Is the Obama Administration’s goal of one million electric vehicles on the road by 2015 a way to break our dependence on oil? Is it a worthy goal? Is it doable? To get to the target, the Obama Administration wants to change the current $7,500 tax credit to an up-front rebate to entice consumers to purchase these vehicles. However, even with these huge rebates, electric vehicles are more expensive than gasoline and diesel-fueled vehicles due to expensive batteries that have yet to become cost competitive and due to vehicle characteristics that are subpar due to low vehicle mile range between charges, space limitations, and lack of infrastructure to recharge.
The Obama Administration is asking the American public yet again to subsidize another industry that is at least decades away from making it on its own in the market place. And even if President Obama’s goal can be reached in 2015, the benefits are small– transportation oil consumption would be 0.5 percent less, and carbon dioxide emissions would be 0.03 percent less in 2015.
The Electric Vehicle Market
In his state of the union address, President Obama announced his goal of one million electric vehicles on the road by 2015. To do this, he wants the government to rebate $7,500 of the cost to the buyer, at the time of purchase instead of the current $7,500 tax rebate. While to some that may be a worthy goal because of zero tailpipe emissions from electric vehicles, to others, it is just a pipe dream because of the vehicles’ higher expense and non-zero life cycle greenhouse gas emissions. Despite over a century of technological advancement, the battery is still more costly than the market will tolerate.
It is difficult to determine where battery technology is today because automakers consider the cost of batteries to be top secret. Further, it is important to distinguish between a quote that covers just the cost of the cell versus a quote on the entire battery system. An installed cost should include the cost of the battery pack, wiring, configuration, and the battery management system that determines battery performance.
According to the Department of Energy and others, battery costs need to come down to $350 per kilowatt-hour to make electric vehicles competitive in the market place. John Gartner, an analyst with Pike Research, estimates battery costs to be around $900 per kilowatt hour today, and expects them to decline by 10 to 15 percent per year, reaching about $470 per kilowatt hour by 2015. Others are more pessimistic on the cost reductions seeing a battery breakthrough taking at least 10 years. Accenture, a consulting firm who studied electric vehicle pilot projects in European and Japanese markets, suggests pricing the battery, which needs replacing at least every 10 years, separately from the car to make its pricing more attractive to consumers.
But what is even more striking is the difference in automobile characteristics. A gasoline vehicle has a range of 400 miles, while the range of an electric vehicle is 100-300 miles with recharging taking 4 to 12 hours, depending on the vehicle and the charger. That compares to a 5 minute fill-up for an internal combustion engine at a gasoline station. Plus, storage is more limited in electric vehicles due to the space needed for the battery. Further, while there are numerous stations to get a fill-up, the infrastructure for recharging stations doesn’t exist in this country. That means these vehicles will have limited use, restricting their purpose to running errands in the local area or for a round-trip work commute. However, even then, one needs to be cautious regarding traffic patterns for heavy traffic can reduce the vehicle’s range.
U.S. automobile manufacturers know that even if they manufactured the electric vehicles, they would be purchased only by a very small niche market. A recent report by the Center for Automotive Research estimates at best less than a half million electric vehicles would be on the road by 2015 based on deployment rates of hybrid vehicles. According to James Sweeny of Stanford University’s Precourt Energy Efficiency Center, it took hybrids, which do not have the range and infrastructure issues of electric vehicles, over a decade to garner 3 percent of the sales market. In contrast, President Obama wants electric vehicles to garner almost that share in less than 5 years.
Deloitte Consulting interviewed industry experts and 2,000 potential buyers and found that only “young, very high income individuals,” making more than $200,000 a year, would consider purchasing an electric car sometime during the next 10 years. While there are people who may want to own such a car, the cost of around $40,000, even with the rebate, is still double the cost of some internal combustion engines. For example, a 2011 Chevy Volt sells for $40,280; a Mercedes-Benz C350 sells for $39,990. In Denmark, Renault will be selling a five-seat electric vehicle for $38,453, with the charging station costing an additional $1,875. Tesla Motors will start its Model S sedan, which has a 160 mile driving range in ideal conditions, at $57,400. With larger battery packs, Tesla can expand the driving range. For an extra $10,000, Tesla will provide an electric vehicle that can go 230 miles on a charge, and for an extra $20,000, it will provide a vehicle that can go 300 miles.
To date, General Motors has sold 928 Chevy Volts and Nissan has sold 173 Leafs, for a grand total of 1101 electric vehicles. At the pace of 350 vehicle sales per month, a whooping 16,800 electric vehicles will be on the road by 2015. That is pretty close to Energy Information Administration’s forecast of 20,000 electric vehicles in 2015.
At the existing tax credit of $7,500 per electric vehicle, the government has spent $8,257,500 of taxpayers’ money so far on electric vehicle deployment. If electric vehicle sales can reach half the goal by 2015, the cost to taxpayers for the subsidy, whether it is a tax credit or a rebate, will be $3.75 billion; the full goal will cost taxpayers $7.5 billion.
Oil Displacement and Carbon Emissions Mitigation
According to the Energy Information Administration, 239 million light-duty vehicles are expected to be on the road in 2015, and they are expected to emit 1,072.8 million metric tons of carbon dioxide in 2015. If one million of these vehicles were electric instead of gasoline-fueled, 4.5 million metric tons less carbon dioxide would be emitted at the tailpipe, or 0.08 percent of total carbon dioxide emissions forecast to be emitted from energy combustion in 2015.
Of course tailpipe emissions are not life cycle emissions, and hence the carbon dioxide emissions to generate the electricity must also be taken into account. Since two-thirds of our electricity in 2015 is expected to be generated from fossil fuels, the carbon dioxide emissions mitigated are 1.5 million metric tons or 0.03 percent of total carbon dioxide emissions forecast to be released by energy combustion in 2015. Those miniscule savings come at a high taxpayer cost between federal subsidies to make the high cost of electric vehicles more favorable and research and development expenditures to hopefully get technological breakthroughs in batteries, among other government investments.
Further, the amount of oil displacement in 2015 would not be very great either. Transportation oil use would be about 0.5 percent less if one million electric vehicles were on the road by 2015.
The president has a goal of one million electric vehicles on the road by 2015. Buyers of qualified electric vehicles already get a tax credit of $7,500, which President Obama would like to make into a rebate to entice more buyers into deploying these vehicles into the marketplace. Automobile manufacturers and others believe that this goal is a stretch since the purchasers of these vehicles will be few in number. And, even if the target is met, it will do little to mitigate carbon dioxide emissions. Rather it will cost taxpayers in subsidies and R&D investments.
The U.S. government wants to choose future automobile technology for consumers by using taxpayer money to subsidize the electric car market. According to David Littman at the Mackinac Center for Public Policy, “I have never seen an industry that receives subsidies for any period of time like this that didn’t fail and then cost taxpayers even more.” If an industry can not attract private investment, it is unlikely to penetrate the market. If and when investors and the private sector take the plunge into the electric vehicle market without government aide will be when that market will develop. Given the cost, range and infrastructure issues associated with electric vehicles, it may never happen.