Tuesday, January 13, 2009

Three Models Emerging for Electric Car Makers

Electric/hybrid cars are getting a lot of attention in Detriot this week. Just forget for a moment that people stopped buying Priuses as they rolled off the assembly line during the last half of 2008. Also forget that, with lower gasoline prices in the US, it now takes 8 eight years to pay off the hybrid vs conventional gasoline price differential rather than the 3 years it would have taken with fuel at $4/gallon.

An article in today's LA Times notes that some companies, like GM and Toyota, either already have or are building their own battery plants. Other companies, like Ford, see no reason for branching into a new field and are instead outsourcing their battery needs.

So we have the emergence of two models here:
1. Carmakers that also make their own batteries.
2. Carmakers that outsource their batteries.

Add to that the BYD model:
3. Battery makers that also make their own cars.

Let a hundred models bloom, and let's see where this all leads...

Meanwhile, few Chinese are likely to cough up the equivalent of $22,000 for BYD's plug in hybrid which, on the outside, looks like a warmed-over Toyota Corolla from a few years back. Also, with gasoline as cheap as it is in the US, few Americans outside of Hollywood are going to spring $40,000 for the Chevy Volt when (if) it comes out next year.

The truth is that the market is not going to make alternatively powered vehicles a winning proposition for auto companies that are driven by shareholders to maximize returns. Somehow, the prices of conventional and alternative vehicles need to be equalized, and that can only happen by making it more expensive to drive a gasoline powered vehicle or less expensive to drive a battery-powered vehicle -- or some combination of the two.

China's State Council is already talking about lowering the cost of electric/hybrid vehicles. What will the new Obama administration do? The recent auto bailout forces US automakers to make these vehicles, but as nearly as I can tell (and I could be wrong), there are no provisions to encourage Americans to buy them.