The Fuse

Despite Sales Lags, Electric Vehicles Setting New Standards for Performance and Quality

by R. Kress | September 03, 2015

The headlines are facile: When gas and oil prices drop, so too do sales of hybrid and electric vehicles. As oil prices continue their year-long slump, many argue that it’s now harder than ever to convince the mainstream consumers that an electric vehicle is the savvy purchase. But booming sales of the Model S suggest that there is more to the picture.

“There’s a correlation but it’s not a causation,” Tony Seba tells the Fuse. He’s the author of Clean Disruption of Energy and Transportation and is a lecturer at Stanford University. “[Low gas prices] are not necessarily the cause of EV sales going down.”

Seba cautions that it’s important to note the manufacturers of the cars to get a true picture of sales trends.

For example, in August of 2015, only 1,393 Nissan LEAFs were sold—paltry volumes compared to August 2014 when Nissan moved some 3,186 LEAFs. Last month, the average price for a gallon of gas was about $2.65. A year ago, gas was $3.43. This has driven the widespread assumption of a causal relationship between gasoline prices and EV sales.

The Tesla factor

But the picture changes when one looks at sales figures of luxury vehicles, especially Tesla, which has seen sales rise every year—with little regard for volatile gas prices. In August of 2015, Tesla sold 1,300 of its Model S cars. At the same time in 2014, Tesla had sold only 600. While some of those figures reflect the fact that Tesla as a company has grown year over year, there are also other factors at play.

“Who wants to launch and market a product that’s going to disrupt your esteemed cash cow?”

“A company is not going to disrupt itself,” Seba explains. He argues that conventional auto manufacturers are, for the most part, going to create EVs that do lip service to regulators. If a large-scale automaker sells millions of cars in a year, why threaten that business model with a serious EV push? “Who wants to launch and market a product that’s going to disrupt your esteemed cash cow?”

Instead, auto manufacturers are developing what Seba calls “compliance cars”—or EVs that lack the performance and excitement to woo consumers away from their internal combustion engine cars. On the lot, dealerships make little effort to convince buyers that these cars are the right purchase.

“Conventional car companies make a lot of money on the back end. Gasoline cars break down all the time. Their business model is to make money on the maintenance and repairs,” Seba says, citing the fact that internal combustion engines have up to 100 times the number of moving parts that an EV has, making them much more susceptible to breaking down—an inconvenience for the driver, but a money maker for the dealership. “So when you’re at a dealership and they have an EV sitting next to a gasoline car, what do you think they’re going to push? It makes economic sense for them to push the gasoline car and not the EV.”

Breaking new ground in vehicle performance

But for Tesla, there is no intra-organizational competition: The company is playing purely in the EV space. As a result, the company is growing in sales year-over-year and breaking records when it comes to performance. Evidence that Tesla is truly changing the game is the recent news that the Tesla Model S P85D broke the Consumer Reports ratings scale, forcing the publication to recalibrate how it ranks auto performance. “The P85D is brutally quick, with instant acceleration,” Mark Rechtin writes for Consumer Reports. “The car’s thrust is forceful and immediate. Its near-instant g-forces can otherwise be achieved only by leaping off a building—literally.”

These kinds of breathless reviews upends the naysayer narrative that consumers only purchase electric vehicles out of a sense of environmental obligation, or a desire to save money on gas. Now, people are buying Teslas because they’re the best cars on the market.

“The whole propaganda from the conventional car industry and the oil industry has always been that these EVs are the underpowered cars for hippies and environmentalists that don’t care about performance,” Seba says. “The most important thing that [Tesla’s Model S] does is that it changes perceptions and changes the whole conversation around EVs.”

Seba also raises another important lesson the conventional automakers can learn from Tesla: If you build a great car, people will buy it.

“The people who are buying the Tesla Model S are not buying it to save on gas.” Seba says. “These are the folks who would have otherwise bought a BMW or a Ferrari or a Mercedes—these are the people who want the best car on the market.”

The record-breaking Tesla Model S P85D retails for a base price of $104,500—a price well outside the budget of the typical car buyer. By 2017, Seba estimates that the EV market will have become more mainstream. At that point, manufacturers—including Tesla—expect to have cars on the lot in the much more manageable $35,000 to $40,000 price point with the ability to go more than 200 miles on a single charge. “That’s when you’ll see mainstream buyers come in to the dealership and look at the EVs in a serious way that includes cost comparisons.”

Next generation LEAF and Volt coming soon

There are reports that the 2017 Nissan LEAF will have almost double the range of the current version, while the 2016 Volt is designed to be significantly less expensive, but with an expanded all-electric range.

His prediction is likely to coincide with the availability of new and better offerings. While sales of the Chevrolet Volt and Nissan LEAF have underperformed in 2015, it’s unreasonable to attribute the weak sales purely to low gasoline prices. Many interested buyers may be waiting on the pending second generation models, both of which are expected to be released within the next 1-2 years with massive performance enhancements. For example, there are reports that the 2017 Nissan LEAF will have almost double the range of the current version, while the 2016 Volt is designed to be significantly less expensive, but with an expanded range and improvements on “every measurement.”

While it’s fair to say that low gas prices are having some impact on EV sales, it’s important to keep these figures in context. The electric vehicle industry is continually improving and creating better offerings, while certain players are redefining the standards of automotive quality.