The Lower Priced Electric Car Conundrum

By Bill Moore

Posted: 27 Nov 2009

If you're in the market for consumer electronics, brother you can you find some deals out there right now. Laptop computers, LCD flat screen televisions, digital cameras; take your pick: not only are they more capable than last year's models, they're also cheaper.

Which raises an interesting question for the automotive industry. How do you introduce the electric cars of the future that have better performance in terms of range, acceleration and amenities that, at the very least, cost no more than current models, and for competitive reasons, need to be priced less, just like that Dell computer, Sony TV and Nikon digital camera?

Think about it for a moment. Let's assume that at some point in the not too distant future, lithium ion batteries or some even better successor like bio-based polymer batteries become relatively inexpensive, low profit margin commodities. Additionally, the supply chain of electric car components has grown competitive enough to see those costs begin to rival those of the engine and transmission network of the last century. At some point, carmakers could find themselves confronted with a conundrum: how do you offer a better model for less money?

This is something with which the industry hasn't ever had to come to grips. New car models have largely always been expected to cost a little more each year, a few hundred, a couple thousand to pay for more horsepower, roomier interiors, more amenities. Gradually, over the decades, the price has slowly edged up from the $5,800 I paid for my first new car, a 1979 Mazda 626 to the $28,390 it now costs to buy a 2010 Mazda 6 S Grand Touring.

Seldom, to my knowledge -- with the exception of Honda's new Insight -- has a new model with more room and features, if not fuel economy -- cost nearly the same as the model it replaced. Toyota responded to the Insight threat by offering essentially a stripped down version of the Prius, a model with fewer amenities, not more. I would suspect that the 2012 Insight will cost more than the 2010.

The two leading start-up plug-in car manufacturers -- originating in Silicon Valley or funded by it -- are attempting address the question based on manufacturing scale. The $108,000, two-place Roadster will be joined by the $57,000 Model S family sedan offering three range options sometime around 2012. Fisker's successor to its luxury Karma -- priced at nearly $90,000 -- is targeted to cost somewhere around $40,000, give or take. Both companies, it appears, believe they can offer comparable or better vehicles at substantially lower prices.

But how will the Big Three and their competitors deal with this situation from a marketing point of view? Can you imagine advertisements someday stating, "Come in and see the new 2018 Ford Focus all-electric car with more power, better range, faster recharging and best of all, costing $400 less than last year's model?"

Will the answer be to simply use model differentiation? Rather than the 2018 Focus competing with the 2017 model, maybe Ford introduces a new model, say the Fastlane and its base sticker price is less, while performance is improved. Electronics makers are wizards at this approach, but designing a new car platform that has to be safe and profitable isn't the same as redesigning a camera or cellphone.

Take the Coda, for example. It's probably going to cost around $40,000, maybe a little less, say $38,900. There will be a market for an all electric car priced at this level, but not a huge one, initially. How does the company get from this market segment to a larger one with a lower priced model priced below $30,000 and then below $20,000? Eliminate features, reduce battery size, cut manufacturing costs, introduce new distribution and sales models? Maybe all of these.

Clearly, if the electric car follows the consumer electronics industry, it will have to develop strategies that allow it to increasingly penetrate more market segments. When a laptop cost $3000, the market was limited to business people and wealthier middle class families. With Netbooks now costing under $300, just about anyone can afford a pretty capable computer. That and cup of coffee at Starbucks will get you on the Internet.

Will electric vehicles have to follow a similar track if they are going to migrate their way into more and more people's lives?

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