Friday, October 26, 2012

Failure of Nissan and General Motors

Written by Ivan W.

Article based on:

This article have sparked interest into me, according to it, the sales of the electric car worldwide have shown weak starts and the situation is not improving in year 2012 despite media frenzy and the fluctuation of petrol prices. Malaysia is one of the country that have shown poor demand for electric car, from the economy update, there are currently only 11 pure electric source on the road of Malaysia which is not even 1% of the total car sales in Malaysia. Why is it this phenomena happening in Malaysia? With my basic knowledge in economics, my opinion towards the factors behind the unsuccessful product line of huge company such as Nissan and General Motors towards the sales of electric car is due to the microeconomics of Malaysia.

Firstly, what is electric car? Unlike hybrid vehicle which runs on both fuel and the power source of electric, electric car purely depends on electrical power. Due to its unique engines, it runs like our phones where charging was a must to provide sufficient electrical power to function. Unfortunately, according to the reviews of many, it is very time consuming and it could not last as long as fuel powered vehicles. Furthermore, Malaysia have yet to establish any charging station for electric cars making it a major drawback for Malaysians. According to Peter Chin, the minister of energy, green technology and water, unless Malaysia starts providing charging station on the road, until than Malaysians are not ready to accept electric cars. This is one of the factor that caused change in demand as it affects the convenience of the consumers which would shift the demand curve to the left due to the drop of quantity demanded.

The cost of electric car compared to a fuel powered car about the same size and power, the cost of the electric car is 10% higher than a fueled car and would be still be higher as the technology needed to increase the efficiency of the vehicles are getting more complicated and expensive. According to the law of demand, if others things remain the same, the higher the price of a good, the smaller the quantity demanded; thus, making the quantity demanded for electric car less due to its price. A substitution effect takes place where the price of the electric car rises, its opportunity cost rises. Fuel cars became the better substitute due to the incentive to economize on its use.

Still, there are other factors that bring changes in demand, for example the prices of related goods such as a substitute or competition, Protons and local Malaysia cars which are fueled powered vehicles are cheaper thus, people buy less of electric cars and more of the fueled cars.

Secondly, the expected future price of electric car is lower as the minister of international trade and industry, Mustapa Mohamed have announced earlier this May that the government would shows support promoting electrics cars by offering incentives to Malaysians together with 100% import duty exemption for electric vehicles below 2200 cu centimeters while stating that additional measures would be promoted in the future to further attracts demands from Malaysians. Since the expected future price of the car will falls, the opportunity cost of buying the good today is high relative to what it will be in the years to comes thus Malaysians buy less of the good now causing the demand for the goods decrease today and might increase in the future.

The preferences in Malaysian consumers have greatly affect the sales of electric cars too, with the lack of facilities such as charging station to cope with the vehicles and the trouble of hours needed just to charge up the car compared to fueled car that only takes a few minutes to refill which in turns affect the quantity demanded. Let’s not forget the urban economics where other there are still many places in Malaysia that have difficulty accessing to enough electricity to power a car. The electricity rate in Malaysia is at a constant increase due to the increasing of population that leads to the increase in usage, electricity could be considered as the complement product with the electrical vehicles, with the increase in electricity rates, the quantity demanded for electrical cars decrease. Not to mentioned it was harder to find replacement parts of an electric car as it was still a new technology in Malaysia.

From what I researched, the quantity demanded for electric cars in Malaysian is strongly affected by the opportunity cost and other influences such as preference, facilities and complement effects. To cope up with the situation, the government have imposed some aid regarding electrical cars and have hope that the future price of the cars would decrease and the quantity demanded would increase, thus there is hope that the sales of electric vehicles would be slowly improve in the future in Malaysia.

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