Tesla

Toyota Prius plug-in drops in price, amid waning interest

October 15, 2013: 5:00 AM ET

American consumers aren't impressed enough with electric vehicles and hybrids to pay what automakers are charging.

By Doron Levin

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FORTUNE -- The evidence is growing stronger: Average American consumers aren't impressed enough with electric vehicles and plug-in hybrids to pay the kind of prices automakers are charging.

That is, at least, not until gasoline gets much more expensive, which would make the costly technology more economical.

Last week, Toyota (TM) said it was dropping the price of its 2014 Prius plug-in hybrid by $2,000 to $4,000, depending on the model. The most advanced version starts at $35,000, the lower-price model less than $30,000.

Honda (HMC), Chevrolet, Fiat, and Nissan all have dropped prices on EVs and plug-ins to attract buyers over the past six months, at a time when post-recession consumer demand is strong to replace vehicles.

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"This space remains out of reach for most consumers," says Alex Gutierrez, senior analyst at Kbb.com, an automotive research organization. He says the price cut could bump sales up slightly. But volume will be weak compared to Toyota's Corolla and other compacts able to achieve close to 40 mpg on the highway and can cost less than $20,000.

With a pure electric or a plug-in, as opposed to a pure hybrid, a vehicle may run until the battery discharges without using any gasoline -- a feature that is attractive to some motorists. The Prius plug-in can run for 11 miles on a battery, and is rated at 95 miles per gallon. In hybrid-only mode, the Prius has a combined city/high rating of 50 miles per gallon.

According to AAA, the average price of gasoline in the U.S. stands at an adjusted $3.64 a gallon, for all grades, compared with $4.54 a gallon a year ago.

Sales of hybrids, EVs, and hybrids with plug-in features reached 267,340 through the end of September, up 16.7% over the first nine months of last year, according to Kbb.com. About 70% of that number was Prius sales. Sales of the Nissan Leaf, an EV, and Chevrolet Volt, an extended range EV that some call a hybrid, each were about 16,000 for those nine months.

Automakers have been skeptical about the prospects for EVs and plug-ins, due to their limited range and a sparse number of charging stations, on top of the costliness of the batteries and related technologies. But under public pressure from regulators and environmentalists, car companies have invested in the development of such vehicles as a good faith effort to test the public's receptiveness.

The results for mainstream EVs have been disappointing, at least so far, with the exception of the luxury segment. Tesla (TSLA) sold about 15,000 of its Model S sedan, which starts at $60,000 and can cost more than $100,000. The reviews of the car have been glowing, sending Tesla's stock price into the stratosphere.

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GM (GM) soon will follow in the luxury category with its Cadillac ELR, an extended range EV based on the same technology as the Chevrolet Volt.

It's hardly a surprise that a handful of wealthier consumers, with three or more cars in their garage, are buying Teslas and may show an interest in the Cadillac ELR.

But without breakthroughs in battery technology that lower prices, extend range, and improve power, it will be a while before the average Josephine spends her hard-earned bucks on a car whose main virtue is that it doesn't burn fossil fuel.

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