Reconciling resale for the Mitsubishi i-MiEV

Mitsubishi plans to sell its i-MiEV electric vehicle in numbers of about five units a month when the diminutive hatchback goes on sale here in August.

The conservative sales forecast is understandable, in light of the pricing for the environmentally-focused i-MiEV. For an outlay of around $50,000 purchasing the electric Mitsubishi won't make sense to many, from a purely economic standpoint.

It will take years of around-town running and recharging from the domestic electricity supply to offset the purchase price — despite Mitsubishi suggesting an estimate of $4 per recharge, based on 25 cents per kilowatt-hour.

Mitsubishi is actually banking on fleet buyers rather than private buyers to support the i-MiEV at first — as a green initiative, rather than something friendly to the hip-pocket.

"Organisations have been buying i-MiEV," confirmed Paul Stevenson, Mitsubishi's VP of Corporate Strategy. "They haven't been doing it to save fuel costs or anything; there are other reasons for getting in early — making clear branding statements about environmental [issues]..."

For private buyers, other than boasting to the neighbours how green they are, there's no significant benefit to buying the i-MiEV when it goes on sale. Indeed, there's another factor that will drive private buyers away from the i-MiEV — resale value.

Mitsubishi Motors Corporation has entered into a joint-venture agreement with Yuasa batteries to manufacture lithium-ion batteries for vehicles such as the i-MiEV (and other future EV products in the Mitsubishi range). As the company sees it, producing batteries in ever larger numbers — and introducing other manufacturing and technological efficiencies — will inevitably bring down the price of lithium-ion batteries for automotive applications.

Mitsubishi makes a case based on a report from the US Department of Energy, which states that the cost of a battery for a car like the i-MiEV will drop from the current level of US $33,000 to $10,000 by 2015. That 70 per cent reduction in cost would allow Mitsubishi to reduce the retail price of the i-MiEV considerably, over time. The bad news for those buying the i-MiEV in the first couple of years is that their 'investment' will be worth next to nothing within three to four years.

This process is already happening. When Mitsubishi introduced the i-MiEV to Australia, the 110 vehicles imported were available for lease only. Total cost to the importer's 'foundation customers' for the three-year lease was around $63,000. With the car soon to be on sale at roughly $50,000, the nett difference is significant.

"From last year to this year, we're looking at roughly a 25 per cent price reduction," Stevenson explained. And the gradual slide in retail price won't end there, thanks to the on-going cost reduction in battery manufacture.

"The i-MiEV is going to continuously come down..." says Stevenson. Buyers of the i-MiEV this year will therefore be committed greenies, but Stevenson argues that it's the price one pays to be first on the block with a new toy.

"Early adopters are just used to that [situation]," he says.

Stevenson cites consumer electronics to illustrate his point ("The people that went out and spent 15 grand on a plasma screen when they came out..."), although it is a business model far removed from what is normally practised by the automotive industry.

"We're not used to it in the auto industry, because we're at a mature technology stage, so it's a little bit of a new thing for us, but you go to Harvey Normans... and it's pretty well stock standard to have these steep curves initially," Stevenson observed.

It's an issue made more complex again than just the question of buyer sentiment and being burned at the other end of the deal. Early buyers of the i-MiEV could find themselves 'upside down' on their lease and it's a challenge for financiers to establish residuals for the cars. The matter may even snowball, since the price of the car coming down will draw out more buyers who can afford to be green. Added sales volume will likely contribute to the car's lower retail pricing — economies of scale once again.

Stevenson says the company's sales staff will ensure that buyers are aware that purchasing an i-MiEV won't come with any gold-plated guarantees concerning the car's resale value, come time to trade it in.

"We certainly explain that, as we did very carefully with the foundation customers... It's economies of scale, there's absolutely nothing we can do about it," he said.

Early buyers of the i-MiEV might choose to neutralise the resale plummet by hanging onto the car for decades, but Stevenson says that battery and electronics technology is moving so fast that an advanced EV today (or the next couple of years), will be rendered effectively obsolete in a very short space of time — perhaps much sooner than the end of the vehicle's effective lifespan.

Stevenson acknowledges that the company could have delayed introduction of the EV until lower retail prices could be ensured or battery technology was further down the track, but the issue is likely to persist for years to come — well beyond 2015 — as battery technology and manufacturing efficiency progress in leaps and bounds.

"We could have left it for a year and it would have been cheaper as well," Stevenson said, acknowledging that Mitsubishi was taking a gamble bringing the i-MiEV to market this soon, but at least beating Nissan's LEAF to the punch. The advantage for Mitsu will lie in primacy of public recognition — that its brand and model recognition were first to market.

Stevenson believes that as the price of the i-MiEV comes down, more buyers (proportionally fewer of the ultra-greens, more of the cheap-to-be-green crowd) will begin to surface. Stevenson hopes that the government will see fit to offer incentives, which could have a major impact on sales volumes for EVs. In the US state of California, the Nissan LEAF is already on sale and subject to a US $7500 rebate.

The Mitsubishi exec argues that incentives would encourage 'pale green' buyers to opt for an EV, just as incentives kick-started the domestic solar panel industry.

"I think we see with solar panels, where the crunch comes," he said. "People will be green, as long as there's not too much of a financial penalty or even better... when they can see there's an acceptable payback for them."

In other words, the point where private buyers of the i-MiEV overtake fleet buyers may not be contingent on the price of the vehicle in isolation, but rather when the government comes to the party with an incentive to purchase.