Consumers say they like the idea of electric vehicles, so why aren’t they buying more of them? Get the answer in this podcast, and hear about how crowdfunding is offering a new way to invest in business startups. Bankrate Washington bureau chief Mark Hamrick chats about these topics with his guests:
- Jack Gillis, a spokesman for the Consumer Federation of America and the long-time author of “The Car Book,” who says today’s electric vehicles would be a good option for at least 40% of consumers.
- Sheyna Steiner, senior investing reporter for Bankrate.com, who explains why crowdfunding probably isn’t for most investors.
The buzz on electric vehicles
EV or not EV? Hear whether consumers are likely to start buying more electric vehicles. And, learn about a new way to buy stocks: via crowdfunding.
Mark Hamrick: From Bankrate.com, this is “Your Money This Week.”
I’m Mark Hamrick in Washington.
Electric cars might be the future. But right now, they drive only a small share of the automobile market.
Our 1st guest says the more American consumers learn about electric vehicles, the more they like them.
Jack Gillis of the Consumer Federation of America and author of ‘The Car Book’ will tell us about the ‘buzz’ surrounding electric vehicles.
In our 2nd segment, what if you could get the opportunity to invest in the ground floor in start-ups? Federal regulators have taken steps meant to open the door to crowdfunding investing.
Bankrate’s Sheyna Steiner will tell us about the risks both good and bad surrounding crowdfunding investing, which will be coming in 2016.
This week in business history: When the stock market’s Dow Jones industrials average moved over the 1,000 level for the very first time. Can you guess when that was? We’ll have the answer coming up.
We’re bridging past present and future, as we try to help you here on ‘Your Money This Week.’
American interest in electric vehicles is shifting higher. Our next guest is Jack Gillis, director of public affairs with the Consumer Federation of America. And he’s the author of “The Car Book,” which has been in print for years.
Jack’s been looking into American consumers’ interest in electric vehicles and found that a surprisingly high number of people would consider buying one.
Jack Gillis: We were very surprised to see that 31% of the Americans that we surveyed would seriously consider an electric vehicle. Why that number is surprising is because right now, market penetration for electric vehicles is less than 1%. So there is clearly untapped demand out there by consumers. And our hope is that the more they know about these vehicles, the more interested they will be, and actually going into the showroom and making a purchase.
Mark Hamrick: Now, so when you say that is your hope, so effectively you are advocating that people should buy them?
Jack Gillis: We believe electric vehicles will make a significant contribution to both reducing our dependence on foreign oil, as well as improving the environment. And those two factors are very important as we move forward in terms of CFA’s objective.
Mark Hamrick: So, and we can talk more about the latter in a moment. So to the degree though that there does seem to be a disconnect between the cars that people are buying, and the interest that they are expressing, why are those numbers seemingly so far apart?
Jack Gillis: 1 of the things that we noticed was that there is a direct correlation between consumer understanding of electric vehicles, and their interest in buying them. And that points to many consumers who have range anxiety. That is, they are fearful that somehow these vehicles are going to run out of juice right at the worst time possible. We have all had a battery fail in our flashlights. We have all had our cellphones run out of battery at very inopportune times. So there is this fear. The good news is, that many of the manufacturers have provided alternative power sources in the electric vehicle, to keep that from being a serious problem. But we still think consumer’s need to understand that most of us do not drive as the range in the vehicle for a typical day.
Mark Hamrick: Right, and you have been Author of the ‘Car Book’ for how many years now?
Jack Gillis: Well, we are putting together our 36th Edition.
Mark Hamrick: Wow, I had no idea it was quite that many. That is several generations of humans, not to mention automobiles, isn’t it?
Jack Gillis: Well I started when I was 10.
Mark Hamrick: Very good, well it is always nice to speak with a prodigy. So Jack, so as you surveyed the landscape of sort of the broad product offerings in automobiles these days, what do you think about you know, the breadth of the electric vehicles that are out there right now.
Jack Gillis: Well, there are an amazing number of choices, choices that range from subcompact to luxury vehicles with prices ranging from $23,000 to $136,000. So there are a wide variety of choices. And when you look at market penetration, even though it is relatively small, we compared it to the market penetration of hybrid vehicles when they were first introduced. And believe it or not, electric vehicles are moving faster into the marketplace than the hybrid vehicles did when they were introduced. And yet hybrids today are quite ubiquitous and available in almost every single model.
Mark Hamrick: And of course, we know that the price of crude oil has declined over the past year, year and a half. Do you think that if gasoline prices were to jump, that purchases of electric vehicles would surge also?
Jack Gillis: Typically, consumers have long-term memories and they understand that when gas prices go down, they are also going to go back up. Nevertheless, when we see these dips in gas prices, we do see an increase in purchase of less fuel-efficient vehicle. So we also believe that conversely, if the gas prices go back up and inevitably, they will, there will be significantly increased interest in EVs. The other big issue regarding electric vehicles of course, is battery technology. And right now, we have tremendous competition between the manufacturers, as well as some market disrupters, such as Tesla and Google and Apple, who are all working very hard to improve battery technology. It is this type of competition that is probably going to put EV’s into the marketplace within the reach of most of us.
Mark Hamrick: And does it feel like the likes of Google and Tesla are really pushing that proverbial technological envelope where some of the larger manufacturer’s may or may not be innovating quite as quickly?
Jack Gillis: There is absolutely no question that Tesla, Google, and Apple have seriously disrupted the psyche of the traditional automakers. In fact, this is one of the first times that we have seen direct competition to their offerings by non-traditional automakers. And there is no doubt that this has caused General Motors namely, as well as Ford and Toyota, to re-up their efforts to improve the technology. This competition is absolutely fabulous for consumers, and we think that it is going to lead to not only less expensive EVs, but EVs in a wider range of choices. Right now the most popular vehicles, you know, the mid-size sedans, the Sonatas the Accords, the Camrys, don’t have good EV options, even though they are the more popular vehicles. Once we see EVs moving into this range of vehicles, we think they’re going to be heavily adopted by consumers.
Mark Hamrick: And of course, all this is happening with indeed, some of these same disrupters/innovators are working toward autonomous vehicles. Are some of these subjects related and it sort of seems to me, raises the risk that many of us are going to be facing technology in automobiles in the very near future, that is going to be radically different than anything we’ve experienced in the past.
Jack Gillis: Well we’re already seeing that. Tesla now has a software update that allows its vehicles to drive autonomously on highways. And this has a great future for America. We think it’ll serve to reduce automobile accidents, it will offer transportation to folks that normally can’t drive vehicles, and it will also provide a situation where they’re be less congestion on the roads as these vehicles learn to interact with each other in a more sensible way than we typically do on America’s highways.
Mark Hamrick: And of course, it also stands to disrupt the car insurance industry.
Jack Gillis: Well, that’s going to be the big question, who is going to take responsibility for the accidents of autonomous vehicles? Right now, the insurance industry is very concerned about this, looking into it. And on the one hand, while they see the tremendous potential for reduced accidents, therefore less claims and more profits for them, they also see questions about liability. You know, who is going to take liability in an accident situation.
Mark Hamrick: Jack, what do you think consumers need to know that perhaps they don’t know right now on this, about this subject?
Jack Gillis: Well first of all, I think most consumers need to understand that about 40% to 50% of us have driving patterns that are very compatible with electric vehicles. We don’t typically drive a lot every single day. And the idea of simply coming home and doing the same thing to your car as you do your cell phone, that is plug it in so it’s ready to go the next day. I think we’ll be very, very attracted to the average consumer.
Mark Hamrick: Jack Gillis, fascinating subject, and thanks so much for your time.
Jack Gillis: My pleasure Mark.
Mark Hamrick: Jack Gillis, director of public affairs with the Consumer Federation of America and author of “The Car Book.”
Coming up, crowdfunding comes to Wall Street. Is this the opportunity that could make investors rich? Or part them from their money? We’ll talk with Bankrate’s Sheyna Steiner.
This is “Your Money This Week” from Bankrate.com.
This week in business history: Nov. 14, 1972. That’s when the stock market rose above a key milestone.
The Dow Jones industrials average crossed over the 1,000 level for the very 1st time. That was over 40 years ago.
It was in March 1999 that the 10,000 level was hit.
In the past year, we’ve seen the average of 30 stocks above the 18,000 mark. For the stock market, the journey over the past 4 decades has been quite remarkable, including plenty of twists and turns.
Mark Hamrick: Talking now with Sheyna Steiner, Bankrate’s senior investing analyst and reporter, the topic is crowdfunding in the investing realm for small or individual investors. The Securities and Exchange Commission, which is the main federal agency regulating financial markets, decided recently to allow startups or new firms to sell stock directly to people like, let us say, you or me. So Sheyna, we know that this has been a successful way to raise funds for charity and for inventions, and even creative pursuits, everything from video games to books and films, but this is certainly something very different when it comes to investing, isn’t it?
Sheyna Steiner: It is different, equity crowdfunding gives investors the chance to become stakeholders in a small company. So they can actually put in money and 1 day, may get a return on that money, which is much different than contributing to an artistic or charitable endeavor.
Mark Hamrick: Yes, as one who had, for example, contributed to a film fund-raising project and crowdfunding, basically what I got from that was a DVD and a T-shirt. But here, we are really talking about making investments that are meant to be on par with investing in an individual stock that would be better known, or an ETF or a mutual fund, right?
Sheyna Steiner: That is right, it is similar to those in that you are investing your money. But it is different in that it is much more risky, and much more fraught than investing in a publicly-traded security, like a stock or a mutual fund or an ETF. These are going to be unregistered securities, so people are taking on a lot of risk. In fact, they are going to have to hold the investments for at least 1 year, and there is no secondary market yet for these investments. So the holding period could be even longer. It’s much different.
Mark Hamrick: So let us just stop right there for a second Sheyna, because that may not be well understood by so many people. When we say there is no secondary market, really what we are saying is that we do not even know that there is somebody who would be necessarily willing and/or able to buy the stock from the owner, correct?
Sheyna Steiner: Exactly. That is the great thing about stock markets and things like the New York Stock Exchange. If you have a stock, you are nearly always going to be able to sell it whenever you want. But these investments are going to be difficult for sellers to find buyers.
Mark Hamrick: Yeah, that is going to be fascinating. So Sheyna, as one who obviously has more knowledge and broader experience in this investing world than most people, what is your sense about the possible appeal of this? Do you think it is probably not for most people, do you think people should take a look at it, what’s your gut feeling about it?
Sheyna Steiner: It is definitely not for most people. It is going to be for people who have an entrepreneurial spirit and like to take a lot of risk. But for most people, most of us small investors are fickle and flighty people who may be scared away by the fact that you could totally lose your shirt and also be stuck with an investment for years before you know what is going to happen.
Mark Hamrick: Fickle, flighty and potentially shirtless, that is a dangerous combination.
Sheyna Steiner: It is.
Mark Hamrick: So you talked about the risk there, do you think that there is a possibility of significant upside risk as well, even if it is a low probability?
Sheyna Steiner: Absolutely. The higher your risk of completely going broke, the higher return you could get for taking that risk. And we know from looking at people like Mitt Romney, who has invested in similar investments, where you have a private placement investment, they can make a lot of money. So the upside is there, but the downside is also there.
Mark Hamrick: So regulators have some more work to do, as do the potential participants here. And I know they are looking to get some additional structure in place to make this happen. How do you think it will literally work once this crowdfunding investment world is up and running for anyone who might be interested in taking part?
Sheyna Steiner: Well, people are going to have to go through a broker-dealer or a crowdfunding portal in order to participate in an offering. And the crowdfunding portals are going to be similar to brokers, but they are only going to deal in these kind of crowdfunding offers. And they are going to have to provide disclosure information to investors and kind of help set up the sale.
Mark Hamrick: We talked earlier about the risks. What do you think the possible minimum investments required for this might be? Because I was just thinking you know, if we are kind of comparing it ultimately to gambling, or buying a lottery ticket, what do you think it would require for someone to actually be a participant in the sense of money out of their pocket?
Sheyna Steiner: Well that is a great question. I know that the cap is $2,000 if your income or net worth is less than $100,000. So you are limited to either 5% of that or $2,000, whichever is less. As for the minimum, I would really like to know that, too, because if the minimum was a reasonable amount, it is something that more people would be interested in. But if you are looking at potentially losing $1,000 or $2,000 — that would definitely limit the market.
Mark Hamrick: Yeah and obviously, there are a lot of details yet to be worked out, and that probably is among them. And obviously, for those that are making the offerings, the minimums and the price of the stock are going to be unique to each and every 1 of those. So here is the final question Sheyna, and I think it should be ultimately among the most fascinating for all of us to ask ourselves, would you do this?
Sheyna Steiner: It would be fun. It seems like a really fun and exciting thing to do, but for me, the most I would want to lose is $100, or maybe $50, so I would definitely be on the small-fry end of the spectrum.
Mark Hamrick: Yeah, I am right there with you on that. And you know, the one thing that we do try to remind people all the time here at Bankrate is, if you are doing something that is speculative, and ultimately that seems to be what this is, so we always want to remind people that they need to have that emergency savings account fully-funded. Because the last thing you want to do is end up parting with money that you really need for something that is more important to — you know, you do not want to miss a meal, you do not want to miss a rent or mortgage payment. These are important issues, and this is not to be taken lightly, right?
Sheyna Steiner: Absolutely, you would not want to try this unless you have all of your other financial ducks in a row, and this is money that you can say goodbye to without feeling a lot of pain.
Mark Hamrick: Sheyna Steiner, we will see if the crowd shows up for crowdfunding investing, thanks so much for your time, great talking with you.
Sheyna Steiner: Thank you Mark.
Mark Hamrick: You’ve been listening to “Your Money This Week.”
You can find us any number of places, including Bankrate.com, as well as Apple’s iTunes.
Thanks to my colleagues, Sheyna Steiner, Doug Whiteman and Danilda Martinez.
I’m Mark Hamrick. From all of us here at Bankrate, thanks for listening. Here’s hoping you have a great week.