NEW YORK -- Mike Piccolo got a call from a friend about a deal on a new BMW with a price so cheap he thought it was a joke.
The 45-year-old financial adviser from Ramsey, N.J., thinks of himself as a car nut, and his buddy is the kind of guy who likes to trawl the Internet for car deals.
This one appeared on a website, Leasehackr, frequented by fellow bargain hunters: a two-year lease on a 2017 BMW i3, the luxury automaker's small electric car, for just $54 a month.
"The car's $50,000," Piccolo said. "How are you getting it for $50? IPhones aren't even $50 a month!"
Someone on the website posted the details of the $54 lease, and the prospect of an impossibly cheap luxury car became almost like a dare to Piccolo. He had to figure out a way to put some of Germany's finest electric engineering into his driveway for less than an eighth of what it would cost to lease one of BMW's cheapest models, the BMW 3 series.
The eye-popping discount wasn't a fluke. It's a sign of the daunting economics facing carmakers during the slow shift to electric vehicles.
Even when selling to enthusiastic early adopters, automakers pile some of the highest incentive offers onto electric models. Additional state and federal tax credits available to buyers of new electric vehicles combine to create deep discounts. That still hasn't been enough to stimulate demand. As automakers sink billions into electrification efforts, the reality is that drivers don't yet want to buy enough EVs to create the sales volume needed for them to make a buck.
The number of battery electric models in the U.S. is set to grow fivefold by 2022, but electric cars accounted for 0.6 percent of total U.S. sales last year. Right now there are only 18 options to tempt U.S. buyers.
"There's an issue of EVs being able to stand on their own in the marketplace without a credit," said Jeff Schuster, an analyst at LMC Automotive. "To get the mass market into them, it's got to be more cost competitive, and it's not at this stage."
Expensive battery technology has turned the electric future into a money-losing present. The profitable crossovers, SUVs and pickups sold by General Motors help cover the loss of about $9,000 every time someone drives an electric Chevrolet Bolt off a dealer lot. The electric version of the Fiat 500 subcompact sells at a staggering $20,000 loss in the U.S. Tesla Inc. is notoriously unprofitable and managed to go $2 billion into the red on $8.5 billion in sales last year.
"It comes down to the economics of the tech: Is it profitable or not?" said Kevin Tynan, a Bloomberg Intelligence analyst. "As long as it's not, you're going to get a half-hearted effort to sell the things."
That dynamic has played out with BMW's i3, which has struggled to lure American buyers since its 2013 debut. Part of the problem was timing: BMW brought out the compact city car just as gasoline prices tumbled, luring Americans back to the light trucks they know and love. The limited driving range — originally 80 miles per charge — and unusual design only narrowed its appeal. The latest version, which starts at $45,445, including shipping, and can go for more than $50,000, can go up to 114 miles on a single charge, still less than half the 275-mile range of Tesla's Model S.
The German carmaker sold 6,276 i3s in the U.S. last year, a 17 percent drop from 2016. Global sales rose 23 percent, to 31,482 units, buoyed by a redesign over the summer. Next up: BMW's Mini brand will introduce an electric version next year, followed by a battery-powered BMW X3 compact crossover in 2020.
BMW's i brand is meant to be an incubator for technologies that will ultimately be incorporated into full model lineups. But sluggish sales prompted a pause before adding more electric-only models to the lineup. "It's slow — and, in terms of over-hyped, we need time," said Joachim Kolling, the head of energy services at BMW, in response to a question as to when he expects to see an uptick in industrywide sales of EVs. "It's a long-term race," Kolling said at a conference in New York last month.
Piccolo is the rare electric vehicle enthusiast who went out to buy the original BMW i3 back in 2014, and then he added a Tesla to his garage. He now feels he took a bath on the first i3, paying about $500 a month for inferior battery technology. This time around, he vowed to be more frugal.
The auto stars seemed to align in his favor. Americans are abandoning compact cars at a stunning pace, and that's contributed to the i3's lagging U.S. performance, said Michelle Krebs, a senior analyst with Autotrader. EVs also don't fare as well as conventional cars in the used market, since heavy discounts have eroded their value. Plus, used-car buyers don't benefit from state and federal tax credits.
As a result, most EV drivers in the U.S. don't buy. Lease rates hover at 80 percent for battery-electric cars in the U.S., compared with a 30 percent industry average, according to Bloomberg New Energy Finance. And good deals abound: The 2018 Honda Clarity can be leased for just $199 a month after a $1,499 down payment.
When a customer leases a car, they're essentially paying the car company for the amount the car's value will depreciate over the life of the lease contract, broken up into monthly payments. Automakers will often lowball the depreciation estimate to lower payments and close the deal, but they do so at their own peril, since they'll be stuck trying to sell the car at true market value after you're done.
That's a particularly risky game with electric cars, since they depreciate so steeply. Of six different 2018 EV and plug-in hybrid models sold in March, the i3 had the lowest forecast residual value, at 27 percent of its original price after three years, according to researcher ALG.