ALG’s Eric Lyman on what’s next in green car sales and residual values

Lyman_Eric_ALGWith gasoline prices expected to stay low for the near-term future, new vehicle sales figures for plug-in electric vehicles (EVs) and hybrids are expected to stay stagnant for now along with softening residual values. What might it take for these numbers to see an increase? Green Auto Market spoke with an expert on the subject – Eric Lyman, VP, industry insights at ALG – to gain insight on key market indicators to follow.

The phone conversation with Lyman came out of a meeting with John Krafcik, president of TrueCar at NADA 2015 in San Francisco. There’s been a strong correlation between full-size pickups doing much better in sales and the Toyota Prius seeing a decline in the hybrid’s sales numbers with gas prices dropping since last summer. When asked what it might take to reach interested consumers beyond the issue of gas prices, Krafcik thought it would make sense to check in with Lyman for more perspective from ALG (a TrueCar company).

Beyond the early adopters and new-technology first-in-line buyers, ALG finds the interest is there for EVs and hybrids, but car shoppers today are not that willing to pay for it. For now, consumers are responding best to two themes, it’s an environmental statement and it’s a statement of affluence, Lyman said. ALG surveys have shown that for the overall consumer market, the “efficiency is great and less time is spent at gas stations,” Lyman said. “But they’re still not willing to pay for it.”

Car shoppers in affluent communities have been willing to switch from driving a Mercedes S Class to a $125,000 Tesla Model S out of fascination with the new technology. It also appeals to their statement of success and affluence, and making a positive difference in the environment, according to Lyman.

Beyond that niche market, incentives and gaining access to carpool lanes in states like California have helped gain consumer interest in EVs. The $7,500 federal tax credit is applied to lease payments by captive finance companies like Nissan Motor Acceptance Corp. on the all-electric Nissan Leaf. State rebates are built into the lease just like the federal tax credit, he said. For those purchasing their own Leafs or other EVs, the federal tax credit adds to the complexity of the car buying experience, Lyman said, as the consumer decides how to add the credit into their tax payment by April 15.

ALG conducted a three-year study on the perceived quality of alternative powertrains, with the third edition being released in late 2012. At the time, there were several new automaker brands out there vying for attention and credibility on the market. “There were several brands emerging at the time, such as Zenn, ZAP, Coda, Fisker, and BYD, but they had no history in the marketplace,” Lyman said. “Consumers were almost indifferent to the brands – interest in innovative, new technology was a bigger issue.”

Much has changed since that time – with some of those brands gone from the market or put on hold. Mainstream brands had a substantial advantage in perceived quality at that time, though alternative powertrain manufacturers were improving in the study. Tesla was the most highly rated alternative powertrain brand. For several major automakers, EVs were perceived as a “side project,” Lyman said.

For residual values, Tesla has been the only solid EV performer so far. “They’ve done an amazing job of building the brand with early adopters, achieving a cult status,” he said. Tesla Motors took a non-traditional path in funding. For the original Tesla lease program on the Model S, no federal tax credit could be applied, according to Lyman. Now the agreement with US Bank has made that incentive available for the Model S.

For consumers, the “breakeven point” is a bit long in this period of low gasoline prices, Lyman said. “It can take five-to-six years for hybrids to break even” with comparable non-hybrid models, he said. “Diesel can take 10 years.” Lyman has seen diesel up about 70 cents a gallon over gasoline in some markets, making it a tougher sell for US consumers.

Here are some other points Lyman made to keep in mind:

  • Maintenance is a strong selling point for EVs compared to internal combustion engine vehicles. “It’s a real opportunity – they don’t have the same maintenance components such as oil changes and moving parts,” he said.
  • Fleets are still very new to EV drivetrains. “EV technology doesn’t really apply to daily rental,” he said. “Commercial and government fleets amortize vehicles down to zero, which could take 10 years.”
  • Consumers are “extremely well informed” and have done their research on the green car technology they’re shopping for. It creates a “situation” for dealers when consumers know more.
  • Green cars still make up a small percentage of new vehicle sales – about 5% for hybrids, EVs, and diesel passenger cars. It’s going to take a while to gain confidence in new technologies by consumers, he said.
  • It will take a few years for EVs to see more strength in residual values. A good example of how this happens comes from the first years of the Toyota Prius, Lyman said. “The first generation Prius appreciated about $4,000 over the first six months after introduction of the second-gen Prius.”

Cheap oil raises the bar on Obama policies and alternative fuels gaining support

Gas pricesAs oil barrel and gas pump prices stay down, adopting and enforcing environmental policies and gaining support for alternatives like electric, hydrogen and advanced biofuels are seeing higher hurdles to cross over. Here’s a look at what effect it may have in Washington – along with forecasts from Navigant Research on where electric vehicle sales are likely to be heading……….

  • Automakers are expressing concern about meeting the 54.5 mpg corporate average fuel economy mandate by 2025; and oil companies say the decline in oil revenue means the industry can’t afford stringent climate regulations. OEMs and “big oil” might be more resistant to supporting these policies in the US and abroad.
  • Sales have been increasing for pickups, minivans and SUVs that they’d shunned when gasoline as $3 or more a gallon. Automakers have been counting on stronger demand for hybrids and EVs to meet the 54.5 mpg target.
  • Climate change had been a key theme during Obama’s two presidential campaigns. Reducing carbon emissions at power plants has been a leading policy initiative, along with funding for clean energy and renewable-energy projects on public land. As for fuel efficiency and greenhouse gas emissions reductions in passenger vehicles, EPA Administrator Gina McCarthy says the administration isn’t willing to ease off fuel economy and sees it as a “long-term investment” for the industry.
  • While light-duty vehicle sales will continue increasing with global demand, studies by International Energy Agency (IEA) and ExxonMobil see efficiency leveling out the playing field. Exxon projects passenger vehicles will rise from 825 million in 2010 to 1.7 billion in 2040, with sharp gains in fuel efficiency offsetting the rise. That will come from an increase in global average fuel economy going up to 45 mpg in 2040, up 60% from 2010. New vehicle technologies like turbocharging will have a lot to do with the increase; increased hybrid sales will also contribute to those numbers.
  • Commercial transportation will cause energy demand to grow during that time. Exxon expects that by 2025, heavy-duty vehicles are likely to surpass light-duty vehicles as the largest energy-consuming segment in transportation. China and India are expected to account for about 30% of the global growth in demand for energy for heavy-duty vehicles, and the US and Europe combines should account for only about 10%. Economic growth will drive demand for heavy-duty vehicles, marine, aviation, and rail.
  • Navigant Research expects the total for light-duty electric vehicles to grow from 2.7 million electric vehicles sold by the end of 2014 to at least 6.4 million by 2023. Fuel efficiency advances being deployed within internal combustion engines like stop-start technologies and lightweight materials will play its competitive part in the market. On the commercial vehicle side of the business, Navigant expects global sales of electric drive and electric-assisted trucks and buses to grow from less than 16,000 in 2014 to nearly 160,000 by 2023.
  • Reading these media and research reports illustrates that making the case for clean transportation can be most effectively stated by emphasizing a few themes: reducing greenhouse gas emissions and petroleum consumption; accessing more stable energy markets and pricing trends such as electricity, natural gas, and propane; being less dependent on foreign oil imports and vulnerable to price volatility; and supporting US job creation and cleantech and clean transportation industry growth through vehicle acquisitions, infrastructure, and capital investments.