Silent Sales Success: Plug-In Electric Cars

NEW YORK (TheStreet) -- Let's say you are an automobile manufacturer. Let's further say that you want to sell every car you make, preferably the same day the car arrives at the dealership, so that there is no inventory and no discounts.

Ferrari has done this for years or decades.

But so can Chevrolet and Nissan(:NSANY), with their new plug-in electric cars, Volt and Leaf. These silent electric cars are also this year's silent sales successes. Almost every Volt and Leaf manufactured is reserved already before the iron ore is mined in Pennsylvania or China.

Chevrolet Volt

You could reserve your 2011 Nissan Leaf as early as April 20, 2010. Many of those who reserved their cars close to a year ago still have not received their cars. Now that's a high demand-to-supply ratio! Not even Apple's iPad 2 have people waiting that long.

Granted, the numbers are still modest. Chevrolet will sell 10,000 of its model 2011 Volt, and Nissan will sell 20,000 of its model 2011 Leaf -- in the U.S. In addition, these two pioneering cars sell in only a small handful -- approximately seven -- states/markets inside the U.S. 30,000 units for the 2011 model year is a drop in the bucket in a U.S. market that took almost 12 million cars. It's 0.25% of the market, measured in units instead of dollars.

Small as these numbers may be for the 2011 model year, they start cranking up drastically for the 2012 model year. Chevrolet is on track to sell more than four times as many Volts, and Nissan two times as many Leafs, yielding 80,000 units, or 0.67% of a 12 million U.S. annual car market.

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But then you have to add new models from Toyota(:TM), Ford(:F), Tesla(:TSLA), Fisker and potentially other plug-in car manufacturers. Toyota could convert 10% of Prius sales to plug-in models, Ford could sell as many as Nissan's Leaf models, Fisker is looking at about 10,000 units, and Tesla looks to be nominal for the 2012 model year starting in the second half of 2011. This would, at any rate, add 50,000 units for the U.S. market, or 130,000 in total, bringing the plug-in electric car market north of 1%. It's for the 2013 model year that the plug-in electric car market will take off dramatically. Nissan is adding a 400,000-car capacity in Tennessee and the U.K., Chevrolet is looking at numbers well above 100,000, and almost every other car maker is adding models -- Volkswagen, Volvo, Chrysler... well, everyone. We could see model year 2013 plug-in electric car capacity for the U.S. market exceed 5% of the entire car market.

Why are people, who could care less about environmental arguments, buying plug-in electric cars? I stipulate that there are three main reasons:

1. The upfront tax subsidy is material, at $14,900 in some states such as California, where most of the Nissan Leaf and Chevrolet Volt sales appear to take place. This breaks down as follows: $7,500 Federal tax credit, $5,000 state tax credit, and $2,400 worth of subsidy toward the installation of a 240-volt charger in your garage.

Fully loaded, a Nissan Leaf is approximately $35,000, and the Chevrolet Volt runs $10,000 more. If you are able to take advantage of the tax subsidies, you get the cars for $22,500 and $32,500, respectively, plus sales tax, and the free charger/installation. These are favorable prices for some of the most advanced cars in the market today.

2. The cost and hassle of operating these plug-in electric cars is very favorable, too. They run approximately 4 miles per kWh worth of battery capacity. Assuming 12 cents per kWh, that's 3 cents per mile. What's the price to run a Toyota Prius, which costs somewhere between these two Chevrolet and Nissan cars when comparably equipped? Assuming 50 MPG and $4/gallon, that's 8 cents/mile, or more than twice the cost.

But wait, there is more! Assuming you drive 10,000 miles per year, you will pay at least $300 per year to service your Toyota Prius at the dealership -- oil changes, etc. -- over the long run. Yes, I know there may be free service for the first one to three years, but that may be a temporary benefit and it doesn't cover the out-years. In any event, this could add 3 cents or more per mile, making the comparison 3 cents/mile for the electric vs. 11 cents/mile for the Prius.

Electric cars such as the Nissan Leaf require very little maintenance -- no oil changes, spark plugs, etc. Furthermore, the equation could tilt even more in the all-electric plug-in's favor if your electric utility company introduces night charging rates that would be significantly cheaper than the 12 cents per kWh in my example. I hear talk about those rates being half, lowering the cost to 1.5 cents/mile. That's a cost per mile as much as 86% lower than a Toyota Prius, using my numbers above!

3. The electric cars actually have some high-end car characteristics. For example, they are quiet. More quiet than a Rolls Royce, perhaps. They also have a lot of torque, making for a tremendous power rush when you step on the accelerator. You don't need to be a greenie-weenie to want an electric car -- you may just want a particular form of quiet high-end performance. Tesla has shown this with its first model, the Roadster, but Nissan and Chevrolet are now delivering these quiet and torquey cars at these very reasonable prices -- $22,500 and $32,500 after tax incentives.

Despite all of these positives, there are well-known drawbacks to electric cars. The three main ones are:

1. Range. The Nissan Leaf is rated at 73 miles, although careful driving in favorable California-type climates could yield 100 miles or more. That said, this is too little for this kind of car to take a majority market share in most parts of the country. Future models will need to deliver on the kind of range Tesla is promising for its 2013 model year cars -- as high as 300 miles.

2. Availability of chargers. While you can easily install a 240-volt charger in a house, the bureaucracy involved in getting an apartment building to install this can be prohibitive. That said, this problem should be cured over the next one to two years, with one or several chargers on almost every block.

3. The time it takes to charge. The Nissan Leaf may take eight hours to charge from empty to full, and Ford promises to cut this in half with its Focus model entering production in the fourth quarter of 2011. This is not a problem for the overnight charge, but leaves something to be desired in terms of those who need to charge during multiple stops along the way.

Bottom line: You can laugh all you want about electric cars, but Nissan and Chevrolet are selling every electric car they can make. That's a high-class problem, and the growth in U.S. plug-in electric cars from 2011 to 2012 and 2013 will be dramatic, from 30,000 to more than 130,000 to perhaps around 600,000. Someone will end up making a lot of money in this transition, hopefully not at the expense of the U.S. taxpayer after the 2011 subsidies are over.

At the time of submitting this article for publication, the author was long AAPL.