The Electric Car Boondoggle

The Electric Car Boondoggle

Published - Jul 29 2010 11:42PM EST

By Robert Bryce, The Daily Beast

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As for consumer choice, a May survey by Harris Interactive found that 75 percent of potential new car buyers said they were "not at all likely" to buy an electric vehicle and 70 percent said they were "not at all likely" to buy a plug-in hybrid electric vehicle.

Those findings are remarkable given that the new Senate energy bill is designed to facilitate the growth of both electric and plug-in electric hybrids. The same Harris Interactive survey found that consumers were far more likely to purchase vehicles that use diesel or compressed natural gas. They were also more amenable to conventional hybrids, like the Toyota Prius. But remember, the Prius, perhaps the most iconic "green" automobile in the world, did not steal, and has not stolen, the overall vehicle market. It took Toyota about a decade to sell 1 million copies of the Prius. That sounds like a lot of cars until you remember that the U.S. automotive fleet has about 250 million vehicles and the global fleet about 1 billion vehicles.

Automakers understand that consumers are wary of all-electric and plug-in hybrid-electric vehicles. Bill Reinert, the manager of Toyota's advanced technology group (he was also one of the lead designers of the Prius), told me recently that the market for electrics and plug-in hybrids remains a "niche of a niche." Reinert says potential buyers for those vehicles are a small subset of those who are inclined to buy a Prius. Reinert said that hybrid vehicles now account for about 3 percent of total car sales in the U.S.

Other auto industry officials see it the same way. Last September, Johan de Nysschen, president of Audi of America, was particulary blunt when asked about the prospects for the Chevrolet Volt. His memorable quote: "There are not enough idiots who will buy it." Of course, since then, Audi has announced that it, too, would begin building an all-electric vehicle. Which leads to another obvious question: Why are so many companies rushing to build electric cars? The answer: fat government subsidies.

Last September, Fisker Automotive, a startup that plans to start selling a plug-in hybrid (sticker price $87,900) this year, received a $529 million loan from the U.S. government. (One of Fisker's main financial backers is the venture-capital firm Kleiner Perkins Caufield & Byers.) Meanwhile, Nissan got a $1.6 billion federal loan and Tesla Motors got a $465 million loan for their electric-car projects. Two Phoenix-based companies, Electric Transportation Engineering Corp., and ECOtality, were given $99.8 million in federal stimulus money to help roll out an electric-vehicle pilot program in several U.S. cities. Johnson Controls, one of America's biggest battery makers, got a federal grant for $299.2 million to help it build batteries for electric and hybrid cars. General Motors got $105.9 million to help it produce battery packs for the Chevy Volt. In all, about 50 different entities were given federal grants (all provided by the stimulus package passed by Congress) that totaled some $2.4 billion as part of an "electric drive vehicle battery and component manufacturing initiative."

The Obama administration and Congress have given voters many justifications for these lavish subsidies, including stimulus, job creation, technology incubation, reduced oil consumption, etc. But by throwing billions of dollars at the electric-car sector, Congress is picking a technology winner and it is doing so in one of the world's most fiercely competitive markets. For that reason alone, taxpayers have plenty of reason to be concerned.

For the past two decades, Congress has been picking a technology winner in the automotive fuels sector by providing lavish subsidies for the corn ethanol scam. And yet despite decades of subsidies, the corn ethanol industry still cannot survive without subsidies. In fact, those very same subsidies have led to a situation where the ethanol industry has too much capacity and the only solution for that problem: even greater subsidies from taxpayers.

There is no doubt that electric cars are sexy. But no matter how much money the government throws at the electric-car business, it will remain a tiny fraction of the overall car market for years, or more likely, decades, to come. Why? For all the reasons stated above. Add the myriad problems posed by our inadequate electric grid and the long charging times needed to refuel electric vehicles and the challenges become yet more obvious. Sure, electric cars will improve dramatically in the years ahead. But so will conventionally fueled vehicles like the Honda Fit, which costs about one-third as much as the new Volt.

Indeed, when looking at the long history of the electric-car industry-and in particular the myriad problems posed by finicky batteries-one conclusion seems painfully obvious: All-electric cars are the Next Big Thing. And they always will be.

Robert Bryce is a senior fellow at the Manhattan Institute. In April, he published his fourth book, Power Hungry: The Myths of "Green" Energy and the Real Fuels of the Future.

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