High growth, no profit
Despite the spike in revenues of Tesla Motors Inc (NASDAQ:TSLA) during 2012 – the company’s revenue grew by more than 102% compared to 2011 – it continues to present a loss. Most of this loss is due to the company’s research & development provision that in 2012 accounted for nearly 66% of the company’s revenue. Tesla Motors Inc (NASDAQ:TSLA) expanded its R&D provision by nearly 31% compared to 2011. Since the company continues to invest in making better and efficient cars, this could eventually lead to a rise in demand for its cars. Until such time, the electric/hybrid car industry is likely to keep on growing but at the same time remaining a small fraction in the car industry.
Sales in the U.S continue to grow
During January and February, sales of electric powered cars (not including hybrids) rose to 9,781 compared to 3,089 cars sold during the same time in 2012. This represents more than a 316% gain. Nonetheless, this industry accounts for only 0.43% of the total number of cars sold during the year to date. Last year the electric power market share was lower at 0.36%. So the market share of the electric power car is rising but remains very small fraction of the total car industry.
During 2012, total sales of electric powered cars (including hybrids) rose by 72% compared to 2011. Total cars sold in the U.S. increased 13.4% during 2012 compared to 2011. These numbers show the sales of electric powered cars are rising at a much faster pace than the total number of cars sold. In 2012, the market share of electric powered cars (including hybrids) was 3.38%. Assuming the market will continue to grow as it did in 2012; the market share of electric powered cars will reach 10% of the total car market by 2015.
Let’s break it down to the leading brands. General Motors Company (NYSE:GM) has its Chevrolet Volt, which is plug-in hybrid vehicle; the Volt is rising in sales, but remains very low in terms of share of total sales of the company. In January 2013, the company sold 1,140 Volt cars; in January 2012 the company’s sales of this vehicle were only 603. The Volt brand is still a drop in the water for General Motors Company (NYSE:GM) as the company sold in February alone nearly 225 thousand cars and in 2012 more than 2.6 million cars. This means the number of Volt cars represent less than 0.5% of the total number of cars the company sells each month.
Moreover, several analysts estimate that this car is loosing money for General Motors Company (NYSE:GM). The numbers go as high as $49 thousand for each car! I’m not sure if this number is correct and it should be taken with a grain of salt. But not all companies are necessarily losing money on their electric/hybrid car.
Nissan Motor and its Nissan Leaf is leading the way for all electric cars as it has recently passed the 50,000 cars sold worldwide. The sales of the Leaf have risen and in February the company sold 653 cars – a 36.6% gain from February 2012. Since the beginning of the year the company sold 1,303 Leaf cars while the total number of cars sold was 108 thousand, which means the Leaf brand account for only 1.2% of Nissan’s total car sales.
The company has recently announced the price of the new brand will be slashed by $6,400. This decision could encourage buyers to buy this car especially considering the tax breaks buyers receive for buying an electric car. The decision of U.S policymakers to push forward the demand for electric car by providing tax benefits for electric car owners has yet been proven as a sufficient incentive to augment the electric car’s market share. The tax benefits are not only federal. They could come to $7,500 in tax credit on a federal level; in certain states including California the tax credit could come to an additional $2,500. For a car such as the Leaf that has a sticker price of $28,800 could come down after the tax incentives to only $18,800. Such a price is competitive with other regular car but doesn’t put the car much cheaper than a regular car that doesn’t have the constraints an electric car has (in terms of battery).
The drop in the Nissan Leaf price might cut the company’s profit margin, but this company might be among the few making money off its electric car. If it does make money from its electric car, the profit margin might have shrunk after the updated price at the expense of augmenting the market share of the car.
The bottom line
It could be a very long time until the electric car will play a significant role in the auto industry and conquer a significant market share. The losses of several leading auto makers in this industry are likely to impede the progress of the electric car, until it will become economical and perform just as a regular car. Until such a day, sales of the electric car will continue to rise but won’t take a large portion of the total sales of cars.
The article Is The Electric Car Industry Still Viable? originally appeared on Fool.com and is written by Lior Cohen.
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