January 31, 2017

The 2016 plug-in electric vehicle sales results told a clear story. Overall, the segment’s 159,333 sales soared past the previous yearly high by nearly 40%. In December, automakers set a new monthly record for plug-ins with over 24,500 units sold. Market share also peaked in 2016’s final month with EVs taking almost 1.5% of the industry’s considerable volume.

Even with all the good news, there was reason to be cautiously optimistic as 2017 began. A few aging models that never attracted a huge market became even less relevant in 2016. Meanwhile, several major automakers had yet to introduce plug-in models to the North American market.

With these factors in mind, we decided to take a look at the message consumers sent to plug-in vehicle manufacturers last year. Here is our take on what is working, what could be improved, and how automakers can expand their reach in the segment.

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The Winning Formulas

The top four models accounted for 54% of the entire U.S. plug-in market in 2016, so there are clear lessons to learn from this group. In fact, we see three winning formulas that emerged.

Premium performance EVs. With Tesla taking No. 1 (Model S) and No. 3 (Model X) on the sales charts, this winning formula is clear: Offer stylish, high-performance, tech-centric vehicles and people will pay. Consumers want more than just a green car, and Tesla’s pursuit of perfection locked down the high end of the market. While battery costs remain expensive, luxury automakers find a warm reception in the segment. Hence the push by European luxury brands in the plug-in space. Long-range PHEVs. Since the Chevrolet Volt (No. 2 in 2016 sales) offers 53 miles of electric range, you could call it an “electric vehicle with range extender” as well as a plug-in hybrid (PHEV). GM improved the EV range, fuel economy and total range (420 miles) with the new Volt without raising the MSRP. American consumers responded by buying 61% more Volts than they did the previous year. This formula works because it eliminates range anxiety and remains affordable to a large portion of the auto market. Popular sedans with optional EV range. Ford Fusion Energi (No. 4) sales leaped 63% in 2016. The formula here is giving consumers an optional plug in a popular midsize sedan. Fusion Energi’s 21 miles of electric range covers most daily trips for U.S. drivers, and with the gas engine it is capable of traveling 610 miles total. There are no compromises (other than some trunk space) with this model. Strong dealer and government incentives made it irresistible to car shoppers last year.

What Isn’t Working

Last year’s plug-ins. Change happens fast in the electric car segment, so models that were current two years ago quickly become dated. You can see that in the Nissan Leaf, which sold less than half in 2016 (14,006) than it did in 2014 (30,200), despite improving its range by 23 miles in a higher-price model. Likewise, Smart Electric Drive’s low-volume ’14 totals (2,594) nearly disappeared last year (657) – a drop of over 70%. Compliance cars. To comply with California clean-air legislation, many OEMs took a shortcut to EVs by constructing compliance cars. This approach begins with a gas model (Ford Focus Electric, Kia Soul) and outfitting it with an electric powertrain. While this sounds similar to the “add optional EV range to popular models” formula mentioned above, automakers produce the plug-in version in limited volumes and do almost no marketing. The system is not meant to work and in 2016 the market rejected nearly all these offerings. Overpriced models. Even with battery prices still relatively high, value matters on the electric car market. Whereas consumers pay over $100,000 on average for a loaded Tesla Model S, the Cadillac ELR and Mercedes B-Class Electric Drive averaged fewer than 60 sales per month at much lower price points. ELR’s pricing made it a pariah since its 2014 debut, and Mercedes’s electrification of the B-Class for over $42,000 made it no match for the all-new BMW i3.

Issues with Marketing and Production

In late 2016, the Sierra Club released a study showing how automakers marketed electric models compared to the SUVs, pickup trucks and other gas-powered vehicles you see in a typical 30 minutes of watching TV. Not surprisingly, the resources spent on ads for EVs represented a fraction of those allocated for the rest of automakers’ lineups.

Automakers argue consumers are not ready for the technology, but the success of Tesla Motors presents a clear counterargument. If Tesla, a company that does not advertise at all, can set sales records in the segment, then much more established automakers can seem like they aren’t trying. Of all the major car companies with EVs on the road, only BMW has consistently advertised for its i3, i8 and plug-in hybrid 330e.

Production volumes and general availability are two other factors standing between consumers and electric cars. In the case of the Fiat 500e, only consumers on the West Coast can buy the car. The same goes for Mercedes’s plug-in hybrids and other models that have already come and gone (Honda Fit EV, Toyota RAV4 EV).

Likewise, car shoppers who visit dealerships offering the Kia Soul EV or Ford Focus Electric might not be aware those cars are even on the lot. Another Sierra Club report showed how difficult it was for consumers in the Northeast to find plug-ins. Sometimes, when they were lucky enough to catch a dealer with an EV in stock, they learned the car lacked enough charge for a test drive. In other cases, the salespeople had no knowledge about how plug-ins operate.

The Path Forward in 2017 and Beyond

Many new and improved electric vehicles – including the updated Focus Electric and Hyundai Ioniq Electric – will enter the market in 2017. GM’s marketing campaign for the Chevy Bolt EV looks promising in its early stages. By late 2017, Bolt EV will be available in every part of the U.S.

Tesla Model 3 should also enter the picture before the year ends, and we should know more about Nissan’s 200-mile entry to the field, along with word from Hyundai about an electric SUV. Increased competition at better prices should move the needle, but an across-the-board commitment from automakers must be involved for the EV segment to break through by the end of this decade.

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