Thursday, June 21, 2012

Electric Vehicles: Another Government Bet, Another Taxpayer Loss

I quote below a summary by Robert W. Poole, Jr., Director of Transportation Studies, Reason Foundation that he originally titled What's Wrong with Electric Cars?
Several years ago in this newsletter (prior to the debut of the Chevy Volt), I celebrated the vision of a future of zero-tailpipe emission cars, powered by breakthrough battery technology. Articles on advanced batteries were appearing in respectable places like MIT's Technology Review, and Silicon Valley venture capitalists were ramping up funding of electric vehicle (EV) and advanced-battery startups. With the coming of practical, zero-emission vehicles, I hoped, a lot of the anti-car, anti-highway ideas that I disagree with could be dismissed as irrelevant.

Alas, several years later, things don't look so bright for EVs. Canadian columnist Margaret Wente, writing in The Globe and Mail last fall, summed it up as follows: "As Dennis DesRosiers, a leading auto consultant points out, consumers simply won't pay a $20,000 premium for a vehicle that doesn't go very far, isn't very convenient, and runs out of juice as soon as you turn on the air conditioner." And that, I think, neatly explains why:

  • sales of the highly touted Chevy Volt totaled just 7,671 last year, and
  • the Nissan Leaf did only marginally better at 9,674.
  • The Daily Mail in London reported that only 2,149 EVs have been sold in Britain since 2006.
Wall Street Journal auto industry analyst Joseph White in February penned a detailed comparison of the Chevy Volt and the conventionally powered Chevy Cruz, about the same size but selling for half the Volt's $40,000 price. The Cruz is breaking sales records, while the Volt is a dud. The underlying problem is simply that despite lithium-ion batteries being far superior to the lead-acid batteries that powered GM's previous electric car (the EV-1), they are still heavy, costly, and vastly less efficient at storing energy than that miracle fuel, petroleum.

For EVs like the Volt, Leaf, and Ford's Focus, the battery pack costs $12-15,000, about one-third the cost of the vehicle. And that is despite $1.26 billion in federal subsidies to battery producers over the last several years. There may be some future battery technology that will represent a breakthrough in energy storage, but lithium-ion clearly is not it.But that has not stopped the government's multi-front program of jump-starting an EV industry based on flawed technology.

Besides grants and loans to battery companies, the Department of Energy and the Administration's stimulus program have put some $9 billion for EV production into major auto companies like GM and Nissan as well as a whole raft of start-ups such as Tesla, Fisker, Bright Automotive, Think, and even truck-maker Navistar, which got $2.4 billion to jump-start production of an electric truck called eStar that has found few buyers. (A number of the smaller start-ups have already filed for bankruptcy.) In addition, of course, buyers of EVs get a $7,500 tax credit (which the Administration's current budget proposal would increase to $10,000). That credit applies not just to the low-end Leaf and Volt but also to the $100,000 Fisker Karma and Tesla roadster.

The average household income of Volt buyers is around $170,000, and I'm sure those who have put down deposits for Fisker and Tesla EVs are in far higher brackets. What kind of public policy sense does it make to subsidize playthings for the rich?

The whole federal push to jump-start an EV industry is misguided. As former Treasury Secretary Larry Summers has said, "The government is a crappy venture capitalist." In a field where true breakthroughs are needed if a practical, cost-effective EV is ever to emerge, government funding of basic research and development might be justified. But the attempt to shape and micro-manage the development of an industry is a recipe for massive wasting of resources. As former chairman of the Council of Economic Advisers Michael Boskin put it in a Wall Street Journal op-ed in February, "Industrial policy failed in the 1970s and 1980s. Letting governments, rather than marketplace competition, pick winners and losers is just as bad an idea today.
I should add that while in South Korea last month I read "China's dream of electric car leadership elusive" and I quote:
In 2009, [China] announced bold plans to cash in on demand for clean vehicles by making China a global power in electric car manufacturing. They pledged billions of dollars for research and called for annual sales of 500,000 cars by 2015. Today, Beijing is scaling back its ambitions, chastened by technological hurdles and lack of buyer interest. Developers have yet to achieve breakthroughs and will be lucky to sell 2,000 cars this year, mostly taxis.