Are the new rules in California bad for car manufactures? California has become a difficult market for car manufactures such as Chrysler, Nissan, Ford (F), Toyota (TM) and Honda (HMC) as new rules implemented to fight smog and global warming are changing the way they conduct business. Selling hybrid cars will no longer meet the “green” credits set by the state, putting pressure on manufactures to sell either electric vehicles or hydrogen fuel-cell cars.
What the new credit rules mean is if GM (GM) sells 100,000 vehicles in California, it must also sell at least 1,000 EV cars during that same year. That is easier said than done with EV technology currently only allowing a 100-mile range in ideal conditions, along with long recharge times.
Meanwhile, consumers will also have to pay a price premium for these vehicles due to battery pack cost. To put things in perspective, the Ford Focus and Ford Focus EV both use the exact same body type and can be built along the same assembly line. Yet, the Ford Focus sells for $16,200 while it’s EV twin sells for $39,200, mostly because of the 23 kWh lithium ion battery pack that costs between $12,000-15,000 alone.
Chrysler has also announced that it will release its first EV, the Fiat 500e SpA, with the intention of losing between $8,000-9,000 on each vehicle sale. This backward approach to business shows that electric vehicles are not economically efficient for the marketplace yet. Before these cars can become feasible, the price per kWh of the battery pack must come down substantially and ranges must also improve. Until then, the EV market will continue to experience very small sales and manufactures will have to suffer the losses due to new legislation trying to force EVs onto the streets. These losses can become very material for big car manufactures if more states adopt this kind of legislation so investors should be on the look out for this kind of news.
Written by Nick Sousa