Electric Cars -- Not Ready to Roll

By Charles Lane
Wednesday, April 29, 2009

General Motors has announced a plan to stave off bankruptcy that includes cutting 21,000 jobs, reducing its dealer network and eliminating its Pontiac division. "I'm a believer in dealing with reality," GM chief executive Fritz Henderson said.

Better late than never. GM wouldn't be in quite so deep a hole if it had not sunk a billion dollars, and much of its corporate reputation, into a not-very-realistic plug-in electric hybrid vehicle known as the Chevrolet Volt.

Likely to cost consumers more than $30,000 even after a big government tax rebate, the little four-seat Volt "is currently projected to be much more expensive than its gasoline-fueled peers and will likely need substantial reductions in manufacturing cost in order to become commercially viable," President Obama's automobile task force reported on March 30.

Translation: Unless and until gas prices shoot up, you'd be crazy to buy one of these much-ballyhooed vehicles, which will run 40 miles on a single charge if GM can overcome difficult battery-engineering issues.

To be sure, the green-leaning Obama administration has not ruled out allowing a restructured GM to continue pouring (federal) money into the Volt. But I hope it won't. The Volt and other electric vehicles could gobble up more subsidies than ethanol.

Though Obama promised to have 1 million plug-in hybrids on the road by 2015, the dream of a mass-market electric car remains implausible and probably will be for years.

For some people -- environmentally friendly Hollywood stars and other wealthy dabblers -- cost is not the top concern in deciding what car to buy. For them, a Volt or even a $101,500 all-electric Tesla Roadster might be of interest.

Everyone else looks at total cost of ownership, which includes not only the purchase price but also taxes, fuel consumption (electricity, in the case of an electric car) and depreciation.

A 2009 study by Boston Consulting Group found that the five-year total cost of owning an electric car would remain "relatively unattractive to consumers in 2020, unless its cost is subsidized."

And that's in Germany, where high fuel taxes give drivers much stronger incentives to use alternative-fuel vehicles than in the United States. So if the electric car isn't practical in Europe's biggest car market, it's even less so in the States.

In fact, Boston Consulting Group found that the total cost of ownership of existing hybrids and advanced internal combustion engine cars is more attractive than that of electric cars as long as oil prices are below $280 a barrel. Oil is trading at around $49 a barrel today; in the United States, gas costs about $2 a gallon.

Small wonder that venture capitalists have pulled the plug on one of the most promising new electrics, the Norwegian THINK, a two-seater built for city driving. At last check, the Norwegian government was refusing a request to bail out the company.

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