By all accounts, electric cars are by far the most revolutionary innovation to have swept the automotive industry in the past century. While some may argue there have been lots of innovations – four wheel drive, seat belts, disc brakes etc., the fact remains that, in the most basic terms, the cars being sold today are similar to those introduced at the start of the 20th century: a combustion engine driving the wheels through some sort of gearbox, with steering controlled by a wheel at the front of the cabin.

Since Tesla introduced the first viable electric car,  consumers have rushed out to buy it, despite the hefty price tag. All the other auto manufacturers have reluctantly followed pricing their electric car offerings higher than their gasoline cars, so as to prevent cannibalization of their bread and butter business. However, in China and India, the same auto companies have paid little heed to their core gasoline car business and introduced electric cars at prices comparable to their gasoline counterparts. With government incentives, the electric cars end up being cheaper than gasoline cars.

Which explains why China is able to sell a $6500 electric car from likes of General Motors and chalk up 600K in total electric car sales last year, three times the number of electric cars sold in the US. Why can’t we get a $6500 electric  car from General Motors in the US? And  why do we have to wait in line for a $30K “affordable” electric car from Tesla instead?

Future Wealth’s View

The main reason for the higher price of electric cars in the US is two fold. Firstly, gasoline is relatively cheap in the US compared to other countries and there is little incentive to go electric to save money. Secondly and more importantly, going green and being environmentally friendly are “first world” problems that consumers in the US accept and are willing to “pay up” for it. Most of Chinese and Indian consumers could care less for the environment and are simply doing the math that shows that at owning an electric car will pay  off in spades as gasoline prices continue to rise at the local gas stations.

And so, unlike the US where only the affluent own electric cars and owning a Tesla is quickly replacing the prestige of owning a Mercedes, in China and India, less affluent buyers are gravitating toward electric vehicles. With poor infrastructure, poor mileage from lithium ion batteries and limited charging stations, the more affluent in these countries have little reason to switch from gasoline to electric.

Which brings us back to the US electric vehicle market. Unless the big 3 auto manufacturers and Tesla figure out a strategy to attract the middle to lower middle income consumers in the US to their electric car offerings by pricing it on par with their gasoline counterparts, the emerging markets will take control of the electric vehicle market and once again, US will fall behind. To quote Steve Jobs on the launch of iPhone that killed the market for the iPod, “If you don’t cannibalize yourself, someone else will.”

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