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The Cost of Electric Car Convenience

Wonder how pricing is determined for the Nissan Leaf? How does GM know exactly how many units of the Volt the market will accept? While consumers might assume a lot of guess work manages these decisions, automakers prefer not to leave multi-billion-dollar risks to chance. Recent research from University of Delaware informs a lot of these complex choices made in the boardrooms of the major automakers and in policy meetings in Washington D.C.

 

One study from UD revealed the top attributes buyers consider in an electric car: driving range, fuel cost savings and charging time. The results of the nationally-conducted study were authored by UD professors George Parsons, Willett Kempton and Meryl Gardner, and lead by economics doctoral recpient Michael Hidrue. Hidrue’s dissertation lead to the ranking and understanding of these findings. A second study, published a month later in March of 2011 looked at second-by-second driving records of nearly 500 vehicles nationally to determine optimal driving ranges for electric vehicles. This study, authored by Kempton, UD marine policy graduate student Nathaniel Pearre, and colleagues at the Georgia Institute of Technology released convincing data to determine how many more plug in cars the national automotive market would accept.

The results of the first study emerged through a sampling of 3000 individuals nationwide. Each of the factors revealed prices consumers would find acceptable for a given level of performance. For example, when looking at driving ranges it was determined that consumers value each additional mile of a car’s range at approximately $75 per mile up to 200 miles, while from 2-300 miles each mile of range was worth only $35 per mile. If then, an electric car had a range of 200 miles, and an otherwise similar gas car had a range of 300 miles, people would require a price discount of around $3500 for the electric version. This data assumes all other attributes of a car are the same, from design to features and performance.

“This information tells the car manufacturers what people are willing to pay for another unit of distance,” Parsons said. “It gives them guidance as to what cost levels they need to attain to make the cars competitive in the market.”

When looking at battery charge, and acceptable premiums for faster charging, the team discovered consumers would be willing to accept a $427 increase in cost per hour reduction of charge time if a car with a 50 mile range’s charge time halved from 10 hours to 5. For a drop from 5 hours to 1 hour, consumers would pay an estimated $930 per hour. In the advent of truly fast charging technologies, it was revealed that consumers would be willing to pay $3250 if charge times reduced from one hour to 10 minutes.

Unsurprisingly, the research team found that battery costs need to decrease a dramatic amount without subsidy to be competitive against gas cars for the price of gas at the time of the study. Yet they observed that the government’s $7500 tax credit could effectively mitigate the difference between the cost of an electric car and consumer’s interest in paying if battery costs decrease to $300 per kilowatt hour – the projected Department of Energy cost for batteries expected by 2014.

The reach of the first study was extensive enough to bolster marketing department budgets. The analysis showed that an individual’s acceptance of electric cars increased with factors such as youth, education and how environmentally conscious their lifestyle was. Income factors were not considered important to predicting who would likely buy an electric vehicle.

The second study’s results showed that 9% of vehicles never travelled more than 100 miles a day. Perhaps you have seen this data in other places in media recently. For drivers willing to borrow or rent a gasoline car 6 times per year, the 100 mile range would work for 32% of all driving Americans.

“It appears that even modest electric vehicles with today’s limited battery range, if marketed correctly to segments with appropriate driving behavior, comprise a large enough market for substantial vehicle sales,” the authors concluded.

Professor Kempton noted that in a non-recession car buying year with approximately 12 million units sold, that 9% figure would be a solid 1 million cars – far in excess of the current production plans for the Nissan Leaf and Chevrolet Volt. Nevertheless automakers are aware of this research and many have announced plans to capture this growing market. Chevrolet has also responded by increasing production to 45,000 units this year en route to a 120,000 unit a year goal.

The findings of the two studies were reported online in Resource and Energy Economics, and Transportation Research.

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