Future of electric cars needs juice

In Japan and the U.S., the plan for battery-powered autos is throwing off sparks as they move closer to production.

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By Alex Taylor III, senior editor

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NEW YORK (Fortune) -- While the U.S. auto industry celebrates the impact of the government's cash for clunkers program on July sales, two events separated by thousands of miles should give pause to those whose world view extends beyond next week.

After all, it was a foregone conclusion that cash incentives to purchase new cars was going to boost sales, no matter how complicated or confusing the government made the process.

It is far less obvious how the industry is going to deal with other government initiatives to produce cars that burn less imported oil and produce fewer emissions.

That vision is, if anything, fuzzier this week after two events on opposite sides of the world.

In Yokohama, Japan, Nissan CEO Carlos Ghosn used the opening of the automaker's new corporate headquarters to unveil its first all-electric car called the Leaf.

Details were scant for the Leaf, a four-door subcompact, which will go on sale in the U.S. and Japan next year.

But Nissan did say that the car will go 100 miles on a charge and that the batteries alone will cost about $10,000. Customers are intended to buy the car and lease the batteries.

That implies two things: Nissan will not be selling very many Leaves in Oklahoma or any other state with wide open spaces. And sales, when they do occur in more densely-populated areas, will be limited to those who are willing to pay a premium to be environmentally responsible.

One blogger suggested the car should be called the Ryan Leaf instead, after the overpraised and overpaid NFL quarterback from a few years back who couldn't live up to his press clippings.

The second event occurred in Detroit, Michigan, and involved the publication of two revealing interviews with top General Motors' executives in Automotive News, a trade weekly.

It turns out that GM product executive Bob Lutz ordered development of the range-extended, battery-powered Chevy Volt in order to leapfrog the Toyota Prius. But he significantly underestimated the cost of doing so.

Lutz figured the Volt would sell for $25,000 -- $8,000 for the battery and $15,000 or $16,000 for the car. But he has since discovered that all the other specialized parts required for electric drive will push manufacturing costs to $40,000, meaning GM will be selling the car for a loss.

The per-unit loss will be on top of the $1 billion development cost for the Volt. It is remarkable that despite GM's deteriorating finances and the fact that it lost $1 billion on an earlier electric vehicle, Lutz still managed to sell the Volt program to GM's board.

GM did succeed in leapfrogging the Prius in one sense: The Prius starts under $22,000.

Nissan's Ghosn thinks electric cars could represent 10% of auto sales in countries like Japan and the U.S. by the year 2020. Given the disinclination of most buyers to pay for much beyond styling and horsepower, he must be forecasting a huge decrease in the cost of batteries.

Both Leaf and Volt represent interesting efforts to attract the interest of early adopters. But if this is all the automakers have to offer, both Nissan and GM will have to amp up their cost-cutting efforts to make electrics more than a curiosity. To top of page

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