Can we plug into alternatives?

At about the time that the Tesla Model S deliveries were starting in the US in June 2012, Brent Crude was hovering around the US $100-110 per barrel range. It seems ironic that the same company would announce a new model — the Tesla Model 3 — at the low-end of the electric car segment recently when Brent had plummeted to sub-$30 levels.

Post the 2008 global crisis, and during the first years of the current decade, the price of fuel at the pump would have had a direct correlation to the emerging demand for all-electrics. Again, this was the case in a market as diverse and mature as the US. So, where is the optimism stemming from to widen the portfolio of electrics or for new entrants to foray into this category when the retail price of petrol is back below $2 per gallon?

There are two changes to the market that have probably contributed to this decoupling of fuel prices and attractiveness of electrics. One, of course, is the fact that alternative fuel options have continued to stay unattractive due to the falling prices of conventional fuels and due to the lack of vending infrastructure. So, Hydrogens have remained a niche, though they are slowly beginning to pick up pace in small pockets like in California. Other alternative fuels like CNG and LPG just haven’t been able to draw in buyers except where it is required by regulation.

Hybrids have become common. Pure Hybrids are losing their appeal, while plug-ins and regular models with hybrid systems have become the norm. Parts of a hybrid system like brake energy regeneration and the auto start-stop function have become standard in the new generation models of many existing car lines.

Two, and the most significant change over the last five years, which has contributed to pure electrics becoming popular, is that a lot of them were high-end performance cars boasting of acceleration levels and a luxurious cabin kit that put them alongside gas-guzzling super cars.

Electric super cars like the BMW i8, the Tesla Model S and X, the Lightning GT and the possible electric models from Porsche Mission E and the Mercedes-Benz SLS AMG Electric drive have captured popular imagination to a point where there is none of the dowdy, batterybox-on-wheels image still associated with EVs.

Take the Tesla Model X, for example. With its dramatic falcon wing doors, this electric super crossover is capable of going from 0 to 100 kmph in about 3.5 seconds, has a top speed of 249 kmph, and yet, can also seat seven passengers and offer a range of 400-plus km. When the production version of the Porsche Mission E is launched by the end of the decade, it will boast of a similar acceleration prowess, a top speed of 250kmph, a battery range of 500 km, and 80 per cent battery charge in under 15 minutes of plug-in time.

By now everybody knows about the instant torque and quick acceleration characteristics of EVs. Even for buyers of family sedans this is a heady mix of performance worth buying into. The deterrent has been range limitations that EVs inherently had and the general impracticality of owning an electric. However, the new breed of electrics due in the next two years will manage to get past these limitations to a large extent. And a lot of them will be more affordable and more desirable.

The current breed of entry-level electrics like the Nissan Leaf or the BMW i3 have been compromises in some departments, most notably attractiveness of design. They haven't been very affordable either. The reason why pricing is key is because electrics need to be pitted against existing conventional fuel cars and win the face-off without the buyer believing that he is buying a compromise.

This is where the new Tesla Model 3 may be the game changer. Tesla’s CEO Elon Musk has said the Model 3 will be unveiled at the end of this month and that the price will be below $35,000 before federal subsidies for electric cars. In some US states, after deducting subsidies, the price for the buyer could be as low as $25,000. This car will be in direct competition with compact sedans like the BMW 3 Series and the Audi A4.

It is still not going to be a path of roses for Tesla or the other future manufacturers of pure electrics. Yes, the price of batteries have fallen over 50 per cent, as have the cost of motors and materials like carbon-fibre. But costs of development and production are no less than conventional cars and this is where manufacturers with a large portfolio of conventional cars could have an advantage.

Also, the bigger issue that affordable electric car makers will be faced with is ensuring that the reliability levels are high. EVs have been dogged by a lack of consistency in performance and lower reliability of parts and systems (compared to internal combustion engine cars). Ironically, buyers in the low-price segments are less willing to accept a compromise in the reliability levels of their cars compared to luxury car buyers who usually have another back-up vehicle in their garage.

The other issue that makers of electrics have to remember is that the subsidy advantage is not going to last forever. Already, most countries have limited the subsidy or the number of vehicles that will be eligible for it.

The future of electrics still looks bright given that the general buyer is tilting in favour of going green. The Tesla Model 3 could be the test bed on which more manufacturers join the wave. In fact, Tesla itself has set a roadmap which includes another car priced even below the proposed new Model 3.