Friday, 9 November 2012

Sell Electric Cars Like smartphones...

Three big barriers are slowing electric vehicles. One can be fixed by the auto industry tomorrow -- and if it is, the other two will melt away as the electric vehicle sector expands.

Start with a simple but surprising fact: Right now, leasing a GM Volt for only two years costs you less than its gasoline counterpart, the Cruze. The Volt leases for $69 a month more than the Cruze, but saves $200 a month in fuel by operating most of the time on electricity. The $1800 higher down payment for leasing the Volt is paid off in 14 months -- you make money for the last 10 months of your lease!

Almost no one knows this -- GM hasn't been shouting about it from the roof-tops. Clearly the company loses money leasing Volts at this price. Because most drivers don't lease, GM knows it won't, if it keeps the secret, sell more Volts at a loss than it wants too.

But the choice of a below-cost lease as a way to build the market for the Volt -- along with the necessity of doing so stealthily -- shows that the auto industry hasn't figured out that electric cars need to be sold differently than internal combustion engines -- just as Apple had to develop new business models to sell smartphones. Imagine -- and it's just as feasible as GM's current lease offer -- that you could buy a Volt, or a Nissan LEAF, for the same price as its gasoline equivalent -- the Cruze or the Versa. The same price! There would be a catch; to qualify, you would sign a five-year fuel contract requiring you to buy all of the electricity you needed for your car for the equivalent of $3 per gallon. You would get a better car, and guaranteed protection against future increases in the price of gas, for no additional purchase price. Your risk? Gas averages below $3.

This is how smartphones are sold. The upfront cost of the phone is recovered through a service contract -- and in my model above, over five years the owner of the new electric car would pay the current sticker price of a Volt or LEAF -- because they would pay a premium for the electric fuel they use.

But the car would cost less upfront than a gasoline model, and fueling the car would also cost less (unless gas averaged below $3 a gallon over the five-year period.)

So Barrier One is that the auto industry doesn't know how to sell electric cars. Electrics are smartphones, and car companies are like the old clunky AT&T monopoly -- after all, they still haven't figured out how to sell them for a fixed price!

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