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The Outlook for Electric Vehicles

Sigma Investment Counselors

January 6, 2017

With the recent introduction of the Chevrolet Bolt EV (electric vehicle), some clarification as to consumer acceptance of EVs may emerge.

U.S. sales of EVs have been statistically insignificant, with full year unit volume likely to come in below 150,000 compared to total 2016 U.S. vehicle sale of approximately 18 million units.  Based on reported sales through November of approximately 130,000 vehicles, Tesla is the clear leader with 40,756 cars and SUVs, and the Chevy Volt is a distant second with 21,048 units.  However, aggregate EV volume is very small and Tesla’s current models are in the luxury category and sell best in markets with significant incentives.

GM’s latest entry in the EV sweepstakes is the Chevy Bolt.  Bolt deliveries have started, albeit at a low rate.  Tesla hopes to begin deliveries of its Model 3 towards the end of 2017.  While these two vehicles have significant points of comparison, particularly in the areas of price and range, significant differences may surface once both vehicles are on the road, generally available and the market votes.

EV pricing is likely to become a material issue.  Currently, significant government incentives are generally available to purchasers of EVs, which reduces the net purchase price.  In addition, press reports suggest that GM may be absorbing a loss, on the order of $9,000, on each Bolt sold.  Combining the incentives and the reported loss per unit, suggests that successful, market based, volume production may require demand for EVs at considerably higher prices than current retail prices.  The big question is can the industry develop an acceptable, affordable, mass market EV?

Part of the problem relates to regulation.  Vehicle manufacturers are currently working to meet multi-state mandates respecting ZEVs (zero emission vehicles) and escalating state and federal fuel economy requirements.  At this writing, customers have not shown much interest in small, fuel efficient and/or low emission vehicles.  Demand for trucks, SUVs and large cars is at record levels.  This suggests that full line vehicle manufacturers are going to have to deliver mandated vehicles, perhaps at any price, in order to be able to continue to sell highly profitable larger vehicles.

Investors should consider that this could lead into a very competitive, but not necessarily profitable, market for ZEVs, EVs and small cars.

Walter J. Kirchberger, CFA®

 

 

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