THE BLOG

Sell Electric Cars Like Smartphones

10/24/2012 09:30 am ET | Updated Dec 24, 2012

Three big barriers are slowing electric vehicles. One can be fixed by the auto industry tomorrow -- and if it is, the other two will melt away as the electric vehicle sector expands.

Start with a simple but surprising fact: Right now, leasing a GM Volt for only two years costs you less than its gasoline counterpart, the Cruze. The Volt leases for $69 a month more than the Cruze, but saves $200 a month in fuel by operating most of the time on electricity. The $1800 higher down payment for leasing the Volt is paid off in 14 months -- you make money for the last 10 months of your lease!

Almost no one knows this -- GM hasn't been shouting about it from the roof-tops. Clearly the company loses money leasing Volts at this price. Because most drivers don't lease, GM knows it won't, if it keeps the secret, sell more Volts at a loss than it wants too.

But the choice of a below-cost lease as a way to build the market for the Volt -- along with the necessity of doing so stealthily -- shows that the auto industry hasn't figured out that electric cars need to be sold differently than internal combustion engines -- just as Apple had to develop new business models to sell smartphones. Imagine -- and it's just as feasible as GM's current lease offer -- that you could buy a Volt, or a Nissan LEAF, for the same price as its gasoline equivalent -- the Cruze or the Versa. The same price! There would be a catch; to qualify, you would sign a five-year fuel contract requiring you to buy all of the electricity you needed for your car for the equivalent of $3 per gallon. You would get a better car, and guaranteed protection against future increases in the price of gas, for no additional purchase price. Your risk? Gas averages below $3.

This is how smartphones are sold. The upfront cost of the phone is recovered through a service contract -- and in my model above, over five years the owner of the new electric car would pay the current sticker price of a Volt or LEAF -- because they would pay a premium for the electric fuel they use.

But the car would cost less upfront than a gasoline model, and fueling the car would also cost less (unless gas averaged below $3 a gallon over the five-year period.)

So Barrier One is that the auto industry doesn't know how to sell electric cars. Electrics are smartphones, and car companies are like the old clunky AT&T monopoly -- after all, they still haven't figured out how to sell them for a fixed price!

Barrier One is critical, because if GM offered a version of my fuel contract for the Volt, sales would leap, and volume would follow, and GM would make money. In turn, the auto industry would quickly solve Barriers Two and Three.

Barrier Two is the slow development of a critical primary technology -- batteries. The Volt and LEAF have a high sticker price -- about $15,000 higher than their gas equivalents -- mainly because of battery cost and performance. Full electrics don't get the range American drivers need for the same reason. (Even my fuel contract sales model for electrics requires the $7500 federal rebate to pay off the auto companies -- that $7500 is about the actual economic cost premium for an electric car with gas at current US prices.)

Advanced battery companies have been suffering in the market -- one, two, three, just went into bankruptcy -- because the early electric cars that were their market haven't been selling fast enough. So getting sales of the Volt, LEAF and other early electrics up fast is a key to solving the battery problem.

The final barrier is that the necessary enabling technologies for electric cars are not in place because there has been a lack of certainty that electrification was the future. In 1910 about 1/3 of the cars on the road were electric -- and steam engines were widely viewed as the future. The internal combustion engine's lock on the auto market arrived only in 1915 when Charles Kettering invented the self-starter, which neither electrics nor steam cars needed. Electric vehicles are a fundamental shift from the internal combustion drive train, and enabling technologies keyed to them have not yet been perfected. Weight is key, because energy density with electrics is lower than with gasoline -- so approaches like those embodied in the XPRIZE winner Edison2's Very Light Car are incredibly important -- and perhaps four to five years from maturity. Right now companies like Edison2 have a hard time raising capital because the market for weight reduction technologies -- like in-wheel suspension -- grows much faster in an electric car world than in one still dominated by internal combustion engines.

So there are three barriers -- two of them technological -- blocking the electric vehicles from dominating the auto market. But the important barrier is not technical at all; it is adopting the appropriate business model and selling innovative cars like innovative smartphones with a low upfront cost recovered with a fuel service contract.

A veteran leader in the environmental movement, Carl Pope is the former executive director and chairman of the Sierra Club. Mr. Pope is co-author -- along with Paul Rauber -- of Strategic Ignorance: Why the Bush Administration Is Recklessly Destroying a Century of Environmental Progress, which the New York Review of Books called "a splendidly fierce book."