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Electric Vehicles Are Money Losers, But That's Expected

All-electric vehicles - those without tailpipes or gas tanks, are entering the marketplace, particularly in California, but unlike other models from the same manufacturers, they are not expected to sell well. So why are they even being manufactured?
May 13, 2013, 8am PDT | Irvin Dawid
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Chris Woodyard explains why you may have seen (if you have a keen eye) a flurry of new electric vehicle (EV) models such as the Ford Focus Electric, Chevrolet Spark EV, Fiat 500E, Toyota's RAV4 EV or Scion iQ EV, or the Honda FIT EV on the roads or in the parking lots of California lately.

Most are being produced primarily or solely to meet California's mandate that large automakers sell a percentage of zero-emission cars in order to sell traditional cars in the state.

In other words, for auto manufacturers that sell at least 60,000 vehicles a year in California (of which there are currently six) to continue to sell the vehicles that are profitable, particularly the SUVs, pick-ups, and luxury sedans, they must not only produce a zero-emission-vehicle (ZEV) - they must sell them as well. Consequently, manufacturers lose in two ways: 

  • They must produce a vehicle that "are selling by the hundreds in an industry where tens of thousands determine profitability".
  • They must lower their price in order to make it marketable. As a result, they lose thousands of dollars on each EV sale

Last month, Chrysler Group CEO Sergio Marchionne said his company would limit production of the electric Fiat 500e because it will lose $10,000 on each. "Doing that on a large scale would be masochism to the extreme," he said.

For those reasons, they've acquired the name "compliance cars", although Woodyard warns not to call them by that term because "automakers are proud of their new electric fleet".

The compliance cars stand in contrast to the electric Nissan Leaf (now outselling the Chevy Volt) or Tesla Model S (see related article on Tesla enjoying its first profitable quarter) which are being promoted nationwide with the goal of commercial success.

According to Analisa Bevan, sustainable-technology chief for California's Air Resources Board, "10 other states also will adopt California's zero-emission mandate", so opting out of the ZEV mandate is realistically not an option for the carmakers. In fact, they may even become part of the 2025 federal requirements.

California estimates that by then, 15.4% of vehicles on its roads will be zero-emission.

If their prediction proves correct, has the Air Resources Board considered what the effect will be on transportation funding, e.g. how to pay to maintain the roads that the EVs will drive on along with other vehicles that do pay fuel taxes?

Taking a different course than California which provides a $2,500 credit for eligible EVs, Virginia charges a special $64 annual registration fee on them and hybrid vehicles while Washington State added a $100 EV-only registration fee in February to ensure they contribute to road funding since they pay little or no gas taxes.

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Published on Thursday, May 9, 2013 in USA Today
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