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The Costs and Benefits of Alternative-Fuel Vehicles

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This story appears in the October 2012 issue of Entrepreneur. Subscribe »

Wander into the busy Tesla Motors showroom at Fashion Island mall in Newport Beach, Calif., and you'll walk out with the feeling that a whole bunch of people are about to kick the petrol habit. Half the showroom space is taken up by the crowd surrounding a single floor model of the Tesla S, the world's first premium all-electric sedan. Roving employees, à la those at the Apple Genius Bar, deliver the sales pitch with fan-boy fervor: no oil changes, 0 to 60 mph in 4.4 seconds, manufactured in California. The breathless descriptions of technical details are often followed with "Pretty cool, huh?"

Well, yes. About a month after its June debut, the Tesla S had an 11-month waiting list and the kind of buzz most automakers can only dream about. It is, without a doubt, the car of the moment. But it is also an emblem of how far and how fast alternative-fuel vehicles (AFVs)--any vehicle that doesn't run exclusively on standard gasoline--have come. According to the U.S. Energy Information Administration, the number of them on the road increased from 534,000 in 2003 to almost 940,000 in 2010, the most recent figure available. Sales of hybrid and electric cars should nearly triple by 2017, when federal mandates for higher-efficiency vehicles kick in, says John Gartner, director of Pike Research's Smart Transportation practice.

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