I’ve read numerous articles in the first week of the new year describing the “disappointing” sales numbers of hybrid and electric vehicles in the U.S. in 2011. It somehow makes sense to declare a subsector industry dead after sales came in under expectations. Interestingly, the same hybrid/electric naysayers didn’t have the same opinion when internal combustion car sales tanked a few years back.
Here is the latest article, written from the Detroit Auto Show. It brings together a couple of salient facts which aren’t explored in any depth.
Hybrid sales waned as gasoline prices ebbed in 2011, declining to 2.2 percent of the market from 2.4 percent a year earlier, according to the research firm LMC Automotive. Meanwhile, sales of the Nissan Leaf electric car and the Chevrolet Volt plug-in each fell short of expectations.
Analysts do not expect the segment to grow significantly this year: the combination of gas prices below $4 a gallon and higher upfront costs for the cars is not attracting consumers.
I understand the higher upfront costs, especially in the continued economic malaise that most Americans are experiencing. The $4 per gallon of gas is an interesting factoid to throw in there though, don’t you think? After all, we’ve only visually seen $4 gas once so far. Gas prices in 2011 came close to $4, but the magic `4` never appeared on signs.
Which brings me to the following: demand in 2011, especially the 2nd half of 2011, was multiple percentage points below demand in 2010. Yet gas prices rose to close to $4 anyway. It’s all supply and demand, you might say, especially demand in other countries which would lead to higher fundamental prices. Well, oil prices shot up in Feb-Apr from $84 to almost $114 per gallon, then fell back below $80 by Sep (when gas prices were highest, despite slack demand in the U.S.). Oil is trading at more than $100 per gallon again now, yet gas prices continue to decline.
No, there are more variables than simply supply and demand at play. $4 gas represents an important psychological barrier for traders just as it does for gasoline consumers. There is incredible pressure to keep prices from rising above that threshold because too few people can think critically: when prices pass the threshold, one trader panics, then most everybody else panics. Consumers are just as irrational, however. More than anything, they sense that $4 gas represents some kind of significant threshold, even though too few consumers can analyze at which threshold gas represents a significant point at which their household budget is adversely affected. Moreover, consumers have an irrational desire to recoup additional costs of a hybrid/electric vehicle inside of 1 year. Where are their similar demands for products they’ve been buying their entire lives? It really doesn’t exist.
In 2000, Toyota sold 5,600 Prii in the U.S. (the 1st year available). In 2011, Nissan sold 9,700 Leafs in the U.S. (the 1st year available), or 73% more units than the Prius. 75% more sales of just 1 new hybrid/electric is a very significant number. Imagine if there were 73% more sales of a new kind of cell phone than a different cell phone 10 years after the first was introduced. That would be touted as a wild success story. The poor treatment of the hybrid/electric vehicle segment is pitiful. Is there a long path toward 1.5 million electric vehicles on the road by 2015? Yes, there is. But you might want to share with the rest of the car industry that having aggressive 2015 goals is a really bad idea. I doubt you’ll receive much of an audience.