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Electric Car Verdict: Another Government-Subsidized Bust

When government tries to pick losers and winners, it typically picks losers. Why? Because in a free market, consumers pick winners to leave the losers for government.

The U.S. energy market is rich with examples. In the 1970s, synthetic fuel projects that went bust, and the Synthetics Fuel Corporation was terminated with much of its funds still unspent. In the same period, the California Energy Commission decided (see p.24) that methanol-powered (M-85) vehicles were the transportation future for their state. But advances in reformulated gasoline and onboard vehicle technology removed the benefits of converting natural gas, wood products, and coal into this transportation fuel. The methanol fad quietly went away.

EV Largesse: $2.2 billion

It seems like only yesterday that electric vehicles (EVs) were a pillar of Obama’s government-knows-best transportation strategy. “Seeking to put the nation back in the lead on an important technology,” Matthew Wald wrote in the New York Times in August 2009,” the Obama administration awarded more than $2 billion in grants on Wednesday for manufacturing advanced batteries and other components for electric cars.” Wald explained the thinking:

The money comes from the economic stimulus package and is intended to further several goals: cutting dependence on petroleum, reducing carbon emissions, creating jobs and giving the United States a better start on what is likely to be a competitive global industry as companies start bringing electric cars to market.

Ford ($30 million), Chrysler ($70 million), GM ($136 million), Compact Power ($151 million), Nissan ($100 million), Navistar International ($39 million), EnerG2 ($21 million), and Cascade Sierra Solutions ($22 million), among others, need to tell we-the-people what we has coem from our tax dollars.

Age-Old Mirage

Electric vehicles were in wide use before gasoline proved to be superior more than a century ago. In a famous exchange in 1896, none other than Thomas Edison gave confirmation to Henry Ford to go with his internal combustion engine. Edison to the budding engineer:

Young man, that’s the thing; you have it. Keep at it. Electric cars must keep near to power stations. The storage battery is too heavy. Steam cars won’t do, either, for they require a boiler and fire. Your car is self-contained—carries its own power plant—no fire, no boiler, no smoke and no steam. You have the thing. Keep at it.

Henry Ford remembered:

The man who knew most about electricity in the world had said that for the purpose my gas motor was better than any electric motor could be—it could go long distances, he said, and there would be stations to supply the cars with hydro-carbon. That was the first time I ever heard this term for liquid fuel. And this at a time when all the electrical engineers took it as an established fact that there could be nothing new and worthwhile that did not run by electricity. It was to be the universal power.

And so, 116 years later, and hundreds of millions of government dollars later, Thomas Edison was right and electric cars are wrong.

Lost Promise: Recent Reports

Numerous transportation experts and reporters examining recent cost and sales data provided by automakers are coming to a stark conclusion: the recent public-private push for electric transportation is dying. Natural gas is now the alternative fuel of choice, not electricity.

Here are some quotations provided by the Global Warming Policy Foundation in a news summary, Who is Killing the Electric Car?

“And that’s the real problem with electric cars: So far, not too many consumers are lining up to buy them. That means electric cars might be doomed — no matter how much the Department of Energy wants to see them happen.”

- John Rosevear, Daily Finance, 17 September 2012

“Who killed the electric car? This time round, Toyota did. It said today it will not release its proposed mass-market mini e-car, the eQ. The reason: there’s no demand for it, not while battery technology is failing to provide comparable range to a tank of petrol. The natural gas boom in the US has seen prices of the fuel plummet, in turn reducing the cost of electricity generated by burning it. The Japanese car maker said today it will release 21 hybrid gas-electric models in its line-up by 2015.

–Tony Smith, Hardware, 24 September 2012

“Toyota Motor Corp has scrapped plans for widespread sales of a new all-electric minicar, saying it had misread the market and the ability of still-emerging battery technology to meet consumer demands. “The current capabilities of electric vehicles do not meet society’s needs, whether it may be the distance the cars can run, or the costs, or how it takes a long time to charge,” said, Uchiyamada, who spearheaded Toyota’s development of the Prius hybrid in the 1990s.”

–Yoko Kubota, Reuters, 24 September 2012

“The Chevy Volt, once touted as the company’s Great Green Future, needs thousands and thousands worth of incentives to move a unit … and even at that, is selling so few that they’ve temporarily shut down the assembly line where they’re made. The company’s stock price has been stuck in the low twenties for months–which means, for those following along at home, that if the government sold its GM shares today, taxpayers would lock in a $15 billion loss on the money we gave them.”

–Megan McArdle, The Daily Beat, 24 September 2012

“I think incentives for electric-vehicle buyers are dumb. New reports from the U.S. and U.K. back that view. Two non-partisan government agencies — the Congressional Budget Office in Washington, D.C. and Parliament’s Select Transport Committee — conclude that during the next decade at least, the giveaways will have little impact on sales of plug-in hybrid and all-electric vehicles, or on gasoline consumption and greenhouse-gas emissions. Their main beneficiaries: affluent purchasers who’d buy the vehicles anyway.”

–Peter Gorrie, Wheels, 24 September 2012

“The £11m of public money used to promote electric vehicles is mostly just helping rich Brits buy a second car, a group of MPs said. The Transport Select Committee has published a report questioning the value of spending millions trying to get electric cars on the road, claiming the money is only benefiting a “handful of motorists”. “We were warned of the risk that the Government is subsidizing second cars for affluent households; currently plug-in cars are mostly being purchased as second cars for town driving,” committee chair and Labour MP Louise Ellman said.”

- Brid-Aine Parnell, The Register, 20 September 2012

“The frenzy over shale gas deep under Ohio and other states has the makings of a different kind of rush on the nation’s highways. Businesses, cities, metropolitan transit systems and even school districts across the nation are edging toward a switch from diesel and gasoline to natural gas. Converting cars and light trucks to use either gasoline or natural gas is expensive. And heavy trucks designed specifically for natural gas also cost more than conventional diesels. But at current prices, engines that can run on natural gas cut fuel bills in half or better.

- John Funk, Cleveland Live, 24 September 2012

“For Fiat SpA, Italy’s austerity efforts have meant falling sales, stubborn losses and layoffs for thousands of workers. One business, though, has benefited mightily: the division that makes vehicles fueled by natural gas and propane. Deliveries of those cars in Italy surged 90 per cent, to 114,226 vehicles through August, accounting for 11.6 per cent of the market, compared with 4.9 per cent a year ago. Almost every auto manufacturer that sells in Europe has increased its offerings of natural gas-powered vehicles in Italy, the region’s biggest market for such cars.”

- Tommaso Ebhardt and Craig Trudell, Bloomberg, 25 September 2012

“Cheap, abundant natural gas is changing the game for energy in the U.S., and that means a renewed push for natural gas cars. According to Pike Research, there will be a total of 25 million natural gas vehicles on the roads worldwide by 2019, and the amount of natural gas vehicles sold in North America will grow around 10 percent a year between now and 2019. GE estimates there are 15 million natural gas cars globally today, and around 250,000 in the U.S.”

- Katie Fehrenbacher, Gigaom 18 July 2012

So much for the conspiracy theories of Chris Paine’s 2009 documentary, Who Killed the Electric Car?

Economic reality has (once again) “killed” the electric vehicle, as now admitted by none other than the company that has invested the most in the EVs: Toyota. (For more, see this Forbes article from yesterday.)

9 comments

1 Jon Boone { 09.26.12 at 11:22 am }

Readers might also find Paul Chesser’s report on how Consumer’s Report just gave Fisker’s Karma a failing grade:
http://nlpc.org/stories/2012/09/26/consumer-reports-fisker-karma-worst-luxury-sedan.

Note especially the way Chesser documents the grizzly history of crony capitalism associated with this company.

2 rbradley { 09.26.12 at 1:12 pm }

Lots of developing data points: WSJ today: “Its Cars Delayed, Telsa Raises Cash.”

“Luxury electric car maker Tesla Motors Inc., TSLA +1.12%facing a revenue squeeze from production problems, said on Tuesday it would sell about 5 million shares to raise cash after winning breathing room on terms of a $465 million U.S. Energy Department loan.”

3 rbradley { 09.28.12 at 4:50 pm }

At Cooler Heads this week (9-28-12):

Events this week cast significant doubt on the viability of President Barack Obama’s big bet on electric vehicles.

Tesla Motors had to renegotiate the terms of its Energy Department loan, due to a cash crunch.

Consumer Reports reviewed the $107,000 Fisker Karma, and found that it is “full of flaws.” Like Tesla, Fisker also received loan backed by the stimulus, but the Energy Department cut off its line of credit months ago.

Smith Electric Vehicles, a recipient of $32 million in stimulus grants, cancelled an initial public offering, in what financial analysts are calling “an astonishing disaster.”

Toyota announced that it has killed plans for a widespread launch of its second all-electric car, the eQ. The company said that the decision was made because, “The current capabilities of electric vehicle do not meet society’s needs.”

4 Green Energy isn’t Cost Effective « AUSTRIAN ECONOMICS ADDICT { 09.30.12 at 2:58 pm }

[...] Bradley Jr. in an article titled Electric Car Verdict: Another Government Subsidized Bust, at masterresource.org writes, “When government tries to pick losers and winners, it [...]

5 Weekly Climate and Energy News Roundup | Watts Up With That? { 09.30.12 at 11:41 pm }

[...] Electric Car Verdict: Another Government-Subsidized Bust By Robert Bradley Jr., Master Resource, Sep 26, 2012 http://www.masterresource.org/2012/09/electric-car-bust/ [...]

6 Rep. Mike Beard { 10.04.12 at 9:02 pm }

Robert,
It sounded like your opening comment “Markets pick winners, Government picks losers” ended up in Gov. Romney’s quiver of zingers last night. Nice work!
Mike Beard

7 rbradley { 10.04.12 at 9:12 pm }

Thank you Rep. Beard–you never know.

But it might be like the $20 bill that is on the ground that the economist said isn’t there because it would have already been picked up.

Maybe what I said is so good that it has been said already!

- Rob

8 NYSERDA – Agenda 21 Sustainability in Action - Capitol Hill Outsider { 03.05.13 at 2:38 am }

[...] tried to argue that eventually we would end up going to all electric vehicles. I just laughed, and said, “Sir, I’m afraid you’ve drank the Kool-Aid!  I [...]

9 New York’s “Sustainability” Plan: aka “Agenda 21” - Eco-Imperialism { 03.11.13 at 3:59 pm }

[...] tried to argue that eventually we would end up going to all electric vehicles. I just laughed, and said, “Sir, I’m afraid you’ve drank the Kool-Aid! I couldn’t even make [...]

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