This article originally appeared in National Journal.
Why is the market now dead for the award-winning Chevy Volt and its cousin, the Nissan Leaf? The answer is simple: battery life and battery cost.
As one observer put it, the 1902 Studebaker got 40 miles to a charge, and today’s Chevy Volt can go maybe 50 miles before its much more expensive batteries run out of juice and you’re back to the fossil fuel engine. Who wants a car that dies on the freeway in rush-hour traffic in the dead of winter or a hot summer day? Who wants to have to stop every 50 miles on a 600-mile road trip and wait around for a recharge?
Back in January 2011, President Obama announced a multi-billion-dollar campaign to put a million electric vehicles on U.S. highways by 2015. And why not? He had the backing of the government-owned General Motors that signed on board with promises to build half a million Chevy Volts, at least according to Energy Department projections.
Less than 2 years later, however, the great green hope has turned bankruptcy red. Six of the 11 plug-in electric cars have either gone out of business, stopped production or had not made their first delivery as of June 2012. Even the heralded Chevy Volt factory has had two major production stoppages already. As of last week, plug-in electric cars accounted for just 0.1 percent of U.S. sales (and an even more miniscule segment of vehicles on the road) — almost all of them either Volts or Nissan Leafs, both of which are heavily subsidized and still far too pricey for most consumers.
The real story is that the American motorist expects a vehicle that will “go” on demand, perhaps with a 10-minute stop at a filling station that might include a bathroom break and the purchase of sodas and snacks. Hybrid vehicles like the Honda Prius meet those demands, and as a result hybrids — admittedly thanks in part to subsidies and in part to a widespread desire to be “environmentally conscious” — have sold fairly well in comparison.
The big push for all-electric cars sadly came long before the emergence of batteries and fast-charge stations that meet those standards, and without even a thought as to how to make such vehicles affordable for the working class. Industry analyst Tom Libby told CNN Money that, before plug-in car sales take off either the price of gasoline will have to “skyrocket” or the cost of electric car batteries — the vehicle’s most expensive component — will have to fall dramatically.
Therein lies the rub. The Obama Administration thought it could create demand through massive subsidies on both the production and consumption ends — even when selling an inferior product. The President might have done better by offering a prize to private companies for creating a usable auto battery that can take a fully loaded five-passenger vehicle 250 miles and recharge in 10 to 15 minutes.
Instead, taxpayers have forked over billions to failing companies like ENER1, A123 Systems and LG Chem to pump out expensive batteries that are effectively little better than those that powered the 1902 Studebaker electric vehicle. Without massive subsidies, of course, these plants would have never started up. It is subsidies and tax credits that have kept companies like LG on life support. Not only did LG get a $151 million stimulus grant from the Energy Department, the state of Michigan kicked in a $25.2 million job creation tax credit over 15 years and a battery cell tax credit worth $100 million over 4 years — both tied to job creation. And the host city of Holland chipped in another $48.5 million property tax exemption over 15 years provided LG reaches 300 employees within 5 years. Despite these hefty hand outs, though, things are not working out. As always, the market is the final determiner of success. It is reported that LG employees, instead of making batteries, now “have so little work to do that they spend hours playing cards and board games, reading magazines or watching movies.”
What should be obvious is that the government needs to limit its role in the free market and refrain from picking “winners and losers.” Policies and laws designed to manipulate market forces are likely to be no more successful than President Nixon’s wage and price controls. President George W. Bush’s observation that sometimes you have to “abandon free-market principles to save the free-market system” has also proven to be fatally flawed. When the government imposes demands on an industry to require a sophisticated technology that does not even exist, we shouldn’t be surprised at failure. Time will tell if and when those in Washington learn this lesson.