Electric cars enjoy cool factor but still costly

LAGUNA NIGUEL, Calif.--By Keshav Sondhi's telling, the handful of electric vehicles that FedEx is testing are wonderful, offering sufficient range and one-third the operating cost.

But because an electric truck costs three or four times more than a conventional truck, FedEx's worldwide fleet of all-electrics is only 19 out of about 40,000 trucks.

"We want those trucks. We believe in energy independence," said Sondhi, FedEx's chief engineer for electric vehicles. "We have a deep belief in electrification, but the capital (needed) has inhibited us to what we have now."

So it goes for so many consumers and businesses considering electric vehicles. The smooth and peppy acceleration of electric motors makes for a good driving experience, fueling up is cheaper, and owning a plug-in reduces imported oil and carbon emissions.

But for electric vehicles to break out beyond early technology adapters, battery prices need to fall dramatically--to about half where they are today in the coming years--said auto executives at the Fortune Brainstorm Green conference here. Cost reductions are expected to come from higher scale manufacturing and technology improvements.

"By mid-decade I have high confidence that we (as an industry) will establish (battery) cell production in the U.S.," said Tony Posawatz, the vehicle line director for the Chevy Volt. "The simple fact of producing cells with shorter transport takes likely hundreds of dollars out of the cost of pack."

Overall, the sentiment at the conference is that electric vehicles, although still not a mass-market product, are going to make a commercial impact. The question is how quickly cost reductions can spur sales, with some more confident than others.

"Within a very short period of time, we can get to parity with gasoline vehicles on the curve we've seen (of battery improvements) over the last 10 years," said Li Lu, one of the investors in BYD, a Chinese company that plans to bring an electric sedan to the U.S. "There will be a time that people will say, 'Why do we bother with gasoline cars?'"

Warren Buffett, chairman of Berkshire Hathaway, is one of the investors in BYD, which has been manufacturing batteries for electronics for years. BYD, which is testing electric taxis in China, is said to have developed a car with a 200-mile range.

Too much attention for EVs?
One of the main drivers for electric vehicles is the lower emissions they promise as compared with gasoline engines. By making power generation cleaner, there is the potential to reduce carbon dioxide emissions from autos by 75 percent by going electric, said David Sokol, who is chairman of Berkshire unit MidAmerican Energy Holdings and is considered a likely successor to Buffett at Berkshire Hathaway.

But not everyone believes that electric vehicles deserve all the attention they get, particularly when it comes to government incentives and subsidies. Vinod Khosla, who is perhaps the most high-profile green-tech investor, is putting money into biofuels and improvements to the internal combustion engine, which could become 30 percent to 50 percent more efficient.

"I believe (biofuels) is the single most economic way to get to low-carbon transportation," he said at the conference. "All this focus on fundamentally uneconomic batteries has reduced investor interest in improving the internal combustion engine."

Because of the higher costs of hybrids and electric vehicles, they are unlikely to meet the so-called "China price," or be affordable enough for consumers in India and China, where the bulk of new cars sales will be in the next 20 years.

In the U.S., automakers are testing their cars to find what works and doesn't with customers. BMW for the past several months has been testing the Mini-E with customer and found that the 100-mile range is sufficient for most drivers, but that the task of installing charging stations needs to be streamlined significantly, said Tom Baloga, vice president of engineering for BMW North America.

Nissan will start taking orders for the all-electric Leaf later this month and General Motors has started manufacturing battery packs for the Volt, which will go on sale later this year. The Leaf will cost $33,000 before state and federal incentives.

Start-up Coda Automotive will begin selling an electric sedan with a slightly longer range than the Leaf in California later this year. Coda's sedan will cost around $35,000 after state and federal subsidies. When cost of fuel is considered into the equation, the Coda sedan is the equivalent of buying a compact that costs just less than $30,000, according to Coda CEO Kevin Czinger.

"When talking to potential customers, we have to be transparent about whether the car is for them," said Czinger. Coda plans to have applications that consumers to fill out to calculate daily driving and monthly fuel costs. "We want it to be priced for everyday people and for everyday use."

Updated on April 20, 2010 at 9:25 a.m. PT with corrected name for FedEx representative.