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.”

Big Picture: Tesla Motors dealing with battery fire, September sales figures

Tesla Model S fireHave you seen the YouTube video that went viral a few days ago – where passengers driving down a street in Kent, Wash., view a Tesla Model S on fire? The car struck metal debris on Oct .1 in the town near Seattle – said to be a “curved section” that fell off a semi-trailer. First responders said that the fire occurred in the electric vehicle’s lithium-ion battery. “The geometry of the object caused a powerful lever action as it went under the car, punching upward and impaling the Model S with a peak force on the order of 25 tons,” Tesla CEO Elon Musk wrote in a statement. “Had a conventional gasoline car encountered the same object on the highway, the result could have been far worse.” The driver was safe and only had good things to say about the car. Tesla’s booming stock price dropped 10% over two days but looks like it could be coming back. It will most likely turn out to be similar to what Chevrolet went through with the NHTSA report on the Volt lithium battery catching fire in a test; or to Nissan going through the wringer last year over the Leaf’s battery life receding in extreme heat conditions in Arizona. The Volt and Leaf are doing just fine, and the Model S will probably come through in sales and reputation if handled the right way by Tesla Motors.

In other Tesla news, the automaker is moving forward to direct sales in Virginia. The Virginia Department of Motor Vehicles and the Virginia Automobile Dealers Association reached an agreement late last week to allow the automaker to apply for a single dealership license. Tesla withdrew a lawsuit and now needs to get approval from the Virginia Motor Vehicle Dealer Board, the state regulatory agency that oversees dealers in the state, before it can begin selling vehicles in Virginia. Tesla Motors has taken another step toward expanding its fast charger options for Model S drivers. For $1,000, you’ll soon be able to get a CHAdeMO fast-charger adapter. While the 50 kilowatt CHAdeMO stations aren’t nearly as fast of the 120 kW Tesla Superchargers, there are a lot more of them out there on the roads – primarily in the Pacific Northwest region.

Correction: California funding of 100 hydrogen fueling stations
As reported by a Green Auto Market reader close to the story…. The coverage of California’s governor approving bills last week incorrectly reported funding for 100 hydrogen fueling stations in the state. It wasn’t $20 million in one lump sum – it needs to be described as “either $20 million per year or a potential total of $220 million during the life of the extended program (until 2023).” My reporting assumed that hydrogen stations would cost $200,000 each but it’s actually costing a bit more than that amount. So, if you catch incorrect reporting, please let me know. If you completely disagree with what I wrote, please let me know. It could inspire and fuel another commentary from me.

September sales figures didn’t break records, but the metal was still moving
Electric Drive Transportation Association just released electric vehicle sales numbers for September 2013. About 8,127 plug-in vehicles were sold last month – 4,477 plug-in hybrids and 3,650 battery electric vehicles. The numbers weren’t as high as August’s record sales, but they do show a 40% jump over September 2012. Cumulative 2013 sales for plug-ins were 117% higher than they were by this time in 2012. There were 33,576 hybrids sold last month, which correlates with the overall downward sales trend in new vehicle sales in the US market. Long term, it looked better – total sales for hybrids in 2013 were 21% higher than they were in the first nine months of 2012.

New book follows the money trail shaping renewable energy
“Do you get the feeling that the energy industry and the Congress that it owns are deliberately lying to you? If so, you are 100% correct,” according to an announcement that 2GreenEnergy.com Editor Craig Shields just had his third book published, Renewable Energy: Following the Money. The book features another set of interviews; the effects that economics and financial power have on the course of the energy industry are explored by high-ranking officers in the US military, lobbyists, scientists, economists, environmentalists, journalists, and heads of NGOs. I applaud Shields’ hard work and wide ranging perspectives on renewable energy and clean transportation. I admire how much he’s kept his word on staying in the trenches on where all of this is going as a business – whether that be through attending key conferences or interviewing experts of all genres for his books and blog. This new book digs into what I would describe as what “Deep Throat” ex-FBI official W. Mark Felt kept telling reporter Bob Woodward about the Watergate scandal: “Follow the money trail.”

CARB streamlines propane and NGV upfits, but Peter Ward calls for it to go further
The Cal­i­for­nia Air Resources Board (CARB) has stream­lined the process for propane auto­gas and nat­ural gas vehi­cle upfits through approv­ing changes to its rules. This brings the process closer to require­ments of the US Envi­ron­men­tal Pro­tec­tion Agency. Peter Ward of Alter­na­tive Fuels Advo­cates would like to see the process go fur­ther, where adjust­ments to the require­ments could be made with­out hav­ing to go to the Board each time. It’s the first substantial revision to the CARB rules in 18 years. Ward would like to see continued cooperation and mutual interest continued between CARB and the industry. “Keep the regulations nimble,” he said.

Highlights from Plug-In 2013 in San Diego

  • Debate continued by panelists on how public charging should be funded. Some say it should be essentially free to the public – paid for by retailers wanting to offer consumers incentives for showing up and staying a while. Some charger makers and others argue that most of the charging is happening at home and the EV drivers should just have to swipe their credit card to charge somewhere else. However, one-time processing fees could be a problem for acceptance of these systems by consumers. Then there’s the problem of too many people charging during peak hours when utilities are limited in how much energy should be flowing to charging stations. It’s likely there are not enough EVs out there yet for it to be a problem, but the worry continues.
  • Via Motors has a contract to build and deliver $20 million worth of plug-in hybrid pickups and vans to over 50 participating fleets. The fleets will also be sending real-time data to the US Department of Energy to study for improvements in fuel economy and emissions.
  • ABB launched the Terra 53 for North America. This 50 kW DC fast charging station meets both SAE Combo and CHAdeMO standards for battery electric vehicles, all in one station.
  • A coalition of US and German automakers unveiled a public combo charger at the Fashion Valley Mall in San Diego—in an eVgo Freedom Station. It uses the CCS plug and combines a J-1772 Level 2, 240-volt charge point with direct current (DC) fast charging.
  • Eaton released its Dual AC Level 2 charging stations for simultaneous charging of two EVS. The stations can charge electric vehicle batteries up to three times faster than traditional charging systems to offer a cost-effective solution.

And in other news during a busy week…..

  • Clean Energy Fuels released  its “Redeem” renewable natural gas fuel. The company says it is the first one to commercially distribute a renewable natural gas vehicle fuel made from waste streams such as landfills, large dairies and sewage plants directly to fleets around the country and at 35 public Clean Energy stations throughout California. Clean Energy says it’s 90% cleaner than diesel and comes from biogenic methane, or biogas – methane generated by decomposition of organic waste. The target is to produce and distribute 15 million gallons of Redeem in its first year.
  • General Electric Co, Whirlpool Corp, Eaton Corp and others are developing more affordable natural gas vehicle home refueling systems. For about a tenth of the price of current models, plus installation, they aim to sell the new units to the millions of homes across America that are already hooked up to natural gas pipelines. Energy providers in Georgia, California and Utah are working on distributing new refueling units in the next two years. Honda has also expressed interest in the new technology.
  • UK-based hydrogen fueling company ITM Power has a 4.45 million (pounds) project that will integrate its hydrogen energy storage and vehicle refueling system on the Island of Wight. It’s called EcoIsland Hydrogen Vehicle Refueller, which is supported by the UK’s innovation agency, the Technology Strategy Board.
  • General Motors is expanding its collaboration with the U.S. Army’s Tank Automotive Research, Development and Engineering Center (TARDEC) to develop hydrogen fuel-cell technology. It ties in with GM’s new fuel-cell development facility in Pontiac, Mich., which is about 20 miles from TARDEC’s new fuel-cell research lab in Warren, Mich. The two entities will focus on testing the durability and performance of fuel-cell materials. In related news, Daimler and GM will be investing in two other fuel cell projects aimed at advancing the vehicle technologies and building out the fueling infrastructure. Daimler is putting about $500 million into a network of hydrogen stations in Germany over the next 10 years.
  • The Toyota RAV4 electric version took the top ranking away from last year’s winner, the 2013 Lexus GS 450h in the Automobile Club of Southern California’s 2013 Green Car Guide. Results come from the organization’s Automotive Research Center, which has been a leading vehicular emissions test lab since the late 1960s. Testers look at how hybrid, alternative fuel, electric, fuel efficient, and extremely low emitting gasoline-powered vehicles on the market are performing following a number of patterns vehicles are typically experiencing.
  • Kia will release the 2015 Soul EV, the first electric car from a Korean automaker to be sold in the US beyond concept cars displayed at auto shows.
  • The US Environmental Protection Agency wants to make right with consumers to avoid future fuel economy rating meltdowns like the ones we’ve seen lately. EPA will be giving more information about its audits and data submitted by automakers. Results from 20 recent fuel-economy audits will be released soon to the public to start the changeover.