How The Economics Of The Left And Right Have Failed The Electric Car

Editor’s Note: EarthTechling is proud to repost this article courtesy of the Breakthrough Institute. Author credit goes to Matthew Stepp and Clifton Yin.

In a recent New York Times Magazine article, “Why Your Car Isn’t Electric,” Maggie Koerth-Baker works through why consumers prefer gas cars over electric vehicles (EVs). She finds that Americans aren’t flocking to EVs because they have a fundamentally different idea of what a car should be. Consumers want vehicles that perform (and cost) like the gas cars they’ve grown accustomed to over the last century. Until EVs meet these performance and cost expectations, consumers will continue to purchase gas cars. Yet, to-date America’s dominant climate and energy policy approaches fail to aggressively address these barriers, instead focusing on deploying today’s uncompetitive EVs. Electrifying America’s transportation fleet requires throwing away these tried-and-failed approaches and instead focusing on innovating better and cheaper electric cars.

In Shifting Gears: Transcending Conventional Economic Doctrines to Develop Better Electric Vehicle Batteries, the Information Technology and Innovation Foundation takes an in-depth look at how the two default climate and energy policy approaches – informed by neo-Keynesian and neoclassical economic doctrines – have failed to spur the adoption of EVs.

Leaf_Nichon_Home Power Station

image via Nissan

On the one hand, neo-Keynesian economic thinking holds that demand drives economic growth (and innovation). Under such thinking, if companies believe consumer demand for electric vehicles is increasing, they will invest in better EV technologies to produce innovations that meet consumer expectations. Thus, the neo-Keynesian policy of choice has been to subsidize consumer purchases of EVs to boost demand. And it’s a policy that is on the books in America today: consumers can benefit from a $7,500 federal tax break for buying qualifying EVs, as well as a smattering of state incentives.

On the other hand, the neoclassical economic doctrine holds that economic growth (and innovation) is primarily the result of the efficient allocation of resources. In other words, the economy can be viewed as a large market of goods and services that is generally in equilibrium. Under this doctrine, in cases where the market is not in equilibrium – for example, when the societal costs of emitting greenhouse gases (GHGs) are not internalized – government should work to account for those externalities. The most prominent solution to internalize the cost of GHGs is a carbon price. In the case of the transportation sector, neoclassicalists assume that if drivers pay the full cost of burning gasoline, including the cost of pollution and climate change, EVs will become cost-competitive with gas cars and their adoption will dramatically increase. Good examples of such policies are those on the books in many European countries, which through a combination of fuel taxes and carbon pricing schemes, have increased the price of gasoline to $8 to $9 per gallon, while the United States continues to pay around $3 to $4 per gallon.

Yet both approaches have completely failed at spurring a robust EV market. In the United States, EVs make less than a blip in vehicle sales. In total, 286,371 EVs – including hybrids, plug-in hybrids, and battery electric vehicles – were sold in 2011 in the United States, a market share of new sales little more than two percent.Technology Review reports that the nation’s EV battery factories are sitting idle or operating well below their intended capacity.

Even more telling, Reuters reported in September 2012 that Toyota “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.” Company Vice Chairman Takeshi Uchiyamada observed, “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.”

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    • phor11

      I happen to think that cost has very little to do with the stale EV market.
      People buy Hybrids even though the cheapest hybrid costs nearly 50% higher than the equivalent economy car, and maintenance can be far more costly on top of that.

      In my opinion, the vast majority of consumers don’t even consider electric solely because of:
      1) the short range
      2) the fact that it takes orders of magnitude longer to “refuel”

      Fix fueling times and/or vastly extend the range of EV’s, and people would buy them even if they were more expensive than traditional alternatives.

      • Pete Danko

        You make good points, phor11, about the range and charging issues. Definitely they are factors. However, you overstate the cost premium for hybrid vs. standard car. I mean, look at the Honda Civic — it’s $24,800 for the hybrid, $21,275 for the standard. That’s a premium of around 15 percent. With the Prius vs. Corolla the premium might be up to around 33 percent, but really, that’s as high as it goes.

        • phor11

          I think you’re looking at the Accord pricing.
          I see a $15,995 starting price for the traditional Civic Sedan, which is the same platform they build the Civic Hybrid on: http://automobiles.honda.com/civic-sedan/

          Same for Prius(24k) vs Carolla(16k).
          And that’s even comparing the 2012 prius vs the 2013 Carolla.

          • Pete Danko
            • phor11

              Oh, you’re looking at the EX package that has a bunch of upgrades (alloy wheels, disc brakes, moonroof, upgraded sound system, satnav, etc…). You can get the DX model for MUCH cheaper, whereas there is no cheaper Hybrid model available.

            • Pete Danko

              I’m comparing “similarly equipped vehicles.”

            • Pete Danko

              But your point is taken — and my thought is, why don’t they offer the hybrid stripped down?

            • phor11

              “and my thought is, why don’t they offer the hybrid stripped down?”
              That would certainly be interesting to find out.

            • http://www.facebook.com/people/Alex-Lester/100001046509730 Alex Lester

              Most folks who would purchase a hybrid won’t be getting a “stripped down” car even if one was on the lot. How about a Telsa as a real comparision, 70K gets you plenty of range.

    • http://www.facebook.com/people/Alex-Lester/100001046509730 Alex Lester

      Only improvements in the technology through research will make much difference. Wasting money on subsidies just keeps the day when these vehicles are competitive further in the future.