Electric Cars: Flawed Business Model = Flawed Results

Washington seems incapable of learning that industrial policy doesn’t work, and the fate of the electric car is tied to the President and Congress attempting to mandate a technology that simply is nowhere near being commercially viable.

In 2009, the President declared that the government would create an “infrastructure of innovation” from its investment of over $2 billion in grants to develop the next generation of cars and trucks and the advanced batteries to power them. Michigan’s Senator Carl Levin in supporting high tech pork went so far as to claim, “Industrial policy was the kiss of death for any proposal. That’s an ideological hang-up we’ve now overcome.” Well, they were both wrong and both simply ignored history.

There has been an abundance of research demonstrating the flaws in the industrial policy model. Over 20 years ago, the Brookings Institution published The Technology Pork Barrel by Roger Noll and Linda Cohen that documented why mandating technology and trying to pick winners in the market place is a fool’s errand. The government is best suited for developing the technology that it needs to carry out its missions. DARPA is often used, and misused, as an example of how to develop commercial technologies. But, DARPA is developing technologies for its principle client, the Department of Defense. It works closely with the armed services in assessing needs and conducting the research to meet them. The commercial market place is too complex to use the DARPA model and the government doesn’t possess the skills to take research from the lab to the market place. Those realities are why the electric car is a flop and why A123 has gone into bankruptcy.

Over the past decade, various groups such as MIT and the National Academy of Sciences (NAS) have studied the state of battery technology and concluded that it was a long way from being commercially viable. At the time, battery costs were in the range of $1000/Kwh which translated into $12,000-$14,000 or more for a battery to power an electric vehicle. NAS estimated that the Kwh cost would have to drop to about $300 for batteries to be cost competitive. Here is what MIT’s Technology Review had to say about the outlook for batteries.

“The problem, however, is that despite several decades of optimization, lithium-ion batteries are still expensive and limited in performance, and they will probably not get much better. Assembled battery packs for a vehicle like the Volt cost roughly $10,000 and deliver about 40 miles before an internal-combustion engine kicks in to extend the charge. The battery for the Leaf costs about $15,000 (according to estimates from the Department of Energy) and delivers about 70 miles of driving, depending on various conditions. According to an analysis by the National Academy of Sciences, plug-in hybrid electric vehicles with a 40-mile electric range are ‘unlikely’ to be cost competitive with conventional cars before 2040, assuming gasoline prices of $4 per gallon.”

In spite of assessments like this, the Obama Administration has used pork and politics to get manufacturers to make cars that few want. Whether it is the Volt, Leaf, or FiskerKarma, the average buyer doesn’t want to pay the premium for a vehicle that is not cost effective. Wealthy environmentalists are the market so they can feel good about driving a very low emission vehicle.

It is telling that companies like A123 and Fisker are pursuing the President’s dream with taxpayer dollars, not their own. It is easy to be a venture capitalist with someone else’s money.

There are a couple of problems with the current state of battery technology in addition to cost. The first is that lithium batteries represent the state of the art. The best are limited to a 20-70 mile range under ideal conditions. Driving in Michigan in the winter or Florida most of the year would reduce the range considerably. Second, rare earth elements are required for lithium batteries and presently China controls about 95% of rare earth production.

Instead of mandating a technology and using tax dollars to push that mandate, the government should invest in basic research that will create the new knowledge needed to lower battery costs and increase the operating time between recharging. When that takes place, the infrastructure will be put in place without direction by government’s heavy hand.

Originally published by the National Journal at http://energy.nationaljournal.com/2012/10/whats-holding-back-electric-ca.php#2255834

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