Cheap gas kills electric cars, every time.
An electric car would fit my lifestyle perfectly. We bought the hamster five years ago and it now has a whopping 20,000 miles on it. We rarely drive it more than 50 miles at a time - to the grocery store and back. And yes, they even make (or made) an electric version of the hamster. So why didn't we buy one?
Well, the simple reason was, for less money than the electric version (or indeed almost any electric car sold today) we bought a fully loaded regular hamster with heated and air conditioned nappa leather seats, panoramic sunroof, Infinity sound system and so on and so forth. Even with a tax credit for buying an electric car, I came out ahead with the gasoline-powered one.
Granted, if I kept an electric car for seven years or more (depending on the price of fuel) eventually, I would have come out ahead with the electric car. But that assumes I would be driving the industry standard 15,000 miles a year (as opposed to 4,000 miles a year) and that gas consistently stayed at $3 a gallon or more. As it is, the electric car would never have paid back its delta in cost, based on my driving lifestyle.
That also doesn't take into account depreciation. As some automotive journalists have noted, many electric cars sell very cheaply on the used market, as they no longer qualify for tax credits, and many folks are nervous about buying a used electric vehicle (but probably shouldn't be). If you live in an apartment or condominium, an electric car may be a non-starter in any event, as you have no way to plug it in, unless your condo association or landlord is forward-thinking enough to install charging stations (or you can charge at work). Thus, the resale market for these cars is still limited at the present time which may explain the lower resale values.
When you factor in depreciation, you may never come out ahead in an electric car. When you factor in lower annual driving miles, this all-but-guarantees it. When you factor in 99 cent gas - well, electric cars make no sense, financially, at all.
Cheap gas kills electric cars, as I noted before, and the irony of the electric car is that every one sold (and this includes hybrids, too) drives down demand for gasoline, which in turn means the price of gas goes down, which in turn means electric cars will always be hovering at the edge of "what if" as they put themselves out of business.
Of course, if an installed base of electric cars was large enough, charging stations would be everywhere, and demand for gasoline would drop to the point where people would stop selling it and gas stations would close. This already has happened to some extent - notice how many boarded-up gas stations there are in America? Once upon a time, a Mom-and-Pop gas station and garage could stay in business pumping gas with "gas jockeys". The large multi-pump gasaterias put them out of business, with prices so low, the small shops could not compete.
If electric cars became the predominate form of transportation, gasoline would be an esoteric fuel, available like "racing gas" is today - at specialty retailers - or sold in gallon packages to antique car enthusiasts. So eventually, the price of gas will go up to the point where no one will buy it, perhaps, someday. But not today.
To get to that point, electric cars have quite a hurdle to jump.
Lately, it seems this hurdle has gotten a lot higher. Due to the Corona Virus killing off demand, the price of oil has plummeted to negative values (in the futures market) and gasoline is dropping daily - to $1.50 here, and some are reporting to less than a dollar-a-gallon in some places. Of course, this is likely a temporary blip on the radar, as the economy slowly recovers and people drive further and further. Nevertheless, many smaller oil exploration companies will go bust, and their oil wells will sell at bankruptcy auctions for pennies on the dollar, meaning the cost of production will go down, and prices may remain low for a long while.
Already, the major car companies are delaying introduction of all-electric models by at least a year or two. There simply isn't demand for them today, and with sales in the bucket, well, there isn't capital to spend developing them. Every car maker on the planet rushed into the electric car business, convinced that the success of Tesla was a harbinger of things to come. It was a nice dream, but was it a practical reality? Maybe eventually. The virus has changed all that.
Suddenly, the money thrown at self-driving cars and electric cars seems, well, a little ahead of its time.
Harley-Davidson has chucked its head honcho and installed a new one who has reversed course for that retailer - moving away from cheap starter bikes which weren't selling well and not very well differentiated from other imported small motorcycles. Electric motorcycles, once thought to be the wave of the future for eco-conscious millenials, are also on the chopping block. No one wanted to buy them. The traditional Harley buyer wants something that looks and sounds like it came from the 1930's - or the 1950's at the latest. Myself, I like the retro look of the older Harleys. The new bikes, well, I guess the Harley buyers like them - that's who they need to market to.
In the short term, this should pay off for Harley-Davidson, as they cut costs and cut product lines. In the long term.... will the Corona generation take to loud, vibrating bikes that cost more than a decent car? It remains to be seen. And it isn't like there isn't competition in this business from the likes of Indian.
But getting back to cars, this recession is just getting started. The effects of essentially no car sales for a month have yet to be felt. Perhaps there will be a surge in demand once lockdowns are lifted, worldwide. Perhaps. Perhaps the car business and the economy in general - worldwide - was headed for recession before all this virus nonsense hit. Car companies such as Renault-Nissan and PSA were looking to merge (and apparently have) as production capacity for cars has exceeded demand for well over a decade. Given the cost of developing new vehicles, it only makes sense to combine forces.
With each recession, another car company goes bust. In 1929, it was Peerless and Pierce-Arrrow, who both soldiered on until the mid-1930's before throwing in the towel. Packard - the third "P" of prestige automobiles, soldiered on, offering a less-expensive line of cars. But in the postwar era they struggled, and the recession of the late 1950's finished them off, along with Studebaker.
Nash-Rambler, Hudson, and Jeep combined to form AMC, which managed to hang in there until the recession of 1979. They were merged with Chrysler at that point, which later merged with Mercedes, and in the last recession, Fiat. Whether Fiat can hold on at this point - losing money everywhere except the United States - before the virus - remains to be seen.
The point is, and I did have one, we can expect bloodshed once again in the car business, with companies that are thinly financed having a harder time turning things around. Smaller companies and those with small market shares will either go bust or combine with larger companies. Capital for things like electric cars may be hard to come by. And selling them to consumers in a market with 99 cent gas and missing paychecks may be difficult as well.
The last time around, the big-3 car companies concentrated on a line of what can best be described as poverty cars - inexpensive cars that were economical to buy and own. I am familiar with the type, as it represented pretty much everything on the road when I was coming of age. Ford sold a lot of Fusions in 2010. But once the economy improved, well, no one wanted poverty cars anymore - in fact, they didn't even want cars, period.
And just as in 2008, the "big-3" car makers have a product lineup that is mostly expensive pickup trucks and SUVs, which may be hard to sell to customers who have lost jobs or are worried about losing their jobs - or just saw their 401(k) decline by 30% or more.
Electric cars? Probably a harder sell.
I expect that a lot of these electric car projects will be delayed not just until 2021, but perhaps 2025 or beyond. Perhaps some companies may drop these projects - along with self-driving cars - altogether.
And small companies with thin financing and tiny slivers of market share? They may be toast.
Sorry Elon! You're Studebaker this time around.
Already, the major car companies are delaying introduction of all-electric models by at least a year or two. There simply isn't demand for them today, and with sales in the bucket, well, there isn't capital to spend developing them. Every car maker on the planet rushed into the electric car business, convinced that the success of Tesla was a harbinger of things to come. It was a nice dream, but was it a practical reality? Maybe eventually. The virus has changed all that.
Suddenly, the money thrown at self-driving cars and electric cars seems, well, a little ahead of its time.
Harley-Davidson has chucked its head honcho and installed a new one who has reversed course for that retailer - moving away from cheap starter bikes which weren't selling well and not very well differentiated from other imported small motorcycles. Electric motorcycles, once thought to be the wave of the future for eco-conscious millenials, are also on the chopping block. No one wanted to buy them. The traditional Harley buyer wants something that looks and sounds like it came from the 1930's - or the 1950's at the latest. Myself, I like the retro look of the older Harleys. The new bikes, well, I guess the Harley buyers like them - that's who they need to market to.
In the short term, this should pay off for Harley-Davidson, as they cut costs and cut product lines. In the long term.... will the Corona generation take to loud, vibrating bikes that cost more than a decent car? It remains to be seen. And it isn't like there isn't competition in this business from the likes of Indian.
But getting back to cars, this recession is just getting started. The effects of essentially no car sales for a month have yet to be felt. Perhaps there will be a surge in demand once lockdowns are lifted, worldwide. Perhaps. Perhaps the car business and the economy in general - worldwide - was headed for recession before all this virus nonsense hit. Car companies such as Renault-Nissan and PSA were looking to merge (and apparently have) as production capacity for cars has exceeded demand for well over a decade. Given the cost of developing new vehicles, it only makes sense to combine forces.
With each recession, another car company goes bust. In 1929, it was Peerless and Pierce-Arrrow, who both soldiered on until the mid-1930's before throwing in the towel. Packard - the third "P" of prestige automobiles, soldiered on, offering a less-expensive line of cars. But in the postwar era they struggled, and the recession of the late 1950's finished them off, along with Studebaker.
Nash-Rambler, Hudson, and Jeep combined to form AMC, which managed to hang in there until the recession of 1979. They were merged with Chrysler at that point, which later merged with Mercedes, and in the last recession, Fiat. Whether Fiat can hold on at this point - losing money everywhere except the United States - before the virus - remains to be seen.
The point is, and I did have one, we can expect bloodshed once again in the car business, with companies that are thinly financed having a harder time turning things around. Smaller companies and those with small market shares will either go bust or combine with larger companies. Capital for things like electric cars may be hard to come by. And selling them to consumers in a market with 99 cent gas and missing paychecks may be difficult as well.
The last time around, the big-3 car companies concentrated on a line of what can best be described as poverty cars - inexpensive cars that were economical to buy and own. I am familiar with the type, as it represented pretty much everything on the road when I was coming of age. Ford sold a lot of Fusions in 2010. But once the economy improved, well, no one wanted poverty cars anymore - in fact, they didn't even want cars, period.
And just as in 2008, the "big-3" car makers have a product lineup that is mostly expensive pickup trucks and SUVs, which may be hard to sell to customers who have lost jobs or are worried about losing their jobs - or just saw their 401(k) decline by 30% or more.
Electric cars? Probably a harder sell.
I expect that a lot of these electric car projects will be delayed not just until 2021, but perhaps 2025 or beyond. Perhaps some companies may drop these projects - along with self-driving cars - altogether.
And small companies with thin financing and tiny slivers of market share? They may be toast.
Sorry Elon! You're Studebaker this time around.
