Sticking to Electric

On July 18, the U.S.

On July 18, the U.S. Department of Transportation (DOT), the U.S. Environmental Protection Agency (EPA), and the California Air Resource Board (CARB) released the draft Technical Assessment Report (TAR) for the mid-term evolution of the National Program for greenhouse gas emissions and fuel economy standards for light duty cars and trucks. It covers the standards for model years 2022 to 2025.

One of the big concerns voiced by some people in the industry is that the implementation of the technologies necessary to meet the proposed regulation would add several thousand dollars to the cost of new vehicles, which would have the consequence of cratering the car market, which would lead to reductions in jobs in the auto sector, which would have deleterious effects on places like the Midwest and Southeast.

Model3

Model 3

According to the executive summary of the TAR: “the projections for the average per-vehicle costs of meeting the MY2025 standards (incremental to the costs already incurred to meet the MY2021 standard) are, for EPA’s analysis of the GHG program, $894 - $1,017, and, for NHTSA’s analysis of the CAFE program, $1,245 in the primary analysis using Retail Price Equivalent (RPE), and $1,128 in a sensitivity case analysis using Indirect Cost Multipliers (ICM). In the 2012 final rule, the estimated costs for meeting the MY2022-2025 GHG standards (incremental to the costs for meeting the MY2021 standard in MY2021) was $1,070.”

A cost premium, yes, But according to the summary, “EPA’s analysis indicates that, compared to the MY2021 standards, the MY2025 standards will result in a net lifetime consumer savings of $1,460 - $1,620 and a payback of about 5 to 5 ½ years. NHTSA’s primary analysis indicates that net lifetime consumer savings could average $680 per vehicle, such that increased vehicle purchase costs are paid back within about 6 ½ years, and $800 with payback within about 6 years in a sensitivity case analysis using ICMs” (indirect cost multipliers).

On August 2, a lively discussion was held at the CAR Management Briefing Seminars related to the subject, with (1) Christopher Grundler, director, Office of Transportation Air Quality, U.S. EPA, explaining it; (2) Mike McCarthy, chief technology officer, ECARS Division, California Air Resources Board (CARB), explaining what is occurring out in California; (3) Mitch Bainwol, president and CEO, Alliance of Automobile Manufacturers; John Bozzella, president and CEO, Association of Global Automakers, pretty much explaining that consumers aren’t interested in buying vehicles like hybrids and electric vehicles as those types of vehicles are more expensive than good-old internal combustion-engine cars and trucks; and (4) Wesley L. Lutz, owner of Extreme Chrysler/Dodge/Jeep/Ram pointing out that plenty of potential customers either can’t afford new vehicles or can’t get financing for new vehicles, and adding costs onto already expensive vehicles will make things even more difficult for them.

And then there was Diarmuid O’Connell, vice president, Tesla Motors, who said he’d read the full TAR, but as Tesla is already producing zero-emission vehicles that are electric, that perhaps more of an intellectual exercise than something to be met with fear and loathing.

O’Connell, who noted that there are some 373,000, $1,000 preorders for the Tesla Model 3, something the likes of which the auto industry has never witnessed, pointed out that while there may be weak consumer interest, as Bainwol and Bozzella cited, chapter and verse, he suggested that perhaps when it comes to the traditional auto industry and electric vehicles, it “probably not even trying.”

And to that end he rolled out the marketing element of Philip Kolter, who stressed the importance of Product, Price, Place, and Promotion.

For the first, product, he said that what’s mainly on offer by companies including Nissan, Kia, BMW, and Chevrolet in the EV space “simply aren’t compelling.” He likened them to major appliances.

He showed that many of the EVs are modified versions of existing products and yet they come with a significant price premium (why would you opt for the EV?).

“Place” is a question of where you can buy them, and he noted that (1) states like Michigan don’t allow the Tesla direct sales model, so it isn’t surprising that in Detroit there are 1,950 gas sedans for every electric vehicle and (2) dealers that have EVs on their lots along with gasoline powered cars tend to be gasoline-engine oriented.

And as for Promotion, he points out that there is very little advertising support for the products. (Tesla hasn’t spent any advertising dollars, it should be noted, but its overall visibility probably wouldn’t be much enhanced were it to.)

All of which seems to indicate that right now there isn’t a whole lot of compelling reason why anyone would buy an electric vehicle—unless, of course, it is something that is in itself compelling on various metrics, such as range, performance, and safety.

And which, like the Model 3 is supposed to, has a comparatively affordable price, (for the Model III the suggested price point is $35,000; given that the average price of a new car is $34,000, it doesn’t seem as though that is consumer crippling).