Are Consumers Pulling the Plug on Electric Cars?

In the early part of 2011, there was a buzz about electric cars in America. General Motors introduced the Chevrolet Volt plug-in to much fanfare. It earned Motor Trend magazine's 2011 Car of the Year award, and was featured in a much-hyped Super Bowl commercial. President Obama touted the virtues of electric cars in his annual State of the Union speech. Plug-in electric cars seemed about to take the country by storm.

Somewhere along the way, after the hype died down, consumers seemed to lose interest.

In May, when gasoline prices reached an average of $4.00 per gallon across the country for the first time ever, sales of hybrids and plug-in electric cars plunged to a 16-month low. Just when it seemed like sales of alternative-fuel cars should have been been amping up, the electric car trend stalled.

When fewer than 500 Volts were sold that month, GM announced that the Detroit area factory were the cars are produced would shut down for four weeks of retooling.

"Coupled with already low dealer inventories and strong demand, the suspension of production will result in limited availability and reduced sales in June and July," GM announced.

The company's prediction certainly came true. In July, Chevrolet sold only 125 Volts nationwide.

In tough economic times, Americans are looking for value. But they've done the math, and instead of purchasing a $40,000 Volt Chevy customers are opting for the 42-miles-per-gallon gas powered Cruze, which retails for about half the price. Drivers have figured out that it takes a hefty financial commitment to "go green."

The story isn't much better for the plug-in Nissan Leaf. Nissan sold just 931 of its electric cars during July. Slow sales of the Leaf in the first half of the year caused Nissan to revise its projection for 2011 sales downward from 20,000 vehicles to roughly half that.

"That's a reasonable figure," says Al Castignetti, Nissan's vice president of U.S. sales. "We're very positive about this program. It's different than anything we've ever done, launching the car in three global markets at the same time. We knew it wasn't going to be easy."

So what's the problem?

Availability surely has been one issue. Chevy diverted many of the early Volts that rolled off the assembly line to dealers as demonstration models. Nissan acknowledged battery manufacturing issues that, coupled with the earthquake and tsunami in Japan, slowed production. But the biggest factor is undoubtedly cost. Despite a $7,500 federal tax credit, plug-in electric cars are far more expensive than gas-powered models. Add to that the high cost of installing a home charging unit.

While gasoline may be expensive at $4.00 per gallon, electric cars remain more a philosophical statement about the driver's commitment to the environment. In times like these, economic reality often trumps the ability to make a political statement.