The electric-car industry is set to advance into its 2.0 era, with a new slate of vehicles scheduled to hit the road in the next few years. But the road ahead is long.
Among the most hotly anticipated cars is the all-electricTesla Motors ( TSLA ) Model X, an SUV, coming in the fall of 2015. Further out, Tesla is developing a less-expensive sedan to target an even broader audience.
Another industry leap could come in a new version of the Chevy Volt, byGeneral Motors ( GM ). The Volt is currently the most popular plug-in vehicle in the U.S. The new model is expected to debut in January.
The history of the modern electric car is one of starts and stops. Perhaps the most popular early example was GM's EV-1, from 1996 to 1999. It was the first mass-produced electric vehicle, but it ended up in the scrap heap.
GM abandoned the EV-1 for many reasons. Among them: It decided that electric cars were an unprofitable niche, despite their popularity with consumers.
A big reason for the EV-1 demise was the low performance and high cost of batteries, perhaps the most critical piece to the success of electric cars. The battery technology was not far enough along.
"Car manufacturers have been experimenting with electric-car designs for about 20 years, but it's still a new technology," said Tom Turrentine, director of the Plug-In Hybrid & Electric Vehicle Research Center at University of California, Davis.
"The batteries are expensive and prices have to come down," and it could take a decade for volumes to reach efficient levels, he said. The mass production of batteries only kicked in about three years ago, "so we're early in that game," he said.
But it hasn't stopped carmakers from pursuing the market. Hybrid gas and electric vehicles hit the market in 1999 with the Honda Insight, followed by Toyota's Prius in 2000. Plug-in hybrids have upped the ante, allowing batteries to charge at charging stations, leaving more fuel in their gas tanks.
At least 16 vehicles from 11 different manufacturers that plug into electrical outlets were available in 2013. Ten of those were all-electric. Another eight plug-in electric models are planned for this year and next.
Electric autos come in several categories. There are all-battery-powered versions, such as the Tesla Model S andNissan Motor's ( NSANY ) Leaf. Hybrids, led by Toyota's Prius, run on various combinations of battery and gasoline-driven power, with the gasoline engine also driving a generator to charge the batteries.
Plug-in hybrids include the Volt, some Prius models and others. These autos operate on various shared gas and battery-powered designs but can also be plugged into recharge the batteries.
The all-electric vehicles start with the Tesla but also include the BMW i3, theFord ( F ) Focus Electric and Toyota's Rav4 EV. Hybrid electric plug-in vehicles include the Volt and versions of theHonda Motor ( HMC ) Accord and Toyota Prius PHV.
According to the International Council on Clean Transportation, global sales of plug-in electric vehicles doubled last year to more than 200,000 units (out of almost 500,000 passenger vehicle hybrids sold worldwide), although that's just a sliver of an estimated 850 million vehicles made each year. The U.S. accounted for 47% of the market for plug-ins. Europeans bought 31% and Asia had a 22% share.
The number of plug-in vehicles sold in the U.S. rose 83% in 2013, to 97,000 vehicles. The biggest sellers in 2013 were the Volt, Leaf and the Tesla Model S. About 500,000 plug-in vehicles are estimated to be currently on the road globally.
Manufacturers including Mercedes, Porsche, Kia andVolkswagen (VLKAY) are expected to enter the plug-in fracas by the end of 2015.
The plug-in electric vehicle is expected to develop in a multistage process that will take decades, analysts say. It requires the build-out of charging stations, mass production of batteries and large-scale development of parts, manufacturing and assembly systems. It will also require more drivers gaining experience with electric cars, and climbing a learning curve to understand the economics of owning one, vs. gasoline engines. Dealers also face a learning curve as they gain knowledge on how to sell the vehicles.
"Like other new technologies, it will take at least 10 years or more before we see significant penetration in the electric car market," said Devin Lindsay, auto industry analyst at research firm IHS. "Governments are helping where they can to bring the price of vehicles down and encouraging R&D that can aid in things like battery breakthroughs," he said.
Still A Subsidized Market
Financial incentives from governments worldwide have helped push the industry forward. Buyers of plug-in hybrids and plug-in electric cars in the U.S. can benefit from tax credits between $2,500 and $7,500, with additional state credits. Those incentives are designed to phase out as the industry expands.
California is the state most clearly set on lowering carbon emissions. It accounts for about one-third of plug-in vehicle sales in the U.S., due largely to having the most aggressive incentive program in the nation.
"Right now the electric car is economical because of the incentives," said Turrentine. "But if you take out the incentives, it's not."
That will change, proponents argue, as more vehicles are produced and costs come down, especially for batteries.
"There is tremendous competition to create a cheap battery," Turrentine said.
Tesla and Panasonic have entered into an agreement to partner on a large-scale factory built in the U.S. to supply Tesla with battery cells. News reports last week said California was considering exempting the plant from key environmental hurdles to speed the development process. Among the project's goals: cut battery costs 30% by 2017.
"We believe we are in the early innings of a sea change of innovation in the auto industry, which Tesla Motors is actively driving," Brad Erickson, analyst at Pacific Crest Securities, wrote in an Aug. 5 research report, initiating coverage on the company with an outperform rating.
A Question Of Range
Longer-lasting battery power is also needed to overcome consumer concerns about driving longer distances. Most electric vehicles have a range of about 70 miles to 90 miles on a fully charged battery, according to the Department of Energy. Some models have a longer range, led by the Tesla Model S all-electric, which has a range of 265 miles. The Leaf has a range of 84 miles.
There are more than 20,835 electric-vehicle charging outlets across the country. That compares with about 180,000 gas stations. But that doesn't count electric-car owners who charge at home, which accounts for about 80% of overall charging time for the U.S. electric fleet.
Longer driving distance is where plug-in hybrid-electric models have an advantage. The Chevrolet Volt has an all-electric range of 38 miles, but charging by its gas engine gives it an additional 342 miles, amounting to a total reach of 380 miles. The Volt sports an 8-gallon gas tank. Volt owners who charge can reportedly drive more than 970 miles between fill-ups.
Elon Musk: Super Conductor
Electric-car sales are continuing to grow, at least for now.
Hybrid sales overall declined from 2008 through 2011, then reversed and began to climb. On the plug-in side, GM said it sold 2,020 Volt autos in the U.S. in July, up 13% from June. More than 65,000 have been sold since the vehicle was introduced in 2010. The starting price for a Volt is about $34,000.
Close behind is the all-electric Leaf, with almost 58,000 total sales as of the end of July. Nissan sold 3,019 Leafs in July, up 28% from June. The car costs about $29,000.
Tesla Motors built 8,763 Model S electric cars in the second quarter, up 16% from the first quarter, and delivered 7,579 of them to customers. Tesla plans to produce about 9,000 cars in the third quarter, the company said when it reported second-quarter earnings. As a premium all-electric vehicle, the Model S's average price is above $75,000.
The company is developing a smaller model that aims to halve that sticker price. Musk told investors in June that the third-generation platform, code-named "Blue Star," would aim for the BMW 3-series niche, with a target range of around 200 miles.
The company currently makes about 800 cars per week at its factory in Fremont, Calif., and sees that expanding to 1,000 in the fourth quarter. Its goal is to deliver more than 35,000 vehicles this year. Tesla CEO Elon Musk said that the company will make more than 60,000 vehicles in 2015, growing to 100,000 by late 2015.
"With governments putting an emphasis on fuel economy and reducing vehicle emissions, that guarantees electrification has its place," said Lindsay.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.