To Spark Buyers for Electric Cars, Drop the Price to Nearly $0

Updated May 22, 2013, 3:34 a.m. ET

To Spark Buyers for Electric Cars, Drop the Price to Nearly $0

By JOSEPH B. WHITE

This car deal sounds too good to be true: Drive a car, almost free. To entice drivers to try electric-powered cars, auto makers are lowering the price of entry to the zero-emission lifestyle. A new round of discount leases on mainstream-brand plug-in cars such as theNissan 7201.TO -1.38% Leaf or Fiat F.MI +0.93% 500e, combined with federal, state and local electric-vehicle incentives, could make a battery-electric car an extraordinarily economical way to get around for drivers. There are two big caveats: Drivers need to live in states offering tax incentives and can’t drive very far in a single day.

PJ-BO412_EYESRO_G_20130521230902Electric cars are still a long way from achieving mass appeal. Plug-in cars accounted for less than 1% of total vehicle sales in the U.S. during the first four months of this year, according to data compiled by the website hybridcars.com. But the flurry of discounts and public subsidies has more consumers refiguring the math. Plug-in sales more than doubled in the first four months of 2013 compared with a year earlier.

Bronson Beisel, 46, says he was looking last fall for an alternative to driving his gas-guzzling Ford Expedition sport utility around suburban Atlanta, when he saw a discounted lease offer for an all-electric Nissan Leaf. With $1,000 down, Mr. Beisel says he got a two-year lease for total out-of-pocket payments of $7,009, a deal that reflects a $7,500 federal tax credit.

As a resident of Georgia, Mr. Beisel is also eligible for a $5,000 subsidy from the state government. Now, he says, his out-of-pocket costs for 24 months in the Leaf are just over $2,000. Factor in the $200 a month he reckons he isn’t paying for gasoline to fill up his hulking SUV, and Mr. Beisel says “suddenly the car puts $2,000 in my pocket.”

Yes, he pays for electricity to charge the Leaf’s 24-kilowatt-hour battery—but not much. “In March, I spent $14.94 to charge the car” and a bit less than that in April, he says. He also got an electric car-charging station installed at his house for no upfront cost.

“It’s like a two-year test drive, free,” he says.

Mr. Beisel works for IBM designing presentations that company sales representatives use to convince clients they’ll save money investing in new technology. He says he did a similar analysis on his family’s lifestyle and concluded that the Leaf’s 73-mile range was plenty for most of his everyday driving.

Auto makers are under mounting state regulatory pressure in about a dozen states to accelerate electric-car sales. California greenhouse-gas rules, for instance, require that, by 2018, some 4.5% of the cars major auto makers sell in the state be “zero-emission” vehicles—that is, no emissions from the car.

 

By 2025, California’s rules mandate that electric cars account for more than 15% of sales in the state. The Obama administration has backed the California mandate, although it didn’t order similar targets nationwide.

Right now, that sales mandate looks like a marketing Mount Everest.

Only two all-electric cars, the Nissan Leaf and the Tesla Model S, sold more than 1,000 vehicles during the first quarter of the year, according to hybridcars.com data. By comparison, Ford Motor Co. F +2.27% sold more than 2,000 of its plus-size F-Series pickup trucks a day during March.

Car makers are lobbying the federal government to block the California mandate. But some are also boosting efforts to convince more people that electric cars make sense. One reason: Selling more high-mileage cars allows auto makers to market greater numbers of larger, more profitable vehicles, under the complex government emission-regulation schemes.

Nissan Motor Corp., the mass-market car maker most heavily invested in electric transportation, is accelerating production of the Leaf and its costly lithium-ion battery packs at factories in Tennessee, replacing cars shipped from Japan. That made it possible to drop the starting price of the least-expensive 2013 Leaf to $28,800, down $6,400 from 2012, company officials say.

Nissan has begun offering leases as low as $199 a month for three years, or no-interest, three-year loans for customers who prefer to buy the car. For 2013, the Leaf gets an enhanced warranty on the battery, a faster charger (cutting time from seven hours to four when plugged into a 220-volt circuit) and new options such as leather seats.

Matt Brooks, a software engineer in Rochester, N.Y., says he decided to replace a hybrid Prius with a Leaf because the lease was so cheap. He’s paying $239 a month for 24 months with no money down. Mr. Brooks says he likes the car, but doesn’t expect to buy it when the lease is done. Used Leafs are selling below the purchase price written into his lease, he says.

Electric-car makers are also experimenting with new responses to the problem of “range anxiety.” That’s the fear would-be buyers have of getting stranded should the battery run down faster than advertised.

Luxury electric-car maker Tesla Motors Inc., TSLA +1.68% which recently rolled out a lease-like financing option, has models rated as high as 265 miles on a charge, and a growing line of dedicated fast-charging stations. But its Model S sedans start at $62,400 after the $7,500 federal tax credit.

Among less expensive solutions, Nissan engineered the 2013 Leaf with a new range-extending drive mode the company says can increase the distance it can travel on a single charge by up to 15%, to 84 miles, by allowing the customer to choose to use up 100% of the energy stored in the battery.

The government takes a more conservative view, crediting the 2013 Leaf with a 75-mile range. It is also stepping up efforts to persuade employers and local governments to install more charging stations.

Fiat SpA’s U.S. sales arm is offering 12 days of free annual access to a gasoline rental car, for long-distance trips, as part of the cost of its new 500e electric (starting price: $32,500). Matt Davis of Fiat USA says the rental-car deal, branded as ePass, grew out of brainstorming sessions where company officials debated how to deal with the car’s 87-mile range. “We have nothing to overcome that,” he says.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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