Roadblocks for the Electric Car

Rachel Haig: I'm Rachel Haig for Morningstar.com. We're right before the Chicago Auto Show and I'm here with Morningstar's auto industry analyst Dave Whiston.

Thanks for joining me, Dave.

David Whiston: Thanks, Rachel.

Haig: A big thing that's been in focus lately is alternative energy. What are you seeing in that area?

Whiston: Just like at last year's shows, we're seeing the ongoing momentum of electric vehicle technology, in particular. In terms of mass market models, the Chevy Volt and the Nissan Leaf will be out in late 2010.

The Volt was on display at last year's show. They'll probably have it again because it's going to be a big halo car for GM. And last year they did display the Cadillac Converge concept, which is basically taking the Volt to the Cadillac luxury platform. Since last year's show they've announced that GM will actually make that car, so we'll see more of that.

But we're also seeing just a huge influx of other electric vehicle OEMs [original equipment manufacturers]. Some on the very high end, luxury sports car end, like Tesla Motors and Fisker. But you're also seeing things like Think from Norway, or I believe it's the Tango from the Pacific Northwest.

And then there are tons of these electrical vehicles that are just very impractical-looking. Some of them have been coming out of Japan actually. They've got eight wheels and things like that. It's exciting from a technological point of view, but from a practical point of view it's not a very attractive move.

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Haig: So ... the idea that you can go somewhere without any gasoline is cool, but how far can they really go? It sounds like you don't think they can ever actually be practical for family use or if you're going on road trips.

Whiston: Long term the key issue right now is the cost of these lithium ion batteries. That's what gives the car the extended range. And right now those are still incredibly expensive. Those are sometimes half the cost of the vehicle, even for an OEM that has some scale, like GM with their Volt, for example.

That's a huge challenge, and I don't know if that's ever going to be overcome, honestly. It's going to depend on how accessible lithium is over the coming years.

The range though; it could be there. GM and Nissan are taking slightly different strategies to this. The Volt, it's an electric vehicle for the first 40 miles, and then after that there's a generator that can kick in and provide more power. So you can go, I want to say it's 300 miles.

Whereas the Nissan Leaf is a pure electric, 100-mile charge on electric, and then after that you need to find an outlet or you're going to be stranded. So a different angle there. Nissan wants customers to lease the battery, too, to make it cheaper for the customer. But that's still going to make it unprofitable for Nissan to make.

And then some of these other ones, like the Tango for example, it's a very ugly-looking car. I don't know why anyone would buy that, quite honestly. George Clooney made a big splash with one, paying over $100 grand for it a few years ago.

But when you look at it, you say, "If I'm going to spend that kind of money, I'm going to spend it on a Telsa or a Fisker or a sports car." But even those are just really cars for rich businessmen, frankly, who want them as toys.

Haig: In terms of momentum to develop better electric vehicles, do you think with gas prices lower that's been lost?

Whiston: That's part of the problem. Even when we were at $3.50 or $4 a gallon in the States back in '08, even then that's pushing more into hybrids. There's certainly going to be a huge initial adoption of electric vehicles, but after that I just don't see any incremental demand.

It's going to be a lot like what's happening with the Smart Car, honestly, which is Daimler's ultra-compact. It took off really well, and it also was introduced in '08 when there were high gas prices, but since then its sales are down 84% year after year because once the initial adopters bought one, no one else really wants one. It's not practical.

And I think electric's going to take that same path. Because you'll have consumers that really want that Volt or that Leaf and they will run out and buy them in late 2010 and 2011.

But after that, gas has really got to skyrocket well over $4 a gallon to make a lot of consumers want an electric vehicle. They're just too expensive.

Haig: In the auto industry just broadly now, obviously the main headline has been Toyota and their recall problems. Do you think that the big three can benefit from that? Especially after the government bailouts, do you think that they can really show that they have something to offer?

Whiston: I would limit it just to the big two, unfortunately, because Chrysler just doesn't have any car product right now, and they're not going to until Fiat can get their Fiat models in. That's still a couple of years away.

But in terms of the Toyota recall, I do see GM and Ford benefiting quite a bit from that, in addition to Honda and Nissan and Hyundai in particular. What it does is it brings Toyota down a level and puts them on a more equal playing field with everyone else, because Toyota can't really differentiate themselves on quality anymore. They need to make their vehicles more exciting, and that was true even before this recall happened.

But now you've got GM and Ford, they've always had some great products, honestly. The past several years they've done a fantastic job reinventing their car portfolio and getting away from being so light-truck-reliant. They just need to get more consumers into the showroom.

One vehicle that'll be at the Chicago Auto Show is the 2011 Buick Regal. It's really meant to get a younger consumer into the Buick showroom, because it's a performance sedan.

Haig: All right. Thanks for sharing those insights.

Whiston: Thank you.

Haig: I'm Rachel Haig for Morningstar.com, tune in later this week for more coverage of the Chicago Auto Show.