MARY LOUISE KELLY, HOST:
This week Tesla began closing its retail stores. The electric carmaker announced last week that it would only sell cars online. The cost savings, the company says, will allow it to offer its Model 3 for the long-promised price of $35,000. Until now, Tesla has only been offering higher-end versions of the Model 3. Well, this got us wondering how are electric cars selling these days, so we have brought back journalist John Voelcker. He writes about the electric car market. Hi there, John.
JOHN VOELCKER: Hey - glad to be here.
KELLY: Glad to have you with us. So safe to say that electric cars are still just a tiny fraction of the overall car market, car sales in this country - like, 2 percent - but the trend is headed up.
VOELCKER: That's exactly right. We actually went from 200,000 in 2017 to 360,000 in 2018. Of the 160,000-odd increase, about 140,000 of them were Tesla Model 3s. So really the other makers haven't sold an enormously larger amount. It was all about Tesla.
KELLY: Another factor at play here has been this fairly big federal tax credit aimed at making electric cars more affordable. This is a $7,500 credit that you get if you buy an electric car. But I understand for some automakers, this is being phased out. Explain.
VOELCKER: The way the credit was set up 10 years ago, every maker could sell 200,000 cars in the U.S. that were eligible for the credit, and then it started to sunset. After a couple of quarters, it would go to half. After two more quarters, it would go to 25 percent. And then it would end. And right now, Tesla is into that process, and GM has just entered it, which incidentally means if you're buying electric Chevrolet, buy it before the end of March 30.
KELLY: OK. And how big a factor has this credit - this $7,500 dollar credit - been in people making decisions about whether to go electric or not?
VOELCKER: The few surveys that have been out there show that the credit is important, although it likely differs somewhat for people who buy Teslas. Remember; Tesla started out with cars that cost $75,000 or more, which by definition is the very highest end of the market...
KELLY: Right.
VOELCKER: ...Whereas the lower priced cars from manufacturers like Nissan and GM and Volkswagen are much more sensitive to a reduction, let's say, from $37,500 to $30,000. That's a big chunk of savings.
KELLY: Are carmakers making any money off electric cars yet?
VOELCKER: I don't think battery electric cars are profitable for any carmaker in the world right now. Think about the cost of a phone battery, and then think about the cost of several thousand of those. That's the equivalent in an electric car. While those battery costs are coming down with better technologies, economies of scale and so forth, it takes several years.
The problem is that manufacturers don't necessarily want to make electric cars, Tesla excepted. But starting in 2012, California really forced them to. California had a zero emission vehicle sales requirement. The tax credits helped them sell the required numbers of electric cars. But the U.S. is not the majority of the electric car market globally. The important driver for electric cars is China.
KELLY: So you're saying this is U.S. carmakers making calculations based on not the U.S. market but based on China.
VOELCKER: U.S. carmakers understand that in order to be competitive in China in future years, they're going to have to sell a huge volumes of electric cars. People drive lower distances there. And there are enough first-time buyers, and people are more open to innovative kinds of cars in China that electric cars, in some ways, aren't as hard to sell.
In the States, we drive a long way. We don't have functional mass transit in most of the country which a place like Europe does, so you may not need quite as long a range in an electric car. And electric cars have been enormously politicized. All of that has led some auto industry analysts to wonder whether the U.S. becomes - you could call it an island, or one analyst called it a backwater where the rest of the world embarks on this transition more aggressively and the U.S. does not.
KELLY: That is freelance auto writer John Voelcker. Thanks so much.
VOELCKER: Thank you for having me. Transcript provided by NPR, Copyright NPR.