Electric Cars: A Matter Of Cost

Includes: F, GM, TM
by: David Zanoni

I would love to have an electric car that I could plug in at home after work. It would be great to give up the gasoline engine with the high cost of filling up the tank. So, why am I and many other consumers not taking the plunge into the electric car market? The primary factor that is suppressing the electric car market is that the prices are just too high. The reason my next car purchase will not be of the electric variety is the fact that I can get a comparable sized gasoline powered car for thousands of dollars less.

The Chevy Volt offered by General Motors (NYSE:GM) costs an outrageous $40,000. That's a lot of money for a mid-sized car. Consumers can buy a car of similar size with the Chevy Malibu for a little over $22,000. That $18,000 premium for the Volt is enough to buy another small-sized car. However, buying an electric car will get you a $7500 federal tax credit. So, that still leaves a $10,500 premium for the Volt. Assuming a 5-year ownership period, the premium works out to be $175 per month. Current owners of gas engine cars would have to spend more than $175 per month on gas to reap savings by switching to the Volt. According to 9news.com, consumers spent $342 per month on gasoline in 2011. With Americans owning 2.28 cars per household, the average consumer spends $150 per month on gas. This means that the average consumer would still pay more over a five-year period by purchasing an electric vehicle.

On a bright note, the Chevy Volt is the best-selling electric vehicle on the market. GM has sold 16,348 Volts so far this year. This represents a four-fold sales increase over last year. So, there must be enough consumers who find value in the electric-powered Volt. For comparison sake, GM has sold 100,000 2012 Chevy Malibus in the first half of the year. So, you can see that the electric vehicle market still needs to materialize over time.

The Nissan (OTCPK:NSANY) Leaf all electric car is less expensive at $36,000. With a Nissan Versa or Cube starting at $15,000, that still leaves a $13,500 premium after the tax credit to purchase the leaf. So, over a 5-year ownership period an owner of a Versa or Cube would have to spend over $225 per month in gas before reaping the savings of switching to the Leaf. Nissan has sold 5,212 Leafs so far this year.

Ford (NYSE:F) has produced an electric Ford Focus that costs $40,000. The gasoline powered Ford Focus starts at $18,300. That gives us a premium after the tax credit of $14,200. Therefore, the gasoline powered owner of a Focus would have to be spending at least $237 per month before savings would kick in to switch to the electric model.

Toyota (NYSE:TM) offers the plug-in 2012 Prius for about $32,000. However, the Prius C hybrid model starts at only $19,000. Although they still need gas, the hybrids may be the more practical choice for the average consumer to save on gas until the cost of all-electric vehicles drops. The Prius C can achieve about 50 miles per gallon, while the plug-in model can yield 95 miles per gallon.

The high cost of electric vehicles is a result of the cost of the batteries used to power them. The battery pack for the all-electric Ford Focus costs between $12,000 and $15,000, which is an outrageous one-third of the cost of the vehicle. The cost of the battery packs equates to $600 per kwh. However, this is expected to fall to $250 per kwh within the next decade. The electric vehicles will be more practical for the average consumer at that point, which will allow sales of EVs to really accelerate.

I think that Toyota represents one of the best investments in the vehicle market for the near and long term. Its vehicles are ranked high for reliability, which attracts new and repeat customers. It has a great variety of Prius models that appeal to a variety of gas-conscious consumers. Toyota is undervalued with a forward PE of 9.48, and a PEG of 0.25. The company is expected to grow earnings at 42.6% annually for the next five years. This is more than enough for the stock to outperform the market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.