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The biggest problem with electrified cars may be car buyers

  • Electrified car sales have been very low even when incentives have been available.
  • Autonomous cars may be a saving grace for electric power trains.
An employee assists a customer with pre-ordering the Tesla Motor Model 3 in Santa Monica, California, in March, 2016.
Patrick T. Fallon | Bloomberg | Getty Images
An employee assists a customer with pre-ordering the Tesla Motor Model 3 in Santa Monica, California, in March, 2016.

The biggest enemy of electric cars in America may be the average car buyer.

When news of the GOP tax plan broke, there was plenty of talk that the plan to kill the $7,500 federal tax credit for electric vehicles would make the cars an even tougher sell among mainstream consumers. That may be true for some buyers, but electric vehicles may be facing issues that even an incentive may not solve.

For example, out of 16 million unique users every month, fewer than 5 percent of searches on car-buying site KBB.com are for electric or hybrid vehicles, Kelley Blue Book analyst Rebecca Lindland told CNBC.

The hybrid Toyota Prius was introduced in 1997 and several competitors have since emerged, but hybrid cars have never accounted for much more than 3 percent of total auto sales, Lindland said. In fact, sales have fluctuated over time, sometimes moving up and down with gasoline prices.

"While it is not ideal that the tax credit may go away, it was not the panacea for electric vehicle sales," Lindland said. "It is not like EV sales were on fire because of the incentive."

"Car buyers don't see hybrid and electric vehicles as providing the right solutions for their wants and needs, even though the vehicles often can," she said.

Electric vehicle advocates say the credit has helped electric sales, and that Congress would be removing it at a critical juncture.

"It is working exactly as it was designed to work," said Genevieve Cullen, president of the Electric Drive Transportation Association. "It is creating jobs, we have a diverse market of EVs at different price points. Let it continue to work as intended. It would be backward to repeal this credit just as the next wave of electric cars at closer-to-average price points come to market."

There are many reasons to think consumers will warm to electrified vehicles. Younger buyers show higher interested in electrified vehicle, for example. Charging infrastructure is improving. Several manufacturers are planning new models, which will increase the range of choices for buyers.

And some analysts expect battery costs to drop over the next several years to the point where electric cars are less expensive than internal combustion engines.

Some firms working on autonomous driving technology have said it pairs best with electrified drive trains, in large part because both autonomous and electric cars need massive battery power. Waymo said on Tuesday it will test a breakthrough semi-autonomous ride-hailing program in Phoenix. It is using hybrid Chrysler Pacifica minivans.

Ride-hailing company Lyft has said it wants its own self-driving fleet to be electric, and General Motors has been developing autonomous technology on Chevrolet Bolts.

"Autonomous could be the saving grace of electric vehicles," Lindland said.

But the widespread of deployment of self-driving cars is widely thought to still be years away.

In the meantime, more consumer-friendly incentives could go a long way toward boosting sales, Lindland said.

One potential solution is redesigning incentives so they go to the customers who would most likely need them to justify the purchase — target the mid-range or budget-conscious buyer. California lawmakers earlier in 2017 introduced (ultimately unsuccessfully) legislation that included more incentives for low income-buyers, for example.

As you go into mainstream, buyers become more price sensitive," Lindland said. "They are more constrained, they are not going to buy it just to be the first on the block to have the car. Those are the very people you need to incentivize. This is where the regulations and incentives are out of line with consumer."

Another approach would be to offer the credit as a rebate or "feebate" that could be redeemed when consumers purchase vehicles, rather entered as a line on a tax return weeks or months later. This would make the process simpler for buyers and put money back in their pockets right away.

"We need to govern smarter," Lindland said. "It is not that tax credits are a bad idea. They just need to be timed correctly and executed correctly."

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