car lover bought the plug-in hybrid electric Karma in December for $107,850, but five days later the car's battery died as he was driving in downtown Chicago. While the car he affectionately calls a "head turner" was fixed in a recall, Klut h remains uncertain how much he will drive it.
"I just want a car that works," Kluth said. "It's a fun car to drive. It's just that I've lost confidence in it."
The Karma's problems -- one vehicle died during testing by Consumer Reports this month -- f ollow bad publicity arising from a probe of General Motors Co's Chevrolet Volt and weak sales of the car, and the closure or bankruptcy of several electric vehicle-related start-ups.
The unrelenting bad news has led to questions about the readiness of electric cars and raises fresh doubts about a technology that has around since the late 1890s but still struggling to win over the public.
Whether electric vehicles can find an audience beyond policymakers in Washington and Hollywood celebrities depends on lowering vehicle prices wi thout selling cars at a loss, an alysts and industry executives say, whi le ext ending driving range to make the cars competitive with their gasoline-powered peers.
"It's going to be a slow slog," said John O'Dell, senior green car editor a t industry research firm E dmunds.com. "Maybe there's too much expectation of more and quicker success than might realistically be expected of a brand new technology."
He also questioned whether priorities will simply change for whomever is U.S. president after the November election. Electric v ehicles could lose tax breaks -- currently worth $7,500 a vehicle for buyers -- particularly if a Republican ends up in the White House.
Edmunds expects pure electric cars and plug-in hybrids to make up only 1.5 percent of the U.S. market in 2017, compared with 0.1 percent last year, and O'Dell said that may be optimistic. Consumers charge all-electric cars by plugging into an outlet, while hybrid versions include a gasoline engine.
President Barack Obama's administration has been a strong proponent of e lectric vehicles l ike the Volt and set a goal of getting 1 million battery-powered vehicles on the road by 2015. Lux Research estimates that number will actually be fewer than 200,000. Both the Volt and Karma's development were supported by low-interest federal loans.
That has not dissuaded automakers, many of which plan to launch electric vehicles to j oin the Volt and Nissan's all-electric Leaf in a bid to meet rising fuel efficiency standards. Toyota has begun selling a plug-in Prius, and EVs from Ford, Honda, BMW and Fiat will join the fray this year, along with cars from start-ups Tesla and Coda Automotive.
HENRY FORD'S WIFE
Electric cars aren't a new concept. Henry Ford bought his wife, Clara, at least two electric cars in the early 1900s offering at best 50 miles driving range and top speeds of about 35 miles per hour, according to the Henry Ford Museum.
But analysts said automakers have not done a good enough job getting the costs down and explaining the technology to win over anyone beyond early adopters like actor Leonardo DiCaprio, pop idol Justin Bieber, comedian Jay Leno and former U.S. Secretary of State Colin Powell.
"You can do all the advertising and promotion you want, but if people don't buy into the message the needle's not going to move," said George Cook, a marketing professor at the University of Rochester's business school and a former Ford executive.
The Volt, at almost $40,000 before federal subsidies, is seen as too expensive by many critics. Fiat-Chrysler Chief Executive Sergio Marchionne, a long-time EV skeptic, has said Chrysler will lose more than $10,000 on every battery-powered Fiat 500 it sells.
And even with rising gasoline prices -- topping $4 a gallon in parts of the country -- EVs a re just n ot competitive, according to the Lundberg Survey. Gasoline prices would have to rise to $8.53 a gallon to make the Leaf competitive and hit $12.50 for a Volt to be worth it, base d on the cost of gasoline versus electricity, fuel efficiency and depreciation, the s urvey said.
Obama's vision, which he laid out at a Daimler truck plant in North Carolina this month, includes a car battery that costs half the price of today's versions and can go up to 300 miles on a single charge. The industry is far from achieving that.
Since last fall, there has been a run of bad news for EVs, starting with the late November news t hat U.S. safety regulators were investigating the Volt for possible battery fires.
While the federal investigation was closed with the conclusion there was no defect and the car did not pose a greater risk of fire than gas-powered vehicles, weak demand led GM to halt production for five weeks and temporarily lay off 1,300 workers at the plant that builds the car. GM, which strengthened the structural protection of the Volt battery, has repeatedly said the car is safe, and some said t he safety probe should have never occurred.
The Karma that died during testing by Consumer Reports magazine was another blow following a recall of more than 200 o f the cars la st year and the halting of sales in January for a software issue. Fis ker, which builds the Karma in Finland, also suspended work last month at its U.S. plant scheduled to make another car, the Nina sedan, whi le it works to renegotiate a $529 million loan from the U.S. Department of Energy.
Fisker spokesman Roger Ormisher said problems can arise with new technologies and a new company but added Fisker had gone "beyond the call of duty" in instituting a system to respond to customer issues and had plenty of satisfied owners. CEO Tom LaSorda in a letter to Karma owners last week said Fisker was committed to giving customers "complete peace of mind" and he had created a "SWAT team" of 50 engineers and consultants to identify issues with the car.
'FIRST LAW OF DISNEY'
"The expectations have always been too high for electric cars," said Bill Reinert, Toyota's U.S. manager for advanced technology. "The realities have always been clouded by the dreams. I like to say it's the first law of thermodynamics versus the first law of Disney. Disney is wishing it w ill be so. It do esn't work." Toyota has always been skeptical EVs would quickly boost its share of the auto market.
Meanwhile, several companies have struggled due to lack of funding or customer troubles.
A123 Systems posted a wider-than-expected fourth-quarter loss this month after Fisker, one of its largest customers, cut battery orders. Bright Automotive, an Indiana electric commercial truck start-up, closed its doors in February after failing to get a federal loan.
Ener1 Inc, which received a $118.5 million federal grant to make lithium-ion batteries for EVs, filed for bankruptcy in January, and Aptera Motors, a California-based EV start-up, went out of business last December after it couldn't raise $80 million in private funding.
"There will be more companies that fail, but it's no different than Internet companies," said Kristen Helsel, vice president of EV solutions for AeroVironment, which makes EV charging stations for BMW, Mitsubishi and Nissan. "People with the right business model are going to do fine."
A number of top national retail chains, including Kohl's and Walgreen, have begun installing charging stations at their stores, bu t critics say the U.S. push for electric cars has come before such infrastructure is in place, weakening the case for consumers to be attracted to the technology.
But since the bankruptcy of Solyndra, a solar panel maker that received $535 million in U.S. loan guarantees, federal support for advanced vehicle technology programs has ground to a halt. Ind ustry officials and analysts point to tightened U.S. Department of Energy requirements in the face of withering criticism from Republicans about the Obama administration's generosity for anything related to green technology.
"There was certainly a different energy level one year ago, even two years ago," said Oliver Hazimeh, sustainable transportation practice leader for PricewaterhouseCoopers. "This year, it just had a different drumbeat." Hazimeh sees long-term demand for EVs rising to up to 9 percent of the global market by 2022, but h e predicts there will be some setbacks along the way.
Obama wants to increase the tax subsidies for buyers of electric vehicles to $10,000 per vehicle from the current $7,500. Bu t c ritics say the small EV sales totals tell the real story.
Complicating matters, automakers continue to squeeze increased fuel efficiency out of the internal combustion engine. That makes it tougher to make EV sticker prices attractive enough to put a dent in the traditional gasoline-powered vehicles' domi nation of the market. [ID: nN1E7AE04G]
The EV's industry's struggles have vindicated the more deliberate approach taken by Toyota, Ford and C hrysler's M archionne, who killed plans for a Chrysler electric car, analysts said.
Still, proponents say electric-car sales will grow just like Toyota's hybrid Prius rose from about 5,500 in its U.S. debut in 2000 to a peak of more than 180,000 in 2007.
Doug Parks, GM's chief Volt engineer, said the proof is in the large amounts of money automakers are spending on EV technology development.
"Follow the money. People are investing huge in this stuff," h e said. " This is a 10- or 20-year discussion and we've been selling the Volt for a year."
GM, which recently launched a new advertising campaign centered on testimonials by adoring Volt owners, has made the car the centerpiece of efforts to seize from Toyota the mantle as the world's greenest automaker. Meanwhile, Nissan CEO Carlos Ghosn has estimated pure electric vehicles like the Leaf will make up 10 percent of industry global sales by 2020.
Time will tell if that's wishful thinking.
"It's been the Kool-Aid that the entire political system has been drinking for a decade," said Bob Martin, a senior consultant with auto product development firm The CarLab. "Electric cars are not ready for prime time. They're really interesting toys for very, very rich people."
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First Posted: 03/21/2012 12:01 am Updated: 03/21/2012 6:23 pm