At the recent North American International Auto Show in Detroit, Chrysler, Ford, General Motors, Toyota and other automakers unveiled a wide variety of all-electric vehicles that they hope to have on the market in just a few years. However, a new study conducted by the Boston Consulting Group Inc. (BCG, Boston) offers a different perspective on the future potential of the electric car industry.

“The Comeback of the Electric Car? How Real, How Soon and What Must Happen Next” argues that the auto industry will remain dominated by cars powered by traditional internal-combustion engines (ICEs).

Without incentives to automakers, power companies and consumers, the cost of creating a robust electric and hybrid car market will be prohibitively high, claims Georg Sticher, a senior partner and managing director in BCG’s Munich office. As a result, he says electric cars are unlikely to help automakers cut CO2 emissions significantly by 2020.

An estimated 14 million electric and hybrid cars may be sold worldwide in 2020 vs. 400,000 in 2008. But, despite growing pressure on the automotive industry to produce cars with lower carbon dioxide emissions, Sticher believes most cars will be powered by next-generation ICEs.

Many automakers are currently building smaller, more fuel-efficient engines. “Over the next five to 10 years, we expect the demand for vehicles powered by four-cylinder engines will grow as many automakers will be introducing new small cars,” says George Pipas, chief sales analyst at Ford Motor Co. (Dearborn, MI). Ford plans to double production of four-cylinder engines in North America to more than 1 million units by 2011.

In addition to engine downsizing, automakers and suppliers are also focusing on technologies such as turbocharging, direct fuel injection, stop-start systems and electric power steering. For instance, engineers at General Motors Corp. (Detroit) have developed a homogeneous-charge compression-ignition (HCCI) engine, which has been called the “holy grail” of ICE technology. It uses a lean-mixture combustion process that offers a 15 percent to 20 percent leap in fuel efficiency. The HCCI engine combines attributes of gasoline and compression-ignition (diesel) engines.

“A combination of advanced technologies can boost the fuel efficiency of a gasoline-based ICE by 20 percent at a cost increase of some $2,100 per engine, translating into corresponding reductions in CO2 emissions,” says Xavier Mosquet, a senior partner and managing director in BCG’s Detroit office. “Advanced ICE technologies will be the most cost-effective way to reduce CO2 emissions on a broad scale.”

Some countries, such as Denmark, France and Israel, are establishing attractive incentive schemes for electric vehicles. “But, progress toward sustainability will come at a high price,” warns Mosquet. “Unless governments act promptly to provide adequate incentives for consumers to purchase electric and hybrid cars, and for power companies and private investors to provide the necessary infrastructure at affordable prices, the electric car may be off to another false start.”

Mosquet believes the cost of creating an automotive market dominated by electric and hybrid cars will remain prohibitively high in the foreseeable future. He estimates that $49 billion will be needed in Europe alone by 2020 to cover the new propulsion technology mix. Investments totaling an additional $21 billion will be needed for battery-charging infrastructure, such as stations located near homes, hotels and shopping centers.