Electric Vehicles: 3 Pros, 3 Cons

Can EVs keep carving out market share from traditional autos?

   

Electric vehicle maker Tesla Motors (TSLA) — which has now paid off all its government loans and now sports a market capitalization double that of Fiat (FIATY) — is making it difficult to call electric vehicles a fad anymore.

TSLA is up a staggering 385% year-to-date, thanks to the success of its sleek and surprisingly safe electric car, the Model S. But the EV market extends to other manufacturers, including Nissan (NSANY), Ford (F) and others. Is Tesla’s success part of a bigger surge for electric vehicles, or is the company soaring on the strength of its product alone?

Here’s a look at the pros and cons for the electric vehicle industry:

Pros

Sales are up: According to data from the Electric Drive Transport Association, 2013 plug-in vehicle sales are up 232% compared to the same period last year. A large part of that growth is thanks to the surge in Battery Electric Vehicles, which tallied roughly the same amount of sales in June 2013 as they did in the entire first half of 2012. Of note: Most of those sales consist of Tesla’s Model S and Nissan’s Leaf.

More products are on the way: As ExtremeTech notes, consumers will see a new fleet of electric vehicles in the next few years. BMW is entering the fray with its i3, and Tesla is expected to offer a cheaper model in the $30,000 range. More options for consumers should help the industry as more of buyers’ diverse tastes are met. Of course, quality and performance will have to follow if the sector wants to see continued improvement.

Gas prices probably on the way up: The situation in Syria is looking like it’s going to result in military action and political trouble, and according to a recent CNBC article, that’s going to mean higher gas prices. And don’t underestimate people’s frustration at the pump when making their next car-buying decision. However, it’s worth noting the flip side of the coin: People who can afford EVs, which tend to have much higher stickers than comparable gas-powered vehicles, aren’t going to be as hard-pressed by higher gas prices.

Cons

Electric vehicles still come with challenges: Is your daily commute more than 80 miles? Do you ever forget to charge your phone at night? Then an electric vehicle might not be for you. The technology is improving, but it’s still considerably limited, and a lot of consumers still feel safer with gas-powered and hybrid cars.

Infrastructure hasn’t adapted: All the electricity needed to power these vehicles has to come from somewhere, and as the MIT Technology Review points out, that could cause some problems with power grids. In California, for example, “charging an electric car at [a designated electric vehicle charging circuit] is the equivalent of adding one house to the grid.” Not all cities are equipped to handle that demand, and the problem will only become more difficult as adoption increases.

Millennials don’t want cars: Electric vehicle makers still have to overcome the declining number of license-holding, car-buying young people. For Tesla, that might not be as much of a problem because its $60,000 Model S probably wasn’t targeting all but the richest of them in the first place. But for other manufacturers, it’s yet another hurdle to jump.

Bottom Line

The electric vehicle market is still very young, so there are bound to be some growing pains. But despite that — and the fact that EVs face significant challenges on the charging front — the sector’s growth and increasingly popular representative face of Tesla are difficult to ignore any longer.

As consumer confidence increases and more models roll into showrooms, expect electric vehicles to continue adding market share at the expense of their traditional counterparts.

Adam Benjamin is an Assistant Editor at InvestorPlace. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2013/09/electric-vehicles-3-pros-3-cons/.

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