Electric Car Glut on the Way?

Plug-in cars have barely made a dent in the global vehicle fleet, and automakers have yet to launch their first real entries into the race for a mainstream electric car. When carmakers do start selling those models — late next year and beyond — they for the most part plan to take their time ramping up, easing into the market with regional rollouts and leases to government or corporate fleets. But, according to some industry observers, we’re on the verge of a global glut of plug-in cars. Huh?

According to J.D. Power and Associates powertrain analyst Mike Omotoso, “There is a strong possibility of an EV glut” within the next decade for the simple fact that government and environmental groups may want electric cars more than the general public does — at least at current vehicle and fuel prices. He told us today, “As much as we all want clean air for ourselves and our children, when gas is cheap we tend to buy large vehicles without too much concern for the environment.” When drivers started showing more interest in smaller, more fuel-efficient vehicles last summer, it wasn’t their environmental conscience talking, he said. When gas cost $4 per gallon, “People were thinking with their wallets.”

“There might be an EV bubble growing in the next five to seven years,” Omotoso said, as automakers and suppliers race to take advantage of stimulus funds for plug-in cars and batteries, and then start to push still-costly electric vehicles onto the market. That bubble “will then pop when consumers balk at the $40,000-plus price tag for a small EV and $50K+ for a midsize or large EV.”

The U.S. government has allocated billions of dollars in federal funds to help auto companies build out production capacity of plug-in vehicles and component technology, and other governments are taking similar measures. But Omosoto said it’s uncertain there will be enough demand to meet that new capacity.

According to MIT engineering professor Daniel Roos, who studies the international auto industry and heads up the university’s transportation technology and policy program, the glut could be global. Referring to potential challenges for General Motors’ (s GM) planned extended-range electric Chevy Volt, Roos tells the Washington Post (buried deep in an extensive feature about the Volt and former frontman Bob Lutz), “There’s already an enormous amount of competition and perhaps a global overcapacity.”

Of course, it’s not just outside observers, advocates and policymakers that are calibrating supply and demand for plug-in vehicles. Automakers themselves certainly don’t want to be caught with a glut. But as Bill Ford, executive chairman of Ford Motor(s F), said at the Fortune Brainstorm Green conference earlier this year, “Our ability to forecast has been just horrible.” He said regulations — such as a gas tax hike — are needed to help shore up demand for more fuel-efficient and alternative-fuel vehicles. “If prices are gyrating wildly,” he said at the conference, it becomes extremely difficult to know whether the company is planning the right vehicle or technology. “Hopefully suppliers and car manufacturers will plan carefully to avoid the glut,” Omotoso said, “but I’m not counting on it.”

At this point, the big prize for automakers under pressure to produce more innovative, cleaner cars may be just launching a viable plug-in vehicle. But not too far down the road, we may be seeing a race for ICE-parity (competitive costs with internal combustion engine vehicles) in the auto industry growing as intense as the race for grid parity (competitive pricing with the fossil-fuel powered electric grid) has become in the solar industry. The silver lining? Rising demand in response to dropping prices, and strides that make the survivors more competitive than ever on the larger market — although not without years of difficult margins.