• by Karl Greenberg , October 29, 2010

The next 12 months are looking good for the electric car if one judges by media buzz and advertising. Nissan's new advertising platform puts a lot of attention on the Leaf plug-in electric and Chevrolet's new "Chevy Goes Deep" campaign also brings its Volt to the fore. These are just two of several automakers, large and small, launching plug-in vehicles in the U.S. over the next several months.

A new report from J.D. Power and Associates, however, says that while it's not entirely hype to use electric cars to build a halo around a brand, it's a fantasy for anyone to think it's going to do much for sales.

The firm's report, "Drive Green 2020: More Hope Than Reality," pretty much says it all. Combined global sales of hybrid electric vehicles (HEVs) and battery electric vehicles (BEVs) will reach 5.2 million units in 2020, or just 7.3% of the 70.9 million passenger vehicles that forecasters say will be sold worldwide that year. This year, per J.D. Power, HEV and BEV sales will account for 954,500 vehicles, or 2.2% of the 44.7 million vehicles projected to be sold through the end of 2010.

The problem, according to the report, is that no amount of advertising will get large numbers of people to switch from conventionally powered passenger vehicles to HEVs and BEVs because of the cost premium and uncertainties consumers feel about owning such a vehicle.

A migration of consumers to these vehicles will have to be driven by a significant increase in the global price of petroleum-based fuels by 2020; a breakthrough in green technologies that would reduce costs and improve consumer confidence in non-gas powertrains; and Big Brother: a government policy to encourage consumers to purchase these vehicles.

"Based on currently available information, none of these scenarios is believed to be likely during the next 10 years," says John Humphrey, SVP of automotive operations at J.D. Power. "Our forecast is that there will be growth in hybrid electric vehicle segments and battery-powered vehicle sales but it won't light things on fire."

Surveys by the firm says the things that are likely to keep consumers away from such vehicles are worries about the reliability of new technologies, dissatisfaction with overall power and performance, anxiety about driving range and concern about the time needed to recharge battery packs.

But the biggest problem is the average $5,000 price premium on such vehicles, according to Humphrey -- who says that for U.S. consumers who initially say they are interested in buying a hybrid vehicle, the number declines by some 50% when they learn of the extra $5,000.

The leading markets for HEVs, according to J.D. Power, are the U.S., Europe and Japan, with China to sell fewer than 100,000 HEVs in 2020. The firm says that of the 1.3 million BEVs projected to be sold worldwide in 2020, sales in Europe will account for 742,000 units; sales in China will account for 332,000 units; and the United States and Japan should each account for sales of approximately 100,000 BEVs in 2020.

Humphrey tells Marketing Daily that there has been a lot of attention on the new vehicles in the U.S. media, with the President himself extolling the virtues of Chevrolet's Volt. But he says it is just sound and fury when consumers pull out their wallets.

"Our position is that a lot of the attention and hype has been driven by the media, not on the demand side of the equation. Consumers are very open and interested in buying green vehicles, but the difference and price point uncertainties that go along with them are too much to overcome for most," he says.

Another major barrier to electric vehicle acceptance in the U.S. is the price of gasoline. "We have some of the cheapest gasoline versus almost any other country and if you look at the amount of tax put on a gallon of gasoline here, it's next to nothing compared to other major car-driving countries," notes Humphrey -- who says Europe, with its high gasoline prices and heavy adoption of diesel, is more likely to be an adopter of electrics. "The price of fuel is so high there and they pay a high tax as well."

Despite relatively low projections at present, the other wild card is China, whose fuel is heavily subsidized. Humphrey says that while China has cheap gas, there's an advantage for electrics in that if the government wants to mandate higher gasoline taxes or incentives to buy electric vehicles, it can do so easily.

"They can change the rules of the game fast. And they are flush with cash and can subsidize the industry to make that leap," he says. China, Humphrey adds, is already calling for mandating that a certain percentage of its fleet run on other than internal combustion engines.

That is unlikely to happen here. "If we really want to make the move, and this is the issue where private industry alone can't do it, we need help from government. And unless there's a significant breakthrough, industry can't narrow the price gap between BEV and HEV vehicles and traditional cars. But can you imagine a 50-cent tax on gas? You'd have outrage. That's the crux. We want to be green but we don't want to pay for it," says Humphrey.