The Electric Car Revolution Tesla Began Faces Its Biggest Test

Are electric cars ready to stand on their own? 

If you took a spin down to the New York International Auto Show last week and saw the $37,500 Chevy Bolt (electric) parked next to the strikingly similar $17,000 Chevy Cruze (gasoline), the answer is probably a hard no. The Bolt is arguably a better car than the Cruze—but not $20,000 better. 

Edmunds, the car-research company, recently weighed in with a hard no of its own, warning that the elimination of a $7,500 U.S. tax credit is “likely to kill [the] U.S. EV market.” Edmunds pinned its argument on what happened in Georgia, a state that became an unlikely leader in electric cars thanks to an extra $5,000 incentive. At one point, almost four percent of new cars being sold in Georgia were electric. Then they pulled away the punch bowl. 

The question of when electric cars will cost the same as their combustion counterparts isn’t academic. The $7,500 federal incentive is set to taper off as each manufacturer reaches its 200,000th U.S. sale. For Tesla, that day will arrive sometime next year. Nissan and GM won’t be far behind—and any extension of the subsidy by the Trump administration seems unlikely.  

Another thing that makes electric cars more expensive is that, at lower volumes (less than 100,000 a year of the early models), even the traditional components of a car come at higher costs. Low production numbers and high battery development costs created a valley of despair for EVs that lasted decades, which is why subsidies have been critical to giving the sector enough breathing room to eventually stand on its own. 

Government incentives were crucial to the birth of the EV industry, and many countries and local governments will continue to offer them because of the critical role electric cars play in reducing pollution and combatting climate change. 

But even where governments are less enlightened, the valley of despair is coming to an end. Tesla, the first to approach price and function parity in the Model S sedan and Model X SUV, will attempt to recreate that magic later this year with the Model 3, a $35,000 entry-level luxury sedan. A longer-range Nissan Leaf will be unveiled in September, and depending on its pricetag, it could begin to approach the parity zone in the sub-$30,000 market.  

And then watch out: In 2018, Volkswagen plows into electrification with an Audi SUV and the first high-speed U.S. charging network to rival Tesla’s Superchargers. Jaguar and Volvo both have promising cars on the way too, and by 2020, the avalanche really begins, with Mercedes, VW, General Motors and others releasing dozens of new models.  

When the U.S. incentives begin to expire next year, don’t expect a Georgia-sized collapse in the market. The period of greatest peril is ending for EVs, and the time of greatest promise is beginning. All the top carmakers are investing billions of dollars to electrify their drivetrains, and the smart ones will compete aggressively on pricing in the short-term in order to establish market share for the long haul. Incentives are important, but they won’t define the market for much longer.

About BloombergNEF

BloombergNEF (BNEF), Bloomberg’s primary research service, covers clean energy, advanced transport, digital industry, innovative materials and commodities. We help corporate strategy, finance and policy professionals navigate change and generate opportunities.

Available online, on mobile and on the Terminal, BNEF is powered by Bloomberg’s global network of 19,000 employees in 176 locations, reporting 5,000 news stories a day.
 
Sign up for our free weekly newsletter →

Want to learn how we help our clients put it all together? Contact us