Why U.S. electric vehicle sales are booming

There is clearly a market for electric vehicles. But at what cost to automakers?
Written by Tyler Falk, Contributor

It isn't just Tesla that's having a good year selling electric cars in the United States. So far, in 2013, overall sales of electric vehicles continued their steady rise through the first half of the year.

According to the United States Department of Energy, around 40,000 plug-in electric vehicles were purchased by Americans in the first six months of 2013, that's more than double the amount sold throughout the same period last year. In 2012 there were 52,000 EVs sold, which was an increase from 17,000 in 2011.

Compared to hybrid cars -- which took about a decade to catch on in the U.S. and now represent four percent of the total car market -- electric vehicles are doing better, historically, than hybrids after their first 30 months on the market. There were about 3,000 hybrids sold per month 30 months after the cars were first introduced. Over the same time period, plug-in electric vehicles are selling at a rate of about 9,000 per month. In fact, over the last six months, battery-electric cars actually outsold plug-in hybrids.

But all is not necessarily well for electric carmakers. While sales numbers continue to grow, automakers are slashing prices for electric vehicles (and, in the U.S., that's on top of a federal tax credit and other state and local incentives for electric car buyers). The latest example is BMW which announced a lower than expected price today, for its new i3, of $41,350 (before any tax credits). Ford has also cut prices for the 2014 Focus EV by $4,000 and the cost of the Nissan Leaf was lowered by $6,400 this year. That's great news for consumers, not so much for automakers. But, as Time points out, it does show that there's a market for electric cars if the price is right.

Of course, the main challenge for electric carmakers is that batteries are so expensive. Reducing prices to get consumers in electric cars now means that electric carmakers are betting that the batteries will get less expensive in the future, because raising prices will not be an option.

“With prices coming down, consumers already on the fence may continue to wait and see if even greater discounts will come later in the year or next year,” as Kelley Blue Book senior analyst Alec Gutierrez told Time. “This will make it quite difficult to command higher prices in the future, which will make profitability more difficult to achieve. Until battery costs come down, manufacturers will continue to find it difficult to make a profit on EVs, especially knowing that consumers are really only jumping into the segment when the price is right.”

The bottom line: Electric car sales continue to rise in the United States thanks in large part to automakers reducing EV prices. Whether the industry can grow the market and profit is yet to be seen.

Photo: Flickr/Ian Muttoo

This post was originally published on Smartplanet.com

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