Chevy Proves It Has Learned A Crucial Rule For Selling Electric Cars

General Motors announced today it is slashing the price of the Chevy Volt by $5,000, in an effort to spur lagging sales.

It's evidence that the company has learned a big lesson that is especially pertinent to electric cars: Consumers won't overpay for underwhelming products.

Missing Sales Goals

The plug-in hybrid electric compact car now starts at $34,995, including an $810 destination fee, and before a $7,500 federal tax credit.

In its announcement, Chevy said the drop will "broaden [the Volt's] exposure to price-sensitive prospective buyers."

The Volt is the country's best-selling plug-in, but sales have not hit the numbers GM wanted, Karl Brauer, an analyst with Kelley Blue Book (KBB), said in an interview. After putting 23,461 units on the road in 2012, Chevy has sold fewer than 12,000 in 2013.

That's because the "small market" of people who will pay a big premium for new, environmentally-friendly technology isn't enough to sustain significant sales, Brauer said.

The promised fuel savings from an electric car aren't compelling, either, when the EV costs so much more up front. Brauer pointed out that on KBB.com, shoppers looking at the Volt most often compare it to another compact car, the Ford Focus, and not the Focus Electric.

The basic gasoline version of the Focus starts at $16,200 and gets a very solid 31 mpg. Compare that to the $39,145 Volt, and it's easy to see why Chevy sales aren't taking off.

Electric Car Prices Are Dropping Across The Board

In January, Nissan slashed the price of the all-electric Leaf by nearly 20%, after the car fell way short of ambitious sales goals. It worked: Compared to 9,819 sales in 2012, Nissan has already put nearly 12,000 units on the road this year.

The Volt price cut will have some effect on Chevy, but it's tough to tell if it will produce a modest sales bump or something bigger, Brauer said. It would have been more effective if Chevy had made the move earlier, before the image of the Volt as an expensive car could become fixed in consumers' minds. he added.

Chevy and Nissan aren't the only ones lowering prices to drum up demand. KBB data shows the average transaction price of electric and plug-in hybrids on sale in the U.S. dropped from $40,497 in 2012 to $36,922 in 2013 (year to date), a 10.2% change. That's a big discount.

The Ford Focus Electric, Mitsubishi i-MiEV, and Toyota Prius Plug-in all cost less than they did a year ago.

The Big Exception

The big exception to the trend is Tesla, which is selling as many $70,000 Model S sedans as it can produce. Elon Musk and company have done something other automakers haven't, said Brauer: "They've broken out of the electric car quandary."

The difference between Tesla's car and other EVs is that the Model S is a premium car than can go hundreds of miles on a charge, so buyers don't feel like they're getting a golf cart that can't go farther than around the block a few times.

BMW also just came out with a premium electric vehicle, but Brauer was skeptical that it would be successful.

The car, called the i3, is just as compact, strange-looking, and limited in range as its competitors (the gorgeous Model S is an exception).

But it costs more than $41,000, and does not exactly look like a luxury car.

"I think that car is going to have a very rough time," Brauer said of the i3. It will have its dedicated fans, "but there's where you don't want to be," he added.

Perhaps BMW should have taken a lesson from the Chevy Volt and other EVs that have dropped their prices: The state of battery technology means that electric cars will remain small, limited in range, and more expensive than gasoline competitors.

Appreciation for the planet and the potential for long-term savings at the pump don't make up for that. So if you want to sell an electric car (that isn't the Model S), you have to make it cheaper.

Just not so cheap that it becomes really popular, and your entire stock is snapped up at a loss.