To Sell, EVs Will Need Sizzle and Sex Appeal, Says Merrill Lynch

Bank of America/Merrill Lynch Global Research has been taking a look at the electrification of the automobile, and it thinks EVs can succeed—as long as they’re sexy. In effect, they “need sizzle.” Startup companies definitely recognize that, and in fact many of their cars have more sizzle than comparable offerings from the majors.

BoA/ML research analyst Steven Milunovich says that Tesla and Fisker, for instance, could have an advantage in brand identity. “The name will stand for something in the consumer’s mind,” he said. “But Chevrolet has so many cars that people ask, ‘What’s a Chevy?’” And those startup EVs have a number of sizzle features—the Tesla is gorgeous and very fast, and the Fisker is both fast and eco-friendly, with solar panels and bamboo in place of leather.

Unlike such longtime analysts as Maryann Keller, who’s skeptical about start-up company prospects based on economy of scale questions, Milunovich sees a place for the small players. “You could say that the cards are stacked against them, but they can take advantage of their brand value and the sizzle factor,” he said.

“EVs need to appeal to consumers on a psychological level, such as prestige and driving enjoyment,” says the BoA/Merrill Lynch analysis. Milunovich quotes a Chevy Volt program leader from a recent conference. After talking about the value proposition for various battery packs, he asked rhetorically, “What is the payback on leather seats?” He meant that some things—the rugged-individualist appeal of SUVs is a good example—are intangible, but nonetheless have a lot to do with the cars people buy.

If sizzle wasn’t a factor, Milunovich said, “We’d all be driving Camrys or something. When the cost of EVs is reasonably close to gas cars, then I think we reach a tipping point where people will start buying electric cars as long as they’re cool and fun to drive. We’ll soon start seeing all kinds of customizing, like adding wi-fi or LED lights.”

The lithium-ion battery business could total $70 billion by 2020, by which time it needs to achieve 30 to 50 percent cost savings to meet goals set by the Department of Energy and others. BoA/Merrill Lynch has done detailed analysis of the Massachusetts-based battery company A123 (a supplier to Chrysler, among others), which recently went public with stellar results. Its stock doubled in value on the day that it was issued.

The stock reached $28, but has since fallen to $17 a share, which Merrill Lynch cites as its price objective.

The auto industry is a $3 trillion business, only $500 billion of which is revenue for the automakers, so BoA/Merrill Lynch sees “disruptive opportunities.” Milunovich says that companies like A123 are likely to have “lumpy quarters” ahead, because much of their value today is based on announcements of strategic partnerships and projections.

Sale figures will tend to be erratic, he said, in part because companies will ship product and not recognize revenue for three to six months. As electric cars prepare to launch, triumph and despair will alternate. Stock prices, then, will fluctuate wildly, and opportunities for bargains will probably be plentiful.