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Along with models like the 2019 Jaguar I-PACE, Audi e-tron, and upcoming Porsche Taycan, we're seeing a new generation of high-tech battery-powered vehicles that bring an exciting new direction to legacy automakers. These models also have something important in common: They aim to disrupt Tesla, the industry’s de-facto electric car leader.

Disruption is a word thrown about with abandon these days as veritable institutions of business and commerce fall from grace, or at least profitability, at the hands of an ever-changing and disruptive world. Think Sears, Borders, and Kodak. The list of major companies disrupted – either gone, a shadow of their former self, or on the ropes – continues to grow. While the auto industry has largely escaped this same fate, change is definitely in the wind. And its bogeyman in recent years has clearly been Tesla.

tesla-model-x-actionPREVIOUS DISRUPTION: We’ve seen the auto industry disrupted before, not by innovators but rather by geo-politics, circumstance, and a lack of long-term vision. The Arab Oil Embargo of 1973 and the 1979 Oil Crisis that brought serious gas shortages were a result of political disruption. It was a time when stations ran out of gas, lines of cars snaked for blocks as drivers tried desperately to keep their tanks full and their car-dependent lives on track, and consumers looked for more fuel-efficient vehicles to ease their pain. The problem, however, was there were few fuel-efficient models being produced since there had been no particular demand for them. The auto industry had to adapt, but with typically long product cycles it would take years to adequately fill this need.

Segue to 2003 and the launch of Tesla Motors, an occurrence that seemed interesting but hardly a threat to legacy automakers. Its high-tech Tesla Roadster introduced in 2008 – based on engineless ‘gliders’ produced by Lotus – proved that electric cars could be sporty, fun, and go the distance in ways that all other electrics before it could not, to the tune of 250 miles of battery electric driving on a single charge. Then came the Tesla designed-and-built Model S, Model X, and the new-to-the-scene Model 3. Clearly, the battle for leadership in electric cars was underway.

jaguar-ipace-rolling-chassisA HISTORY OF INNOVATION: The auto industry’s penchant for innovation has always characterized its giants. Over its long history, this is an industry that brought us the three-point safety belt, airbags, anti-lock braking, cruise control, direct fuel injection, electronic ignition, and near-zero emission gasoline engines. And let us not forget Kettering’s invention of the electric starter that first saw use in 1912 Cadillacs, an innovation that tipped the scales – and history – in favor of internal combustion over electric cars of the era and helped lead to the combustion engine’s dominance to this day.

While Tesla may have established its role as the industry’s electric car innovator, that’s not to say that legacy automakers haven’t made tremendous progress. GM’s short-lived EV1 electric car of the 1990s proved that exciting and fun electric cars were possible, but not necessarily affordable to make at the time. The technologies developed by GM through the EV1 program live on to this day with evolutionary electric-drive technology found in its acclaimed Chevrolet Bolt EV and other electrified models. Advanced battery electric production vehicles have also been a focus at Audi, BMW, Ford, Honda, Hyundai, Jaguar, Kia, Mercedes-Benz, Nissan, Smart, and VW, with others like Porsche set to enter the market with long-range battery EVs.

jaguar-ipace-and-model-x-1So here’s the lesson of the day: If a business model no longer works, as was the case with General Motors and Chrysler during the financial meltdown in the late 1990s, you restructure. A brand no longer resonates with consumers? You drop it, like GM did with Oldsmobile. And if a class of vehicles is falling out of favor in lieu of more desired ones, you move on, as Ford is doing by phasing out almost all of its passenger cars in coming years in favor of more desired crossover/SUVs and pickups.

THE AGE OF ELECTRIFICATION: A paradigm shift is also occurring as automakers grapple with changing consumer preferences, regulatory requirements, and the projected demand for future vehicles and technologies. Enter the age of electrification. Over the past decade, Tesla has set the bar for innovative battery electric propulsion, advancements in near-autonomous driving technology, over-the-air vehicle software updates, and more. It has achieved a real or perceived leadership position in these areas and that’s a threat to legacy automakers. Now automakers are responding in a serious way and Tesla itself is under siege.

2017 Chevrolet Bolt EVGM fired the first volley with its 2017 Bolt EV, beating Tesla’s long-touted Model 3 to market with an affordable long-range EV capable of traveling 238 miles on battery power. While Tesla is now delivering its well-received Model 3 in increasing numbers after a series of production challenges, the race with GM to produce an ‘affordable’ mainstream EV with 200-plus mile range was not much of a race to affordability at all. GM won that one handily, holding the line with a $37,500 price (after destination charges), while Tesla’s $35,000 Model 3 has yet to materialize. As Tesla did with its earlier model launches, the automaker is delivering uplevel, high-content, and higher-performance versions first, in the case of the Model 3 from a recently-lowered base price of $42,900 to $60,900, depending on configuration. The Bolt EV’s MSRP has moved in the other direction, dropping slightly to $36,620 for the 2019 model.

Nissan’s all-new, next-generation LEAF that debuted in 2018 improved its range to 150 miles, with a recently-announced LEAF PLUS model joining the lineup with a bigger battery and a range of 226 miles. Hyundai’s 2019 Kona Electric and Kia’s 2019 Niro Electric offer a battery range of about 250 miles, although these offer availability only in California and perhaps a few other ‘green’ states.

nissan-leafEXCITING NEW ENTRIES: Jaguar’s 2019 I-PACE, a fast and sporty crossover with a 234 mile battery electric range, is now available and priced to compete with Tesla’s Model S and X. We'll soon be seeing Audi e-tron and Porsche Taycan long-range electrics on U.S. highways, with others like Aston Martin and Maserati developing high-end electric models as well.

It will be interesting to see how this all plays out over the coming months and years. To be sure, legacy automakers will not cede their leadership positions and market share without a terrific fight… and that fight is intensifying. Tesla doesn’t fear risk and has shown it will go in new directions that others will not, unless they must.

Audi e-tronBut Tesla doesn’t operate like legacy automakers that have been around for a long time, some more than a century. Those companies have mastered mass production, fielded extensive model lineups, developed widespread and convenient service networks, and have a history of successful worldwide distribution. Tesla is still learning this game, although it is making headway with its intense and successful efforts to deliver increasing numbers of its Model 3 to customers.

Importantly, legacy automakers are immensely profitable, while Tesla has had but a few profitable quarters since its launch and its losses have been in the billions. Tesla’s well-documented difficulties in ramping up mass production of the company’s 'entry-level' Model 3 – and its initial deliveries of only up-level Model 3 examples at significantly higher cost than its widely-publicized $35,000 base price – have added to its challenges.

tesla-model-3That said, it would be a mistake to count Tesla out for the long haul based on its current and historic challenges including missed financial and vehicle delivery targets, serious Model 3 production challenges, and a number of high-profile Tesla crashes while driving on its much-touted Autopilot. Regardless of all this, in 2018 Tesla’s Model 3 was the best-selling luxury model in the U.S.

Legacy automakers will have Tesla directly in their sights and Tesla will continue to innovate. A veritable race-to-the-finish!

Among owners and fans, it’s a foregone conclusion that Tesla will remain the dominant producer of electric vehicles (EVs) as the automotive world increasingly adopts this technology. And why shouldn’t it? Tesla produces the best EVs, and perhaps the best cars made, has developed an incredible brand, and fills waitlists years before a new car is delivered. This all seems to indicate that Tesla has developed a world-beating business model, but is it actually a signal of future trouble?

thomas-bartmanTesla’s strategy has always been to build EVs that are better than their internal combustion competitors and sell them for premium prices. In the language of innovation theory, strategies that offer existing consumers better products at higher prices are called sustaining innovations. Sustaining strategies tempt entrepreneurs because they appear so logical: build a better product and customers will come. But research shows that it is a losing strategy for new businesses. In sustaining competition, the industry incumbents nearly always win.

Incumbents are favored because sustaining strategies build on capabilities that they have developed over the course of their rise to dominance. Worse still, a sustaining strategy presents the entrant as a clear and direct threat to the incumbents. The combination of these two factors creates a response that often proves overwhelming for the entrant. Incumbents respond ferociously and deploy so many resources to the battle that the entrant is overcome.

Consider the situation for Tesla: It would be difficult enough for a company that sells 50,000 units per year to fight even one major automaker head-on. But Tesla has attacked not just the automakers but also every incumbent in the value network that produces automobiles, including the entire base of suppliers and dealers. The resources that these aligned interests can bring to bear are vast. Collectively, these firms spend more on R&D every year than Tesla has invested in its lifetime.

Many have argued that the move away from internal combustion is simply too technologically painful for automakers, but the technology underpinning EVs is largely a modular combination of standard components purchased from independent suppliers. The technology simply isn’t a constraining factor, and with every new auto show the automakers demonstrate this with new concept cars, such as the Porsche Mission E, squarely targeting Tesla. With its fantastic design and beloved product, Tesla might have written the playbook that the incumbent automakers will follow to dethrone it.

tesla-storeIf better products and technological barriers aren’t enough to defeat incumbents, is there any hope for entrepreneurs? We’re believers in disruptive innovation strategy, which allows entrants to beat even the most-powerful incumbents. Disruptive innovation begins at the bottom of existing markets or by creating new markets where people don’t currently consume. They target the least-attractive customers and produce worse products for less money with lower-cost business models than conventional offerings. In doing so, they create the phenomenon of asymmetric motivation, which causes incumbents to ignore or flee them. But disruptive strategies don’t remain at the bottom of the market – they possess a technological core that allows them to improve their performance over time, capturing more of the market and pushing incumbents into ever-smaller segments at the high-end.

Many observers say this approach could never work in EVs, but we’re seeing it happen today. It takes the form of low-speed EVs driven by security guards on college campuses, retirees in the Sunbelt, and middle class families in China. The manufacturers are largely unknown and that’s the point. Each year they grow bigger and improve their products without any resistance from incumbents. Soon they will be good enough to lure the least-demanding customers away from traditional automakers and the disruption will have begun. While these companies improve their performance to capture more customers, Tesla’s only option is to reduce its performance. Which position would you rather be in?

Thomas Bartman is a Senior Research Fellow at the Forum for Growth and Innovation at Harvard Business School

PrintFor a decade, Green Car Journal has been recognizing vehicles that significantly raise the bar in environmental performance. With automakers stepping up to offer ever-more efficient and ‘greener’ vehicles in all classes, the magazine’s awards program has naturally expanded to include a greater number of awards for recognizing deserving vehicles.

This prompted the recent suite of Green Car Awards presented during Policy Day at the Washington Auto Show in the nation’s capital – the 2015 Green SUV of the Year™, 2015 Green Car Technology Award™, and 2015 Luxury Green Car of the Year™.

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BMW’s gull-wing i8 earned the distinction as the 2015 Luxury Green Car of the Year, outshining competitors Audi A8 L TDI, Cadillac ELR, Porsche Panamera S E-Hybrid, and Tesla Model S. Aimed at aspirational buyers who value superb styling and exceptional performance combined with the efficiency of plug-in hybrid drive, the i8 is unique among its peers with an advanced carbon fiber passenger body shell. It also features a lightweight aluminum drive module with a gasoline engine, lithium-ion batteries, and electric motor. The i8 can drive on battery power for 22 miles and up to 310 miles on hybrid power.

The Jeep Grand Cherokee EcoDiesel rose to the top as the magazine’s 2015 Green SUV of the Year, besting finalists Honda CR-V, Hyundai Tucson Fuel Cell, Lexus NX 300h, and Mazda CX-5. Offering excellent fuel efficiency for an SUV of its size, the Grand Cherokee EcoDiesel’s 3.0-liter EcoDiesel V-6 offers up to 30 highway mpg and is approved for B20 biodiesel use. An Eco Mode optimizes the 8-speed transmission’s shift schedule, cuts fuel feed while coasting, and directs the air suspension system to lower the vehicle at speed for aerodynamic efficiency.

jeep-grand-cherokee-ecodiesel-winnerThe Ford F-150 was honored with the 2015 Green Car Technology Award for its milestone use of an all-aluminum body. Competing for the award were advanced powertrains in the BMW i3, BMW i8, Chevrolet Impala Bi-Fuel, Ford F-150, Honda Fit, Kia Soul EV, Tesla Model S, VW e-Golf, and Volvo Drive-E models. The F-150’s aluminum body enables the all-new 2015 pickup model to shed up to 700 pounds for greater efficiency and performance.

While the Green Car Technology Award has a history at the Washington Auto Show, the first-time Green SUV of the Year and Luxury Green Car of the Year awards could not have existed just a short time ago. Simply, SUVs and luxury vehicles were seldom considered ‘green,’ and for good reason. An SUV/crossover’s mission was to provide family transport and recreational capabilities, while aspirational/luxury vehicles were expected to deliver the finest driving experience combined with high-end appointments and exceptional design. Both categories held few environmental champions and ‘green’ was hardly an afterthought.

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The evolving nature of ‘green’ cars has brought about a fundamental shift in which environmental performance is now important in SUVs and luxury vehicles. Even so, not all models in these classes are created equal. The challenge has been finding the right balance – the ‘sweet spot’ – that finds SUVs and luxury vehicles delivering the efficiency and environmental qualities desired without sacrificing the conventional touchstones – quality, safety, luxury, value, performance and functionality – that consumers demand. This year’s winners of the 2015 Green Car Awards clearly achieve this balance.

Presenting these important awards at the Washington Auto Show is compelling considering its reputation as the ‘Policy Show,’ a result of the show’s proximity to Capitol Hill and the influence that Washington DC has in driving a more efficient generation of vehicles to market. The 2015 Washington Auto Show has also expanded in recent years, receiving accreditation from the Organisation Internationale des Constructeurs d'Automobiles (OICA) as one of the five top tier auto shows in America. This year’s Washington Auto Show featured more than 700 vehicles from over 42 domestic and import auto manufacturers, plus a Green Car Awards exhibit showcasing 15 finalist vehicles within the show’s Advanced Technology Superhighway exhibit area.

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ron-cogan-test-driver-1Electric drive vehicles of all types are increasingly in the news, often led by a near-nonstop focus on Tesla and its Model S, Model X, and planned Model 3 battery electric vehicles. People want electric cars. Some feel they need them, or more accurately, that we all need them. It has been so for quite some time.

I was one of those pushing hard for electric vehicles in the 1990s, driving prototypes on test tracks and limited production models on the highway as I shared their benefits on the pages of Green Car Journal and Motor Trend before that. It was an exciting time filled with hope that battery breakthroughs would come, bringing full-function EVs offering the same driving range as conventional vehicles.

Expectations were high that a public charging infrastructure would expand to make topping off batteries convenient. New ideas like 15-minute rapid charging and battery swap stations would allow drivers of all model EVs the ability to renew on-board energy in the time it takes to enjoy a cup of coffee, enabling them to head back on the road in short order with a full battery charge. Importantly, there was an expectation that EVs would be affordable, both to manufacture and to buy.

If only this unfolded as expected, automakers would commit to developing battery electric vehicles of all types to meet the needs of an emerging market. But things have not unfolded as expected.

California’s Zero Emission Vehicle mandate drove the electric car surge in the 1990s and it’s a huge influence today. While less refined than electric models we have now, electrics of the 1990s like the Toyota RAV4 EV, Nissan Altra minivan, and Honda EV Plus were quite well engineered. Then there was GM’s EV1. Sleek, sexy, and fun, it provided a daily driving experience unparalleled in the field, something I came to appreciate well during the year I drove an EV1.

The challenge then was the same as now: cost. The EV1 was so costly to build with such massive losses there was no business case for it to continue, and so it ended, as all other electric vehicle programs of the 1990s ended, for the same reason.

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Early on, Volvo had the foresight to challenge the status quo. While evaluating ways to meet California’s impending ZEV mandate, the automaker concluded there was no way to do this realistically with a vehicle powered exclusively by batteries. In 1993, I test drove Volvo’s answer – its high-tech Environmental Concept Car (ECC) that added a high-speed turbine-generator to an electric drivetrain, thus creating what we now call a range-extended electric vehicle (think Chevy Volt). Sadly, the ECC’s high cost turbine-generator meant this innovative car never saw production. But it was at the leading edge of a movement that brought us hybrids and range-extended electric cars. Today, even BMW – a high-profile champion of electrics with its innovative  i3 – understands the importance of offering a range-extended variant with a gas engine-generator for those who prefer the convenience of longer range.

In answer to the chorus of Tesla enthusiasts sure to raise their voices, I am aware that Tesla is committed to all-electric vehicles and the range of the $70,000-$95,000 Model S (before the addition of popular options) is substantially greater than its competitors. The coming Model X electric crossover is expected to be in the same aspirational category as the Model S with a price suitable for premium buyers. The company's planned Model 3, presumably a vehicle accessible to the masses at a price Tesla says will be about $35,000, is said to be three years away. That's a good thing since significant battery cost reductions will be required to make this Tesla-for-the-masses electric an affordable reality. Will three years be enough? Achieving battery cost reductions of the magnitude required is no sure bet and, as history has proved, battery technology advances move at their own pace.

One stock analyst recently quoted in a major newspaper article shared that Tesla has the ability to reduce battery costs by nearly half in the coming three to five years. Of course, the backstory is that this ‘ability’ is really but a ‘potential’ based on batteries that do not yet commercially exist. The past 25 years are replete with examples of major government and industry efforts aimed at developing energy-dense, safe, and affordable electric car batteries that deliver the range and cost expectations of auto manufacturers and consumers. Over these years there have been many incremental improvements in battery design and chemistry, a slew of failures, and pending ‘breakthroughs’ that have often been promoted only to have expectations and actual production sidelined for a plethora of  reasons du jour.

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As just one recent example, Panasonic's 2009 announcement of a lithium-ion battery breakthrough using a silicon alloy cathode was accompanied with a claim it would be manufactured in 2012. Many positive reports on electric vehicles take into account this very ‘breakthrough’ and others like it, with the considerable cost reductions that would follow. Yet, Panasonic did not begin mass production of this battery technology in 2012. According to a Panasonic spokesman, the company’s work on developing high-capacity battery cells using a silicon-based negative electrode is ongoing. Hopefully,  developments like these will lead to the kind of mass production that could bring long-hoped-for battery performance and cost reductions. Perhaps this will come to pass with a mass effort by Tesla through its proposed $5 billion battery ‘Giga Factory,’ and perhaps not. But after 25 years of following battery development I have learned not to count on claims or development, but rather actual production and availability in the real world.

Tesla continues to develop its Supercharger quick-charge network and has potential plans for a battery swap system, both exclusively compatible with its own vehicles. An innovative and expanding infrastructure for battery electrics will be required for their ultimate success and these are very positive moves, although only for those with a Tesla product and not electric vehicle owners as a whole.

Battery electric vehicles priced at levels accessible to everyday buyers will continue to grapple with cost and marketing challenges until a battery breakthrough comes. This is illustrated by Fiat Chrysler Automobiles CEO Sergio Marchionne's comment earlier this year that the company is losing $14,000 on every one of the Fiat 500e electric cars it sells. Is it so different for other automakers also selling EVs in limited numbers and in constrained geographic locations? Not inconsequentially, to bolster the market battery electric cars will also require continuing federal and state incentives that combined typically total $10,000 or more. Hopefully, innovative thinking and real technology and cost breakthroughs will emerge in the years ahead.

In the meantime, gasoline-electric hybrids and plug-in hybrid models, plus range-extended electric vehicles that combine all-electric drive with an on-board electric generator, are providing functionality for everyone even as battery-only electric cars fight hard to establish their place in the automotive market. Let's hope that mass-market, nationally-available models like BMW's innovative i3 electric car change this dynamic sooner than later.

What does Silicon Valley, California have in common with Leipzig, Germany?  They are both home to the most innovative, technically advanced, and possibly the most significant cars of the 21st century. The Tesla Model S and the BMW i3 are the cars that have defied experts who said they couldn't be built. While the key innovations for each of these cars are different, the innovative spirit is the same.

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With the Model S, Tesla created a breakout electric car out of mostly existing technology. What Tesla did better than other new entrant was put it together, what Silicon Valley calls ‘systems integration,’ into a remarkable package. With obsessive attention to detail and high standards for performance and styling, Elon Musk has emerged as the Steve Jobs of the auto industry and proven countless naysayers wrong.

With the i3, BMW created an affordable car out of an innovative material, carbon fiber, or technically speaking, ‘carbon fiber reinforced plastic.’ BMW has found a way to apply its manufacturing know-how to bring what was once an exotic material for supercars and fighter jets to an everyday car. Driven to not make just a ‘me too’ electric car, Ulrich Kranz, the father of the i3, has created a breakthrough car that, like the Model S, is receiving enthusiastic reviews from auto critics for its performance.

In the 20th century, the automobile shaped the world. In the 21st century, the world will shape the automobile. Today’s cars are a major source of urban air pollution, global warming emissions, and oil dependency.

Fortunately, there are those in the auto industry – like Mr. Musk and Dr. Kranz – who understand it doesn’t have to be this way. Technology innovation combined with visionary leadership can reinvent the automobile. Tesla’s Model S and BMW’s i3 prove that being more in balance with today’s global realities does not mean sacrificing what makes the auto industry great.

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tesla-model-sSaleen Automotive’s offerings are traditionally gasoline-driven and they are fast. The company is well-known in automotive circles for its stylish and performance-oriented versions of noted sports cars like Ford Mustangs, Chevy Camaros, and Dodge Challengers. Now Saleen is turning attention to high-performance in the electrified world with a new effort involving Tesla’s Model S.

Company CEO Steve Saleen says this latest focus on the Tesla Model S is not a departure from Saleen Automotive’s own core values of elite power, style, and performance. Rather, he feels the Model S epitomizes the sports car of the electric vehicle field, which of course would make it a natural for the company. Saleen says they are working on renderings and engineers are preparing a spec sheet that will detail some of the enhancements and innovations that Saleen Automotive aims to add to the Saleen Tesla Model S.

I recently climbed out from behind the wheel of a 2013 Lexus GS450h. Fully loaded, this very luxurious hybrid will easily top $70,000 MSRP. And that’s not the most expensive hybrid offered by Toyota’s luxury brand. The LS600h L starts at $119,910.

Back to the GS450h: It’s hard not to be impressed with the car’s performance – delivered via 338 combined horsepower and a 34 mpg EPA highway rating, wrapped in a very stylish sedan with luxury appointments.

That got me thinking about the difficulty of bringing advanced technologies to the automotive market. We sometimes hear complaints that a powertrain or technology breakthrough ‘shoulda’ been out years ago. Truth is, it takes considerable time and money to bring any new idea to market these days. Big breakthroughs take even longer and often require a major capital investment on the part of the automaker.

The Prius is a good example. Toyota bet on a forward-thinking, long-term approach with this iconic gasoline electric hybrid. You can bet that Prius isn’t a profitable platform for Toyota when viewed in traditional automotive parameters. But now with over a million Prius models on the road, ‘Prius’ is used as a generic term when talk turns to hybrids. It’s difficult to measure the green halo that the Prius casts across the entire Toyota brand, but it’s certainly a marketing home run. Toyota has the resources to make that kind of multi-year investment. Many companies, especially smaller startups, need to be profitable early in the game.

That’s why we often see green technology introduced in cars that are much more expensive than the Prius. Both Fisker and Tesla took this approach with their launches working the ledger with high-end models eclipsing six figures. In a blog some six years ago, Tesla founder Elon Musk pointed out that his company’s strategy was to “enter at the high end of the market, where customers are prepared to pay a premium, and then drive down market as fast as possible to higher unit volume and lower prices with each successive model.”

At the time of his blog, Musk’s plan was to follow through with a second model that would be roughly half the cost of the $89,000 Tesla Roadster. As recent history has shown, that $89,000 MSRP ultimately became $111,000, which meant the cost of a more affordable coming sedan would likely be higher as well. That sedan is the highly acclaimed and awarded Tesla Model S. Initially, Tesla is only delivering the limited edition Model S Signature Series at a cost of $95,000 to $105,000. The plan is to next roll out less expensive Model S variants with an MSRP starting at $59,900 with smaller battery packs and shorter, although still exemplary, electric range.

Though battery cost is a prime contributor, this economic reality is not limited to hybrids or electric vehicles. Even clean diesel feels the influence of advanced technology running up cost. A diesel is generally more expensive to produce than a gasoline engine. When you add the cost of federally mandated high-tech pollution controls and exhaust aftertreatment systems, it’s easier to merge clean diesel into higher-end luxury vehicles and more expensive three-quarter ton and larger pickup trucks.

Clearly, the path to vehicles using highly-advanced technology is not a quick or easy one, nor as it turns out, one without cost.

 

Todd Kaho is executive editor of Green Car Journal and CarsOfChange.com