Why Are Leaf and Volt Shipments So Low?

Edward Niedermeyer of The Truth About Cars writes to say that the reason for the low sales volumes of the Volt and the Leaf is indeed that their production capacity is seriously constrained right now.  Since he's on to bigger and better questions, he has kindly given me permission to reprint.

Nissan Leaf is definitely capacity-constrained. The Oppama plant may hit 4k units this month, but that plant supplies dealers in Japan, The UK and the US. Realistically, US-market demand for the Leaf will not be demonstrable in the sales data until September at the earliest (the very earliest). Volt is similarly capacity-constrained, but the ramp-up plans are even less clear.

Here's the thing: short-term demand has never been the issue for the Leaf and Volt. Both will sell every unit they build for (at least) the next year. The question is whether they will sustainably sell at 20k+ annual units for any kind of extended period. The answer ultimately depends on the supply of two resources: oil and well-off principled people. As long as the one gets scarcer and the other more abundant, EVs will build towards becoming an important part of the industry. If, on the other hand, oil keeps rising steadily and the economy stays sluggish, you'll see a drop-off in sales within six months of reaching full production ramp-up (or, incentives... or, more fleet sales to the GEs of the world) and then you'll know it's going nowhere until gas prices get insane again.

Luckily for the industry's gambling types, EVs will always have one thing going for them: Americans love to exaggerate fluctuations in oil prices with their auto purchases. Is gas cheap? A HUMMER in every pot. Did gas go up by a few bucks in a few months? Everyone start bidding up Geo Metros on eBay . A few aggressive but short-term spikes in the pump price would do wonders for EV sales.

I confess, I'm pretty skeptical about electric vehicles.  I'm the ideal customer for them (I use about a tank of gas a month).  But like many of those ideal customers, I don't really have $40K to drop on what is essentially a Chevy Cruze.  I also don't have a garage.  Maybe someday there will be the infrastructure to support these vehicles, but as it was pointed out to me the other day, gas prices have been much, much higher in Europe for decades, and they're not driving electric cars even though they've been theoretically possible for that whole time (indeed, some of the first cars were electrics; ultimately, the internal combustion engine won out.) Instead, people opted for smaller cars and diesels.  Moreover, the factors that push up the price of oil (emerging market demand, carbon pricing) might also eventually push up the price of electricity.  If I were a betting lady, I'd bet on hybrids, not electrics. 

But I'm prepared to be surprised.  It will be interesting to see how this market evolves over the next few years . . . and whether it has staying power after that.  Lots of technologies get an initial boost from novelty and uncertainty about where the market is going (think 8-tracks, Betamax, or the laser disc), only to be abandoned once the drawbacks, or the preferences of your neighbors, become clear.  Ultimately, I think making electric cars really common is going to imply a fair amount of infrastructure, like the ability to charge at work, or maybe swap batteries at a gas station. And I presume that EV production has considerable economies of scale, meaning that fewer cars produced translates to a higher price. That means that the cars have network effects--it doesn't just matter what you want to buy, but what your neighbors want to buy.

So in the short term, watch to see if production meets expectations.  In the long term, watch to see what everyone's expecting car sales to be.
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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