Plug-in electric hybrids and the anti-value proposition

Plug-in electric hybrids and the anti-value proposition

I spoke at the Electric Light & Power Executive Conference in Tampa this morning.  There was a lot of good discussion around the Smart Grid, but I was particularly taken with a presentation from Kathryn Clay, Director of Research with the Alliance of Automobile Manufacturers.  She did the best job of anybody I’ve heard speak on the topic in spelling out the reality of the PHEV market.

The bottom line is this:  though many of our lawmakers (and even consumers) want a silver bullet on the energy issue, plug-in hybrids are not The Answer.  Ms. Clay did an excellent job of spelling out the reality that, unlike the combustion engine before it, there will be no single technology leader in the automotive market.  We’ll ultimately see (in 2030) market share spread out among diesel, flex fuel, mild hybrid electric and full hybrid electric vehicles with a smidge of market share taken up by fuel cells.  Not that that’s a reason to stop development on them…but it’s a reality check for anyone thinking they have The Answer to our energy issues.  Like the whole conservation arena, the actual answer is way more complicated.

Further, the value proposition for PHEV’s is much more like the one for a residential solar system in a state where there are no tax incentives.  In short, there isn’t one (at least not in the traditional payback sense).  According to Ms. Clay, a car that gets 40 miles on an electric charge (which is about how the Chevy Volt will perform) will save its owner $6,000 over the life of the battery of the car — at $6/gallon gasoline and an admittedly high 16 cents per KWh fee for the electricity.  That sounds pretty good until you hear what the vehicle will cost its owner to purchase — $16,000 more than a conventional, comparable vehicle.  Thus, the owner will pay $10,000 more than he/she earns in tangible value.

Now, at Shelton Group we deal in intangible value all the time.  In fact, we think that’s what ultimately drives people to change their behaviors — pressing on intangible emotional levers.  People have purchased solar systems and even Toyota Prius’ for years because of these intangible benefits (like feeling happy, proud, connected, peaceful, etc.)  But residential solar has about a 1% market penetration, and all hybrids combined make up only 3% of the automotive market today.  So, we can expect PHEV’s to fare about as well given the current math.

At the end of the day we are emotional creatures, and we’ll let our emotions lead us down a decision-making path.  But Tiger Woods, Mark Sanford and John Edwards notwithstanding, our heads will also play a role in our decision making.  If the money doesn’t work, our hearts will only carry us so far.

About the Author

Suzanne Shelton

Where Suzanne sees opportunity, you can bet results will follow. Drawing on her extensive knowledge of both the advertising world and the energy and environment arena, Suzanne provides unparalleled strategic insights to our clients and to audiences around North America. Suzanne is a guest columnist in multiple publications and websites, such as GreenBiz, and she speaks at around 20 conferences a year, including Sustainable Brands, Fortune Brainstorm E and Green Build.

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