Sometimes change seems to happen in slow motion. A new technology or business model can be an
ongoing topic of discussion, with little change in the market. The merits of e-book readers, for instance, were discussed over a period of 15 years. But when a compelling product—the $139 Kindle—hit the market at an attractive price, consumers pounced. Industry players that adapted early to the shift are the ones that survived (Barnes & Noble) and thrived (Amazon), while others (Borders) ended up leveled because they failed to develop a strategy for the change.
I believe we’re nearing a crossover point in a key area of cleantech—electric cars. Over the coming months, two leading e-car models, the Nissan Leaf and the Chevy Volt, will expand beyond limited test markets. The global launches will be supported by new business models for creating a charging infrastructure.
Calculating the “total cost”
To see how e-cars have started to cross key price-performance thresholds, we have to do some math. Using the “green car calculator” on Kipplinger.com, Innosight selected five car models to figure how much they’d cost over five years of ownership (see chart). We compared the all-electric Nissan Leaf as well as the plug-in Chevy Volt, which is powered by a rechargeable battery but includes an extended-range gas engine. We put those two e-cars up against the Toyota Prius Hybrid as well as two popular gasoline models, the Ford Fusion and the Lexus CT.
What the resulting chart shows is that at $4 per gallon, the Leaf is cheaper to own than a Toyota Prius hybrid, even though the dealer invoice cost of a Leaf is $10,000 higher.
And with gas at $4, the Volt is not only less expensive to own than a Lexus but it also narrowly beats a Ford Fusion. How can a $39,000 Volt be cheaper to own than a $21,000 Fusion which gets 33 mpg on the highway? Factor in the Federal tax credit for e-cars along with five years of gas bills (compared to five years of electric bills) and you have your answer.
If prices at the pump continue to climb, e-cars become even more attractive. With gas at $5 per gallon, the Chevy Volt becomes cheaper to own than a Toyota Camry, a Honda Accord or a Volkswagen Jetta.
These kinds of price signals can lead to new consumer behavior. How many people do you know who never considered e-books an attractive option two years ago are indeed reading them now? In a similar way, we’ve been conditioned to believe that cleantech solutions are unattractive because of the cost. Since this has always been the case, many businesses and consumers are not yet aware of the fact that we’re close to cost parity in the e-car space in the U.S. (Of course, if you go to Canada or Europe where gas is already between $5 and $10 per gallon, this point becomes more obvious.)
Revving up new business models
Certainly, e-cars and e-books are different situations in many key respects. But both transformations are enabled by both new technology and new business models. Book publishers who have embraced e-books have figured out how to create, price, and market their products in new ways.
Something similar is starting to happen with e-cars, where a new ecosystem of players are anticipating the new market. Some electric utilities, such as Texas-based NRG, are offering to install free 240 volt charging stations in consumer garages if they sign up for three-year plans—such as $89 per month for unlimited off-peak car charging. Cities such as San Francisco are installing free charging stations around town. And retailers such as Best Buy and Walgreen are installing charging stations in their parking lots, to entice drivers to shop while refueling.
Crossing wind and solar thresholds
All this activity raises the question: are electric cars really cleaner than gas cars? While they don’t produce any tailpipe emissions of carbon, they are indeed fueled by electricity plants that burn fossil fuels like coal, which is the dirtiest source of power.
But this is where the cleantech threshold gets even more interesting. That’s because grid is steadily getting cleaner. Many new coal plants have been cancelled because of environmental concerns. Typically, that capacity is replaced by natural gas, which produces roughly half the carbon emissions. Wind power is also growing fast, with U.S. capacity increasing 10-fold over the past decade, according to the U.S. Department of Energy. The state of Texas already gets 10 percent of its power from wind, and that surges to nearly 20 percent on peak wind days. Wind has already reached cost parity with natural gas in many locations.
More thresholds are being crossed in other areas of cleantech. Due in part to cheap mass production in China, the cost of solar panels have dropped about 75 percent over the past decade, and the DOE forecasts that solar costs will drop another 75 percent by the end of this decade, bringing it in line with the cost of coal power.
Yet it’s anyone’s guess how fast consumers will warm to electric cars. Since electric cars are just now becoming widely available, the predictions are all over the map. Market research firms and gas makers estimate that e-cars will capture anywhere from 2 percent to 15 percent of the total car market within ten years, depending largely on the price of oil.
But here’s where the e-book analogy comes back in. If you look at predictions of e-book adoption as recently as 2009, all the estimates were wildly low. Only when Amazon announced earlier this year that it was selling more e-books than print books for the first time did everyone realize that the transformation was here. By then it was too late for some of those who missed the ride.
Read the full article on Bloomberg
Mark W. Johnson is co-founder of Innosight, an innovation strategy consulting firm.