Buy the Car, Lease the Battery

Almost every big automaker fell short of their first-year sales targets for electric vehicles (EVs), and even though total EV sales in 2011 beat hybrid sales in 2000 (the vehicle’s first year on most markets) by a hefty margin, EVs took a beating from media outlets. Bad press or not, EV sales will continue to remain a mere fraction of overall vehicle sales until OEMs figure out how to sell EVs at a drastically lower price. One possible approach currently being tested by French automakers could prove, if successful, to be an industry standard, at least until the cost of EV batteries falls by half.

The reason why an EV’s price has to come down is made clear by a recent New York Times piece that examines the return on investment of an EV against a similar energy efficient vehicle. For instance, the $31,767 (after tax credits) Volt payback period is estimated at 26.6 years compared to the $19,925 Chevy Cruze Eco. For this reason the EV market is highly dependent upon a small group of “affluent green” consumers rather than a broader customer base.

The major culprit for the excessive price of the EV is the cost of the battery which can be over 35 percent of the vehicle’s cost. To be sure, some battery developers have announced technological breakthroughs that would halve that cost. But a breakthrough of that type will not be commercially available for five to ten years.

To shorten this delay, French OEMs Mia Electric and Renault are spearheading a business model that may prove attractive to more mainstream drivers. To reduce upfront costs, Mia and Renault have set up options where EV drivers can purchase the EV without buying the battery. Instead, EV owners will rent the battery at a cost of around $50 to $100 a month. Although the total costs over time are still significant, the business model allows for a more affordable initial purchase price and reduces the financial risk to EV owners, in that the battery is guaranteed for life.

Mia began production of its EV in June of 2011 and since then has sold over 1,000 of the cars at a little over €15,000 (after state incentives). The battery rents for €49/month. Four EVs from Renault, all with battery rental plans, have reached European markets with estimated prices from €7,000 for the small urban Twizy, to €21,000 for the larger Fluence Z.E. sedan. Europe’s largest automaker, Volkswagen, may also adopt the business model when it releases its EV offerings next year.

The battery leasing model certainly presents an opportunity for OEMs to make initial prices more competitive with other fuel efficient vehicles. However no maker selling plug-in models in the United States has indicated it will start a leasing program here. In an interesting development, Nissan has indicated it may lease batteries, but also just in Europe, where its Leaf will compete against the ZOE, which is made by Nissan’s European partner Renault. The ZOE is set to sell at half the cost of the Leaf, thanks to the battery leasing program.

U.S. OEMs could be wary of bearing the financial and legal burdens inherent in leasing a technology with so many perceived unknowns, or perhaps the automakers assume the economics of owning a vehicle and leasing its fundamental power source are too confusing for consumers. (The familiar telecom model of buying a subsidized handset and paying a monthly service fee would indicate otherwise.) At any rate, if the European programs boost sales, you can be sure the model will make its way across the Atlantic.

Article by Scott Shepard, appearing courtesy the Matter Network.

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