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A Tesla Roadster is electrically charged at Tesla Motors Inc. in San Carlos, Calif. (ROBERT GALBRAITH/REUTERS)
A Tesla Roadster is electrically charged at Tesla Motors Inc. in San Carlos, Calif. (ROBERT GALBRAITH/REUTERS)

Electric car market owes its success to lavish tax breaks Add to ...

If you live in Norway or own shares in Tesla Motors Inc., you can be forgiven for thinking that the electric car revolution has arrived with a beautiful, blurry whoosh! In Norway, the all-electric Nissan Leaf was the biggest selling passenger car in October, beating the cheaper gasoline or diesel-powered Toyota Auris and Volkswagen Golf by a long shot. Tesla shares have been one of Nasdaq’s hottest investments. They are up 300 per cent this year, even with the recent slide that was partly triggered by unkind comments about the Tesla Roadster by former owner George Clooney. The California company has a market value of almost $17-billion (U.S.)

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That’s almost five times more than PSA Peugeot Citroen, Europe’s second biggest auto maker, and more than double that of Fiat, the Italian auto giant that controls Chrysler. Not bad for a company that made only 5,500 cars in the last quarter.

But if you’re a taxpayer or reading the rest of the news about electric vehicles (EVs), you would realize the story is about a revolution going into reverse. The Leaf’s success in Norway is a direct result of the lavish tax breaks and perks awarded to its buyers. Tesla’s success is also due in large part to the taxpayer, though there is no doubt the cars are technological marvels. They are sleek, high-performance machines that can go a long way before the batteries drain.

The overall EV market can be charitably described as a flop. In relative terms, the electric car was far more popular at the early part of the last century, when more than a third of all the vehicles on American roads ran on batteries (the rest were powered by steam or gasoline). Today, their market share is insignificant in spite of the billions of dollars of R&D and marketing thrown at the technology. Take France. In the first nine months of this year, 6,300 electric cars were sold. While that’s up 45 per cent year over year, their market share was only 0.5 per cent. In Britain, the EV numbers are equally uninspiring. In 2011, the government introduced a purchase subsidy of £5,000 for plug-in EVs. Since then, a grand total of 3,600 cars have been purchased through the scheme.

Carlos Ghosn, CEO of Renault-Nissan, can only dream that Norway’s enthusiasm for EVs would catch on elsewhere. In truth, the Leaf, the first mass-produced family hatchback EV, is going nowhere fast. Earlier this month, he told the Financial Times that the company had expected to sell 1.5 million EVs by the end of 2016. “At the speed right now, I’m seeing it four or five years later,” he said. “I don’t think the main issue today is the cost of the car. The main issue is infrastructure … I would not buy a gasoline car if there were not gasoline stations.”

Renault-Nissan isn’t the only car maker whose EV plans are fizzling. The Chevrolet Volt, a plug-in EV that uses a gasoline generator as a backup, was supposed to be a Toyota Prius killer. But its sales have been so slow, in spite of a fat $7,500 (U.S.) federal credit awarded to each buyer, that production was temporarily suspended last year. Fisker Automotive, a one-time Tesla rival, has not produced any of its luxury plug-in hybrids in more than a year. Its flop left the U.S. Energy Department on the hook for $168-million (U.S.) in “green” loans. Coda Holdings of California, another ambitious EV company, went bankrupt in the spring after selling only 100 cars.

Some revolution.

Drivers don’t want electric cars. They are too expensive and their ranges are too short. Cities and highways lack the infrastructure to charge EVs. Even if you can find recharging stations, you better pray there is a cinema or restaurant nearby so you can kill a couple of hours while the batteries get juiced up. Oil prices, while still at the low triple-digit level, remain affordable. The new generation of diesel engines are so fuel efficient that EVs are losing their allure.

The alleged EV success stories – Tesla and the Nissan Leaf in Norway and a few other markets – would probably be road kill without taxpayer-funded goodies and other delights. In Norway, EVs are exempt from the 25-per-cent value-added tax. Their owners do not have to pay registration taxes or road tolls. They get free parking and free use of recharging points. Best of all, EV drivers get to use the unclogged bus lanes. For city-only driving, there is no better choice than a Leaf. The surprise is not that it’s Norway’s top-selling sedan; it’s that Nissan isn’t selling 10 times as many there.

Tesla makes the Leaf look like a piker at the taxpayer party. The company got a cheapie $465-million loan from the Department of Energy (since repaid). According to the Washington Post, it also nailed $68-million from a state of California program for zero-emission vehicles, plus $20-million in grants from the California Energy Commission. Its cars also qualify for the $7,500 tax credit.

Tesla’s successful initial public marketing and the massive wealth it created for the company’s founder, Elon Musk, would have been difficult, perhaps impossible, without the government backing.

Tesla products are expensive: Its main car, the Tesla S, starts at $70,000. They are bought by rich and famous, such as George Clooney, who didn’t like his Tesla Roadster (He told Esquire magazine “I’ve been on the side of the road a while in that thing,” before launching into an obscenity). Tesla makes a gorgeous product, but the business model – transferring taxpayer funds to the wealthy, in effect – is not pretty.

Follow on Twitter: @ereguly

 

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