- Model 3 reservations approaching 400,000 suggest very strong interest in electric vehicles
- Mass adoption has yet to start due to limited consumer knowledge, exposure, and lack of addressing common misconceptions on electric vehicles
- Significant infrastructure and additional government incentives are needed to fully convince consumers in purchasing an electric vehicle
- Model 3 will be the first wave in changing driving behavior and habits leading the industry transition to electric vehicles
On March 31 st, 2016, the world awaited for Tesla (NASDAQ:TSLA) CEO Elon Musk to reveal a vehicle that would change the entire automotive industry. The Model 3 sedan Musk unveiled helped Tesla further emphasize on how they are redefining the car and driving experience, with electricity and zero emissions. Tesla announced reservations of over 325,000 only a week after the Model 3 unveil making it the largest pre order event in history.
The future of cars
Strong demand for the Model 3 is great news for Tesla, but the auto industry has a long way to go before the majority of cars on the road are electric. Most consumers today are aware of more fuel efficient ICE vehicles and hybrid vehicles, but many are not aware of the gradual rise of electric vehicles. Additionally, consumers have yet to fully accept that electric vehicles can be a comparable alternative to ICE vehicles.
There are many misconceptions about electric vehicles that could be holding back consumers on making the jump to an electric vehicle. First, most fully electric vehicles sell for more than $35,000 before incentives making it appear uneconomical for the average consumer. For years, federal and state incentives have significantly reduced the up-front cost of an electric vehicle, but even government incentives struggled to push electric vehicles as the alternative to ICE cars.
Another factor that is mistaken by consumers is driving range. Consumers are treating electric vehicles as if they were ICE vehicles that need to be filled every week. Electric vehicle owners do not need to "fill up" their cars every week because they can conveniently charge their car every night. Every morning, electric vehicle owners wake up to a full charge and are ready to commute with plenty of range by the end of the day.
So far, consumer exposure to electric vehicles has been limited. After Tesla unveiled the Model 3, consistent media coverage and passionate EV enthusiasts will help drive consumer attention onto electric vehicles and how affordable electric vehicles are becoming an attractive alternative.
Electric vehicles start the day with a full charge, but is that enough to help consumers overcome range anxiety? Electric vehicles and "range anxiety" seem to be inseparable when discussing electric vehicles. The typical commute does not exceed 200 miles round trip, nor does a whole day's worth of driving. In some cases, charging during the day would benefit the driver in terms of convenience and for scenarios that require an emergency charge.
For example, if a driver has a commute between 70 to 80 miles one way, and gets stuck in major traffic coming home after running errands, the driver has the risk of running out of charge before making it to a charging station. If it is winter in the same scenario, the driver is at even more risk of running out of charge due to lower range in cold weather. The situation I am using may be extreme, but the point I want to make is how convenient will it be to charge an electric car when you really have to. Tesla's superchargers are strategically placed across the United States, but are not abundant enough for a convenient or emergency charge for most drivers. Once electric vehicles make up a large percentage of cars sold, public charging infrastructure will be key to adding convenience and assurance for drivers.
An EV owner would definitely counter this argument by saying their car is fully charged every night, but we need to understand that full adoption of an electric vehicle means drivers will be using it as their primary vehicle. A car is meant to reliably and safely transport the driver to their destination without having to worry. Once infrastructure is developed to the equivalent of gas stations for ICE vehicles (expect more charging stations in parking lots), or when EV drivers do not have to search on an application to find the closest area to charge, electric vehicle sales are set to soar.
When it comes to electric vehicles, driving range only really matters for long distance trips that require charging. Tesla owners can easily drive across the country using Tesla Superchargers. During road trips, it is essential to find hotels with accommodative charging in case the Supercharger or destination charging is located at an inconvenient location. I believe the majority of hotels, shopping centers, public transit, restaurants, and more will have to offer accommodative charging in order to accelerate adoption of electric vehicles. Tesla owners can enjoy free Supercharging for road trips, but are limited to where they can stay and charge. It is crucial for consumers to have the option to conveniently charge wherever they need to in order to reduce range anxiety.
You may be wondering why I gave such an extreme example for range anxiety. I feel it is important to analyze how the average consumer will evaluate an electric vehicle before making a decision. Owning an electric vehicle changes driving behavior and habits simply because electric vehicles are fundamentally different from ICE vehicles. Electric vehicles have very few moving parts which require very low maintenance. In fact, regenerative braking helps reduce the usage of brakes which significantly extends the durability of the vehicles brakes. EV owners never have to worry about "filling up" their cars for daily commutes since their cars are fully charged every night. These are one of many benefits an electric vehicle offers. As more companies gradually launch electric vehicles that are more capable, consumers will learn more about the benefits of electric vehicles.
The federal tax credit offers $7,500 off a fully electric vehicle, while varying state incentives can extend savings. The current program is limited to 200,000 electric vehicles per manufacturer. Once a manufacturer exceeds 200,000 units, the tax credit is phased out by reducing the incentive in half to $3,750. The federal tax credit will continue to be reduced and will eventually be phased out.
The federal tax credit certainly makes an electric vehicle more affordable. Putting a limit of 200,000 units per manufacturer may not be enough to drive further adoption of electric vehicles. In 2015, over 17.5 million vehicles were sold in the United States, making the federal tax credit appear minimal. The federal tax credit should be extended significantly to help accommodate consumers. Once the price of an electric vehicle is comparable to an ICE vehicle, the federal tax credit can be phased out as the market will determine which type of vehicle offers the highest value in terms of cost of ownership, performance, driving experience, reliability, durability.
Electric vehicle sales in the United States still account for a very small percentage of total vehicle sales which indicates consumers are still relying on ICE vehicles. It appears we are still in the "innovators" phase where enthusiasts are purchasing electric vehicles. In the next few years, I expect early adopters to rapidly enter the electric vehicle market especially for Tesla's Model 3 sedan. Model S owners are known to be highly passionate about their car and have been at the forefront of challenging the century old internal combustion engine car. As Tesla begins to roll out the Model 3 at the end of 2017, we will see how early adopters react as they begin to experience an electric vehicle that will most likely change their entire driving experience and behavior. If early adopters fully accept that the Model 3 qualifies as an alternative to ICE vehicles, the automotive industry will be forced to change: marking an end to the internal combustion engine.
I remain bullish on the future of electric vehicles and firmly believe charging infrastructure must expand beyond homes and Tesla Superchargers, and common misconceptions on EVs should be properly addressed in order to fully convince the main stream consumer that electric vehicles offer many compelling benefits over ICE vehicles.