We Need To Pave The Road For 21st Century Vehicles

Editor’s Note: EarthTechling, always looking to forward the cleantech revolution discussion, is proud to present this column via a cross post from partner Center for American Progress. Author credit goes to Daniel J. Weiss and Jackie Weidman.

Our story begins on December 7, when The Washington Post published a skeptical assessment of government investments in advanced, efficient vehicles and related technologies under the Advanced Technology Vehicle Manufacturing program and grants from the American Recovery and Reinvestment Act. The Post questioned whether and when taxpayers would see a return on their money, and it noted that some analysts “warn that some federally subsidized companies could be forced to shut down in coming months.”

In this piece we will respond to The Post’s criticisms while clarifying why we need to maintain investments in this program to stay globally competitive in the thriving advanced vehicles industry and build a market for clean cars that reduces our dependence on costly oil imports. The Post piece also ignores the Obama administration’s recent rules to double car fuel economy standards between now and 2025, which will increase demand for advanced, efficient vehicles.

Why the program matters

Let’s start with clarifying what the program is.

The Advanced Technology Vehicle Manufacturing program provides direct loans to support production of advanced, efficient vehicles and associated components such as advanced batteries. President George W. Bush originally signed it into law.

image copyright EarthTechling

The program was created to help domestic auto manufacturing facilities retool to build significantly cleaner cars. So far, $5.4 billion in direct loans from the Department of Energyhave been granted to six companies under the program. The loans will result in almost42,000 jobs in 11 states, primarily around manufacturing facilities.

These loans will leverage private capital to help produce energy-efficient vehicles. Case in point: Tesla, one of the loan recipients, used its $465 million loan to raise an additional $620 million in private investment, leveraging about $1.40 for each dollar it was loaned.

The Post’s veiled disparagement of the program—they imply it is a poor use of taxpayer dollars—ignores the job creation just cited as well as the Obama administration’s efforts to help build a market for super-efficient vehicles by doubling fuel efficiency standards from 2012 to 2025. The new fuel economy standards will create a market for these cars by increasing demand for both efficient vehicles and their components.

The National Highway Traffic Safety Administration notes that “the standards should also spur manufacturers to increasingly explore electric technologies such as start/stop hybrids, plug-in hybrids, and electric vehicles.”

The growing demand for cars that vastly exceed these standards should help these companies succeed after receiving federal loans. To meet these new standards, automakers will have to make cars and light trucks significantly more efficient, as well as produce and sell ultra-fuel-efficient cars, including plug-in hybrid vehicles and completely electric vehicles. The fuel economy proposal includes incentives that encourage companies to innovate by developing ultra-fuel-efficient technologies, such as the Alternative Fuel Infrastructure Tax Credit program that provides tax credits for installation of equipment for alternative fuels.

The Obama administration has a worthy goal to put 1 million electric cars on U.S. roads by 2015, up from 16,000 today. Achieving the 2015 goal will be a huge challenge that requires ongoing support, including investments in vehicle manufacturing, battery production, and recharging infrastructure.

We need these investments to stay competitive

Another reason to continue this program is that worldwide competition is heating up over the development of advanced batteries. Both electric vehicles and plug-in hybrids require these batteries to enable them to travel further on a single charge than such cars can operate today. Investments in domestic advance battery production such as through the Advanced Technology Vehicles Manufacturing Program ensure that the United States is not simply substituting our reliance on foreign oil with a reliance on foreign batteries as it ramps up production of electric and hybrid cars.

This scenario could very well happen. Korea, Japan, and China currently supply 95 percent of the world’s advanced batteries, according to an Indiana University study. The top global producer of lithium batteries is the Automotive Energy Supply Corporation of Japan, which is affiliated with Nissan. Meanwhile, South Korea’s “Battery 2020 Project” aims to make it the world’s dominant battery producer within the next 10 years.

China also hopes to capture significant advanced battery market share, in part by building on its competitive advantages—cheap labor, abundant raw material, and favorable government incentives.

The Chinese government plans to invest $15.4 billion in the new efficient vehicle industry—pure electric hybrid and fuel-cell vehicles—throughout the next decade. The government projects that 10 million of these cars will be on the road 2020, up from almost none as of last year.

Chen Quingquan, chairman of the World Electric Vehicle Association, an international organization that promotes research, development, and dissemination of electric vehicles, anticipates that China will have 15 percent of the global market share for hybrid and pure electric vehicle sales by 2020.

Hu Zhaoguang, vice president at State Grid, the largest utility in China says:

…electric cars will grow fast in China because the government wants them to. In the next five years growth will be very rapid.

The Center for American Progress is an independent nonpartisan educational institute dedicated to improving the lives of Americans through progressive ideas and action. Building on the achievements of progressive pioneers such as Teddy Roosevelt and Martin Luther King, our work addresses 21st-century challenges such as energy, national security, economic growth and opportunity, immigration, education, and health care. We develop new policy ideas, critique the policy that stems from conservative values, challenge the media to cover the issues that truly matter, and shape the national debate.

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