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Sunday, August 1, 2010

PRESIDENT OBAMA was back in Michigan recently, breaking ground on a plant that will make batteries for the Volt, the plug-in hybrid electric car forthcoming from government-owned General Motors. The Energy Department paid half the factory's $300 million cost, using funds from a $2.4 billion advanced vehicle technology grant program in the president's economic stimulus plan. The administration says that this is a smart bet on the green economy of the future. Skeptics argue global production capacity for advanced batteries is already rapidly outstripping demand. Roland Berger Strategy Consultants predicts a job-destroying "massive consolidation" five years from now.

We have a related concern: For the near future, electric cars will be far too expensive for anyone but upper-income Americans. The only way to sell them, even to the well-off, will be with a large federal subsidy.

The average new car sold for $28,350 in 2008, according to the National Automobile Dealers Association. GM has just announced that the plug-in Volt, by contrast, will cost $41,000. Nissan's all-electric Leaf is projected at about $33,000. (Both vehicles are smaller, and, because they take hours to recharge, less versatile, than comparably priced gas-powered cars.) Tesla's Roadster costs more than $100,000, though the company has committed to building a $57,000 sedan. The advanced-vehicle business model makes sense only because of a $7,500-per-car federal tax credit to the first 200,000 purchasers of each model.

Even then, gas savings may or may not offset the higher total cost of owning an electric car, unless excise taxes go way up or fuel prices spike permanently. (A cap-and-trade bill might have changed the calculus, but it just died in Congress.) The cars also need an in-home charging station, which costs a couple of thousand more, after federal tax credits.

Common sense suggests the likeliest purchasers will be upscale consumers who already own gas-powered cars for heavy-duty driving, live in a single-family home with an electric outlet in the garage -- and can afford a green experiment. Deloitte Consulting's interviews with industry experts and 2,000 potential buyers suggest that "early adopters" will come primarily from households making over $200,000 a year.

To be sure, the Obama administration assumes that electrics, like cellphones before them, will swiftly move down-market as production ramps up and costs shrink. The whole point of the U.S. investment and purchase subsidies is to speed that process. Deloitte's study, however, suggests that, even with government aid, the electric-car demographic a decade hence will encompass only 1.3 million potential buyers, drawn from households making $114,000 per year and up. With sales reaching 465,000 by 2020, "achieving profitability and manufacturing efficiencies will be a challenge," Deloitte concludes.

In a nation of more than 250 million passenger vehicles, half a million new electrics a year would barely dent foreign-oil dependence or carbon emissions. And these modest savings will come at the price of federally supported income redistribution -- toward the top.


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