It's easy to sell a product that nobody wants. You either discount it, so consumers think they're getting the steal of the century, or you press-gang the taxpayer into subsidizing it. Guess which method is used to unload electric cars?
Go to any auto show or read the tech-mad motoring press and you will realize that electric cars are all the rage and coming to a dealer near you. They come in three main varieties: battery only (like the new Nissan Leaf); range-extenders (battery topped up by a gasoline-powered generator, as found in the Chevrolet Volt); and hybrid (a combination of gas and electric motors, a technology made famous by the Toyota Prius).
While the technologies differ, all three versions have one thing in common: government subsidy, and lots of it. That's because electric cars are very expensive, haven't sold well and, if history is any indicator, won't sell well, in spite of all the hype surrounding their (alleged) green credentials and performance.
Electric cars have been around for more than a century. And for more than a century, each attempt to put them into mass production failed. Their prices were shockingly high compared with regular cars, or their ranges were too short. Then came the Prius, the most talked-about car since James Bond's Aston Martin.
A great success, right? Not quite. Since Japan's hybrid wonder was introduced about a decade ago, two million of the cars have sold worldwide. That sounds like a lot, until you consider the global car fleet is almost a billion strong. In Canada, about 50,000 hybrids (mostly the Prius) have rolled out of showrooms in the same period. That's less than 1% of total vehicle sales. The truth is the Prius has been close to a sales dud, in spite of the often generous purchase incentives offered in North America and Europe. Absent the subsidies and other freebies, such as no-charge entry into central London's traffic exclusion zone or deep discounts for cabbies, the Prius might have lasted as long as the Edsel.
The newest electric vehicles, mostly of the plug-in, battery-only variety, are subsidy gourmands on both the incentive-purchase and development side. Around the world, taxpayers are collectively throwing billions at the electric car industry. In the United Kingdom, the government will pay up to 25% of an electric car price, capped at £5,000 per vehicle. In the United States, a buyer will be able to shake down the government for as much as $7,500 for an electric car (currency in U.S. dollars except where noted). In Ontario, the figure is as much as $8,500 (Canadian).
There's more, much more. In the U.S., about $2.8 billion in federal stimulus grants was given to dozens of companies engaged in electric car technology. Development loans are being air-dropped onto tiny and mainstream manufacturers alike. Nissan got a $1.6-billion loan. Fisker Automotive, whose flagship electric car has a sticker price (about $88,000) that ensures it can be bought only by the wealthy, received $529 million. General Motors got a $106-million grant for Chevy Volt battery packs.
All of which raises the question: Are electric cars being developed because consumers want them, or because governments have opened the subsidy spigot? If the latter, what happens when the spigot is turned off? Western governments are rolling back spending with alacrity in an effort to reduce deficits. At some point, subsidies for electric cars are bound to get hit. If so, watch sales plummet. It's hard to imagine that the Volt, for example, will be a hot seller at the full $41,000 sticker price. You can get a BMW or Mercedes for that kind of money.
Governments might also be tempted to cut subsidies once they figure out that spending fortunes to convert national fleets to electric might have a negligible effect on greenhouse gas output. Richard Pike, chief executive of the Royal Society of Chemistry, thinks the green sell is bunk. Writing in the Financial Times, he calculated that replacing the U.K.'s fleet with subsidized electric cars, at £5,000 a pop, would cost the taxpayer £150 billion. That's a telling number, since the budget for the country's one-time electric car subsidy is £43 million.
Cars account for 12% of Britain's total carbon emissions. Since car batteries would have to be recharged using electricity from plants that burn such fuels as coal and natural gas, the exercise would reduce the country's emissions by a mere 2%, Pike concluded. But emissions would fall by a third if that same investment were put into replacing Britain's generating capacity with photovoltaic solar cells.
Electric cars have always been a bit of a pipe dream. Subsidies haven't changed that. When the subsidies come down, because governments can no longer afford them or realize battery-powered cars will do next to nothing to reduce carbon footprints, watch this market be revealed for what it is-a niche.
Eric Reguly