Imagine this scenario: Politicians at the state and federal levels begin handing out billions of dollars is subsidies so that over the next decade America’s wealthiest people – those with household incomes of $200,000 or more – will be encouraged to buy more vacation homes. Oh, and those homes should be concentrated in the areas around Los Angeles and San Diego.
The outrage at such an eventuality would be obvious and immediate. The Democratic Party and the party’s union-based supporters would, no doubt, be particularly vociferous in their objections. They would waste no time in pointing out that such subsidies are ignoring the needs of working-class voters, particularly at a time when the US economy continues to be in recession, unemployment rates are near 10%, and chronic joblessness could continue for years to come. Or given the California-centric bias of the subsidies, imagine the reaction from a conservative Congressman hailing from Alabama, Mississippi, or Arkansas.
Now toss aside that scenario and consider the real-life subsidies being lavished on the electric car, a vehicle which, if it ever gains traction in the market place — and there’s no indication that it will, given the sector’s century-long history of failure tailgating failure – will largely serve as driveway jewelry for the wealthy.
In March, Der Spiegel estimated that over the next five years, the US will provide about $27 billion in subsidies for electric car development and production. Meanwhile, France will spend $2.7 billion and Germany $720 million.
There’s no outrage at those massive subsidies even though the Americans who are most likely to buy electric cars are — according to a July study done by Deloitte Consulting — those with household incomes “in excess of $200,000” and “who already own one or more vehicles.” Furthermore, Deloitte expects those buyers to be “concentrated around southern California where weather and infrastructure allow for ease of EV ownership.”
Deloitte concluded that the US now has about 1.3 million consumers who “fit the demographic and psychographic profiles” of expected EV buyers. It went on saying that mass adoption of the EV “will be gradual” and that by 2020, perhaps 3% of the US car market could be amenable to EVs. The firm goes on saying that the keys to “mass adoption are 1) a reduction in price; and 2) a driving experience in which the EV is equivalent to the internal combustion engine.”
Think about those numbers. Out of 300 million Americans, perhaps 1.3 million are likely to buy an electric vehicle, and yet, all we hear lately is that electric cars are the way of the future. Indeed, over the past few weeks, we’ve been carpet-bombed with happy talk about the electric car.
In late July, the New York Times published a long profile of Elon Musk, the entrepreneur behind Tesla Motors, the startup that has produced about 1,000 electric sports cars. A few days after that, the news was dominated by the announcement of the sticker price ($41,000) of the new Chevrolet Volt. About that same time, Senate Majority Leader Harry Reid introduced a scaled-back energy bill that promises some $400 million in new subsidies for the electric-car business. The key photo op for the electric car came on July 30, when President Barack Obama visited a GM plant that will assemble the Volt. Obama reportedly pronounced the car as “pretty smooth.”
But amid all of the hype, the essential question is obvious: Why is the government throwing so much money at a technology that shows so little promise?
Ever since we moved from horse-drawn power to automobiles, the electric-car industry has been promising that it was just on the cusp of viability. Today is no different. We are being told that this time things are different, that the technologies are better, the batteries are better, and that consumers are ready to adopt electrics like never before. Perhaps that’s true. But consider this declaration: The electric car “has long been recognized as the ideal solution” because it “is cleaner and quieter” and “much more economical.”
That story was published by The New York Times on November 12, 1911.
Or given that the new Chevy Volt costs as much as a new Mercedes-Benz C350, consider this assessment by a believing reporter: “Prices on electric cars will continue to drop until they are within reach of the average family.”
That line appeared in The Washington Post on Halloween 1915.
And since the Volt is being built by GM, this news item says that the giant carmaker has found “a breakthrough in batteries” that “now makes electric cars commercially practical.” The new zinc-nickel oxide batteries will provide the “100-mile range that General Motors executives believe is necessary to successfully sell electric vehicles to the public.”
That story was published in The Washington Post on September 26, 1979.
Now fast-forward to July 2008, when Thomas Friedman of The New York Times declared that Shai Agassi—the founder of an electric-car company called Better Place—was “the Jewish Henry Ford.” Friedman went on to claim that Agassi was launching “an energy revolution” that would end the world’s “oil addiction.” Never mind that when Friedman wrote his story Agassi’s fleet of electric cars consisted of exactly one prototype.
The media’s coverage of the electric-car sector demonstrates more than 100 years of gullibility. The gee-whiz factor of electric cars with their big batteries, small motors, and whisper-quiet locomotion appears to be so dazzling that reporters willingly give up their skepticism like star-struck groupies surrendering their panties.
That same lack of skepticism may explain why the Senate wants to throw hundreds of millions of additional dollars at electric cars without braking to consider the problems of physics and consumer demand. And those two factors are undoubtedly the biggest problems for the future of the electric-vehicle market. On a gravimetric basis, gasoline has 80 times the energy density of the best lithium-ion batteries. Of course, electric-car supporters will immediately retort that electric motors are about four times more efficient than internal combustion engines. Fine. Even with that four-fold advantage in efficiency, gasoline still has 20 times the energy density of batteries. And that is an essential advantage when it comes to automobiles, where weight, storage space, and of course, range, are critical considerations.
Numerous studies have found that electric and plug-in hybrid vehicles are simply not ready for prime time. Perhaps the most damning report was published by the Department of Energy’s Office of Vehicle Technologies in January 2009. The report concludes that despite the enormous investments being made in plug-in hybrid-electric vehicles and lithium-ion batteries, four key barriers stand in the way of their commercialization: cost, performance, abuse tolerance, and life. The key problem, according the DOE analysts, was—predictably—the battery system. The report concludes that lithium-based batteries, which it calls “the most promising chemistry,” are three to five times too expensive, are lacking in energy density, and are “not intrinsically tolerant to abusive conditions.”
As for consumer choice, a May survey by Harris Interactive found that 75 percent of potential new car buyers said they were “not at all likely” to buy an electric vehicle and 70 percent said they were “not at all likely” to buy a plug-in hybrid electric vehicle.
Those findings are remarkable given that the new Senate energy bill is designed to facilitate the growth of both electric and plug-in electric hybrids. The same Harris Interactive survey found that consumers were far more likely to purchase vehicles that use diesel or compressed natural gas. They were also more amenable to conventional hybrids, like the Toyota Prius. But remember, the Prius, perhaps the most iconic “green” automobile in the world, did not steal, and has not stolen, the overall vehicle market. It took Toyota about a decade to sell 1 million copies of the Prius. That sounds like a lot of cars until you remember that the U.S. automotive fleet has about 250 million vehicles and the global fleet about 1 billion vehicles.
Automakers understand that consumers are wary of all-electric and plug-in hybrid-electric vehicles. Bill Reinert, the manager of Toyota’s advanced technology group (he was also one of the lead designers of the Prius), told me last month that the market for electrics and plug-in hybrids remains a “niche of a niche.” Reinert says potential buyers for those vehicles are a small subset of those who are inclined to buy a Prius. Reinert said that hybrid vehicles now account for about 3 percent of total car sales in the U.S. (Read my February 2009 interview in ET with Reinert here.)
Other auto industry officials see it the same way. Last September, Johan de Nysschen, president of Audi of America, was particulary blunt when asked about the prospects for the Chevrolet Volt. His memorable quote: “There are not enough idiots who will buy it.” Of course, since then, Audi has announced that it, too, would begin building an all-electric vehicle. Which leads to another obvious question: Why are so many companies rushing to build electric cars? The answer: fat government subsidies.
Last September, Fisker Automotive, a startup that plans to start selling a plug-in hybrid (sticker price $87,900) this year, received a $529 million loan from the U.S. government. (One of Fisker’s main financial backers is the venture-capital firm Kleiner Perkins Caufield & Byers.) Meanwhile, Nissan got a $1.6 billion federal loan and Tesla Motors got a $465 million loan for their electric-car projects. Two Phoenix-based companies, Electric Transportation Engineering Corp., and ECOtality, were given $99.8 million in federal stimulus money to help roll out an electric-vehicle pilot program in several U.S. cities. Johnson Controls, one of America’s biggest battery makers, got a federal grant for $299.2 million to help it build batteries for electric and hybrid cars. General Motors got $105.9 million to help it produce battery packs for the Chevy Volt. In all, about 50 different entities were given federal grants (all provided by the stimulus package passed by Congress) that totaled some $2.4 billion as part of an “electric drive vehicle battery and component manufacturing initiative.”
The Obama administration and Congress have given voters many justifications for these lavish subsidies, including stimulus, job creation, technology incubation, reduced oil consumption, etc. But by throwing billions of dollars at the electric-car sector, Congress is picking a technology winner and it is doing so in one of the world’s most fiercely competitive markets. For that reason alone, taxpayers have plenty of reason to be concerned.
For the past two decades, Congress has been picking a technology winner in the automotive fuels sector by providing lavish subsidies for the corn ethanol scam. And yet despite decades of subsidies and mandates, the corn ethanol industry still cannot survive without subsidies. In fact, those very same subsidies have led to a situation where the ethanol industry has too much capacity and the only solution for that problem: even greater subsidies from taxpayers.
There is no doubt that electric cars are sexy. But no matter how much money the government throws at the electric-car business, it will remain a tiny fraction of the overall car market for years, or more likely, decades, to come. Why? For all the reasons stated above. Add the myriad problems posed by our inadequate electric grid and the long charging times needed to refuel electric vehicles and the challenges become yet more obvious. Sure, electric cars will improve dramatically in the years ahead. But so will conventionally fueled vehicles like the Honda Fit, which costs about one-third as much as the new Volt.
Indeed, when looking at the long history of the electric-car industry—and in particular the myriad problems posed by finicky batteries—one conclusion seems painfully obvious: All-electric cars are the Next Big Thing. And they always will be.