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Electrical Vehicles or EVs have created a flurry of activity in the automobiles market. With the Obama Administration setting up a target to roll out 1 million electric cars by 2015, mega-auto companies remain on their toes to execute the mandate. However, going by historical records and the present economic scenario, we wonder if this frenzy for electric cars will last or flame out like a shooting star.

Much has been said about the upsurge of EVs such as plug-in-hybrid cars and plug-in electric cars. The slow but keen interest in this space across the globe has made car manufacturers sit up and take notice. This is because they are all keen on grabbing a slice of this emerging segment.

However, what is to be noted here is nothing much has been done on the underlying issues that continue to create roadblocks for significant adoption of this concept. Right from the lack of awareness among the end users, limited reach of this product given unaffordable price tags and lack of adequate charging station, in particular for pure electric cars compel us to hold back our views on the growth trajectory of electric cars. 

Although the government has been taking several measures to improve this scenario, we believe a lot is left to be desired that leads us to a reality check.

Federal Mandate

Not just the growing awareness on fuel economy but enforcement of several environmental protection acts also backed the use of alternative fuel vehicles such as EVs. Environmental Protection Agency (EPA) and Department of Transportation (DOT) have worked together to form Federal Corporate Average Fuel Economy (CAFE) standards in 2010. According to the new regulation, automobiles covering model year 2012-2016 need to have fuel economy standard of 34.1 miles per gallon.

If these standards come into action, various studies project that green house gas emission to reduce by 950 million metric tons. Further, fuel economy would be of 1.8 billion barrels over the lifetime of the vehicle. Financially, market reports suggest that average price of a new car may rise by $985 but in terms of fuel savings, the average consumer will gain around $3,000 over the life of a vehicle.

Electric Cars – Rise and Fall

One might think that electric cars are an emerging concept and a product of the 21st century. But, surprisingly, this technology dates back to the 19th century. These were invented in 1828 by Hungarian physicist and engineer, Ányos István Jedlik. However, developments in the genre of electric cars took a back seat after the internal combustion engine technology came into the picture. It wasn’t until the late 1960s that the interest in electric cars saw a revival due to environmental issues and adverse impacts of green house gas emission associated with modern day’s gas guzzlers.

One of the major turnarounds for electric cars was the energy crises in the 1970s that continued for a decade due to political volatilities in Arab countries and the Iranian revolution. It was then that the most popular electric car model – CitiCar – was developed and marketed by Fla.-based Sebring-Vanguard, Inc. Other prototypes of electric cars – Electrovair and Electrovette – were being developed by General Motors Company (GM - Analyst Report) but failed to hit the road.

Overall, these developments were short lived and failed to make an impression in the commercial space due to several associated drawbacks, the major being high expenses. Further, in 1970s, Japanese automobile companies like Toyota Motor Corp. (TM - Analyst Report), Honda Motor Co., Ltd. (HMC - Analyst Report), Mitsubishi and Mazda were gaining mass popularity given their fuel efficiency and affordability, which affected the market for electric cars in the U.S. and overseas.

Current Scenario

Presently, the U.S. remains the largest market for EVs. According to market reports, the country accounted for over 70% of the market share in plug-in-hybrid cars sales. Further, the nation comes a close second to Japan in terms of pure electric car sales with over 25% market share.

The economical turmoil in 2008 and upsurge in oil prices once again gave rise to the need for alternative fuel vehicles. Turning over a new leaf, the auto industry geared up to develop electric cars for the new era. In 1996, General Motors rolled out the first-ever mass-produced electric car, GM EV1. Despite a positive market response, the company rolled back from the market in 1999, citing poor scale of economies.

One of the most prominent success stories in the U.S. market has been Tesla Roadster, launched in 2008 by Tesla Motors, Inc. (TSLA - Analyst Report). After initial hiccups, the company gained wide popularity by producing the fully electric sport car Tesla Roadster, followed by the luxury Sedan, Model S.

Following this, ace auto manufacturers across the globe took up the electric car challenge. This resulted in a wide range of EVs, including the top selling pure electric car – Leaf – by Nissan (NSANY). Plug-in-hybrid cars like Chevrolet Volt and Toyota Prius PHV also gained popularity.

Growth Trends

We believe the growth rate of electric car is still at an embryonic stage. According data available in the market, the segment registered growth of only 0.37% in 2012, followed by 0.53% growth in its market share in the first quarter of 2013. According to reports from Navigant Research, market share for pure electric cars will be somewhere around 3% of the global light-duty vehicle market by 2020.

According to studies conducted by Pike Research, the one million mark in pure electric car sales would be reached no sooner than 2018, which is a significant delay from the target set by the Obama Administration. Studies also show that the U.S. will account for only around 410, 000 pure electric cars on road by 2015.

Although the auto industry has undertaken substantial measures to popularize electric cars, its lack of enthusiasm is what is holding it back. In Apr 2013, while launching the new Fiat 500e electric car, Chrysler CEO Sergio Marchionne stressed the fact that the market is not ready for the electric car revolution in automobile technology.

He also quoted that technology isn’t a sound business strategy, preferring natural gas as a better answer in the current market. Further, the US Department of Energy has estimated 250,000 electric cars to hit the road by 2015, which is merely 0.1% of the domestic car market.

Where Does the Future Stand?

We believe that the big question is still whether electric cars have really made an impact on consumers to establish its presence. A big hurdle in popularizing electric cars is the price point at which most pure electric or hybrid cars are sold.

These cars are considerably pricier than conventional internal combustion engine cars or for that matter natural gas vehicle. For instance, the current price for Nissan Leaf in the U.S. is somewhere around $28,000 while the gasoline powered Nissan Versa is around $17,000.

On average, an electric car costs almost $12,000 higher than conventional cars as per the analysis of Congressional Budget Office. Recent studies project that despite heavy government subsidies, electric cars will likely become competitive with traditional vehicles in number by 2032.

In a consumer-driven market, pricing can make or break the future for electric cars, which we believe is mostly dependent on the use of expensive battery technology. Currently, the market for advanced battery manufacturing is still at a nascent stage and with less attention from Fed and lack of proper stimulus had resulted in poor advancement in making it more economically viable.

Most of the impediments in establishing the electric car market are associated with this core technology including inconvenience in recharging, limited driving time and higher cost of maintenance.

We believe cost, durability, maintenance and safety are the major concerns associated with battery technology that needs Federal intervention for its economic viability, especially for utilization in electric car manufacturing. If these issues are resolved and structural implementation of government mandates on environmental policies are made, we foresee a smooth journey for electrical cars. Needless to mention, an essence of emergence has yet to be felt.

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