The Truth About Electric Vehicles
General Motors announced last week that they will cease production of the Chevy Volt, ostensibly on a temporary basis. According the a spokesman for GM: "GM will stop making Volts... from March 19 until April 23, Chris Lee, a company spokesman, said in an e-mail March 2... ‘This move is to keep proper inventory levels.' " -- Let there be no doubt, this is automotive industry code for "nobody is buying these things and we're losing our a__ on them." Manufacturers don't shut down production lines without very, very good reasons for doing so. Such a shutdown is very costly and the ramp-up on restart is also an issue.
The Chevy VoltGeneral Motors has claimed that the downturn in demand is related to a safety investigation. The issue surrounds the allegation that Volt batteries can catch fire on impact. However, it is likely that this doesn't really have anything to do with the American consumers' decision to avoid buying an electric vehicle.
Typically, three factors influence the buying decision that consumer's make:
1. How much energy savings will I get over the lifetime of this vehicle? (attribute: fuel cost)
2. What are the lifecycle costs of this vehicle? (attribute: vehicle cost)
3. Is this the kind of vehicle that I want to drive? (attribute: lifestyle)
While it's true that on a well-to-wheels basis, EV's, (pure Electric Vehicles) HEV's (hybrid electric vehicles) and PHEV's (plug-in hybrid electric vehicles) can offer substantial improvements in lifecycle emissions, that fact, unfortunately, just "comes along for the ride" as a "required condition" in the consumer's buying decision -- for the most part (and you can argue whether it's right or wrong) people don't buy cars because they are low emissions vehicles. They buy them because they look sexy, because the they go fast, because they provide the functionality that the buyer wants, and/or because they're inexpensive to operate. So, in a nutshell, the "low emissions concept" doesn't help sell cars, nor is it likely to provide any tangible meaning to the sales equation in the foreseeable future.
The cost reduction impact, as a result of reduced fuel consumption, fails to offset the cost of ownership issues related to the electrification of the vehicle and the battery pack. On top of this, the consumer has to deal with a potential balloon payment -- the cost of replacing the battery pack in the middle of the vehicle's life. Electric vehicles simply are not being given enough "lifestyle points" by potential buyers to get them to buy-in. So guess what, this Pig has no lipstick!
A recent National Academy of the Sciences study concluded that "electrified vehicles must
offer a competitive cost of ownership before they can provide a socially efficient alternative in the United States." What a concept. Good old capitalism at work. The report also states that, "Although large battery packs allow vehicles to travel longer distances using electricity instead of gasoline, large packs are more expensive, heavier, and more emissions intensive to produce, with lower utilization factors, greater charging infrastructure requirements, and life-cycle implications that are more sensitive to uncertain, time-sensitive, and location-specific factors."
The battery industry and a large portion of the electric car industry are heavily subsidized. Over the past few years, more than $2 billion in federal grants and the promise of more aggressive fuel economy standards have forced a dramatic interest in the dream of hybrid and EV drivetrains. But the industry is already showing cracks in its armor. Crains Detroit Business recently made the following statements in an article on the industry (with a Michigan focus):
"The U.S. Department of Energy cut off Fisker's funding after it missed shipment deadlines tied to a $528 million loan. Fisker was forced to lay off more than 60 workers and contractors, and an early investor is suing the California startup for fraud involving his $210,000 investment...
...In Southeast Michigan, Fisker supplier A123 Systems Inc. opened plants in Livonia and Romulus. The Waltham, Mass.-based battery maker is backed by a $249 million Energy Department loan and $125 million in incentives from the state's 21st Century Jobs Fund...
...Dow Kokam will complete its $322 million Midland battery plant early this year. That plant is supported by a $161 million Energy Department loan and $180 million in tax incentives from the state...
....On the other side of the state in Holland, Milwaukee-based Johnson Controls Inc. opened its lithium-ion battery cell plant last July. LG Chem is also building a $300 million factory in Holland to produce batteries for the Chevrolet Volt and electric Ford Focus...
...Collectively, the plants are expected to employ as many as 2,000 employees by summer..."
But guess what -- somebody forgot to check to see if there were any (or enough) customers. The industry is now facing an obscene amount of overcapacity brought on by a greedy feeding frenzy that started when billions of dollars of tax-payer financed incentives became available. Unless gasoline goes up to over $6 a gallon, nobody will want these vehicles because the economics won't work. We have (chief perpetrator: our Federal Government) built an entire cottage industry on vaporware. There's no demand for the product. The entire demand for electric vehicles is less than 3% of vehicle sales in the U.S.
So what is the moral of this sad story? Here's my take: If you want to subsidize an industry to create jobs and stimulate the economy, then fine. But make sure you are subsidizing the industry and not a particular product or technology. The industry knows (better than the government does) what products and technologies have a chance of gleaning interest from consumers and how to avoid overcapacity and match production with demand. They are in the business of making profit and creating jobs. Let them do what they do best. Give them a hand if you deem necessary, but don't put them between rails.
Please don't take me wrong. I'm a huge fan of weaning America off of oil. And I will support technologies that help us do that. But we need to invest taxpayer dollars carefully. We need to spend taxpayer dollars like we would spend our own dollars. We need to ask questions like: Do I really need this? Is this in my and/or my family's best interest? What will this investment do for me? Will I be further ahead or further behind as a result of this investment? Is this the right thing for me to do?
And as for the idea of funneling those federal stimulus dollars primarily through Universities and expecting *that* to stimulate the economy -- don't even get me started on that one. The universities used most of that money to fund their own growth. What a boondoggle. That's a blog all by itself that I'll save for another week!
Oh, and one other thing.... there's something about driving the Starship Enterprise down the streets of Detroit that makes me uncomfortable. Have a great week!