Friday, June 18, 2010

The Electric Car Resurrection VI: Retrospective

If the electric car died with the EV1, then this year will see its resurrection. By the end of the year, there should be at least 3 more or less affordable mass market electric car choices available to consumers - the Nissan Leaf, the Chevy Volt, and the smart4two electric - and one choice that is mostly not affordable - the Tesla Roadster. Next year, and continuing through 2015, there will be even more choices available, with Ford among other volume manufacturers introducing all-electric or plug-in hybrid models. So consumers will finally get to vote with their pocketbooks. By all accounts, most surveys show that consumers seem ready to consider alternative fuel vehicles, even if they are some what hesitant about the cost. What are the prospects that consumers will embrace electric cars in the years ahead and that a large shift away from ICE (Internal Combustion Engine) vehicles will make a significant dent in the carbon footprint cause by transportation?

One of the major barriers that many commentators see to widespread adoption  of electric cars is "range anxiety". The argument is that because electric cars have much more limited range than ICE vehicles, people will be constantly afraid of running out of electricity so they will be hesitant to buy. The additional argument is made that the long charging times required for electric cars will contribute to range anxiety, because you can't simply wait until the last quarter tank before refueling, you must plan carefully to be near a charger. A related argument is the "but what about if I want to go to Lake Tahoe?" response that often comes up in discussion about electrics v.s. ICE vehicles. When you push  people about how often they do these longer trips, the answer is: maybe two or three times a year, if that. So these trips are, in a sense, "aspirational travel" rather than truly factual range requirements. In many ways, it is like the people who buy a 4 wheel drive Ford Expedition even though they never go off-road and mostly use the vehicle for commuting back and forth to work. They want an ICE vehicle for the sense that they could, if they ever chose, take off and drive across the country without having to plan ahead. In other words, they are willing to pay a lot - for the initial purchase, for the gas, and for the negative impact on the environment - just to have a simple feeling of freedom, no matter how little that feeling matches the way they actually live their lives.

As I discussed in my blog post last week, the range anxiety argument doesn't hold if people buy the vehicles with the specific purpose of driving around town and commuting to work. The range available from the up coming all-electrics is sufficient for at least one and possibly two commutes  per week between recharging, and the plug-in hybrids, like the Chevy Volt, don't even have that problem. So for people who approach the buying decision with a more or less rational idea about how they intend to use the vehicle, an electric car may be come a viable choice if the intended use is commuting and driving around town. On the other hand, for people with "aspirational travel" in mind, an electric car is never going to be an option. And, as a matter of principle, most multi-car families are likely to want at least one car with sufficient range and sufficiently short refueling time to allow longer, out of town trips such as vacations or long weekend outings. While a plug-in hybrid does cover these kinds of requirements, an ICE vehicle is probably going to be the more common choice.

This points to the more serious problem with plug-in hybrids and electrics in general: cost. For example, GM is pricing the Chevy Volt like a Cadillac ostensibly because of the cost of batteries. There is some evidence that they are not really serious about making the Volt a mass market car, and are merely using it to increase their fleet average gas consumption rating so that they can sell more Tahoes and other big trucks, on which they earn larger gross margins. But pricing on the Nissan Leaf before subsidy, which is far more competitive, is still way above what a consumer would pay for an equivalent ICE vehicle. After the state and federal subsidy, the Leaf actually comes in a bit below $20,000 which makes it even more competitive, at least, on a non-range adjusted basis. If you calculate the cost on a range adjusted basis, electric vehicles are overpriced by about a factor of 4x after state and federal subsidy when compared with a similar ICE vehicle, for example comparing the Nissan Leaf with the Honda Fit. If the Leaf were priced at the same miles of range per dollar ratio as the Fit, it would cost $5000, as much as a Tata Nano!

It is just a simple fact that batteries are far more expensive than ICEs, even if electric motors are cheaper. Prices are falling and smart deal making by the car manufacturers can lead to better value  in the ultimate product. For example, GM is rumored to be getting their batteries for $700/kilowatt-hour while Nissan's battery cost is rumored to be $300/kilowatt-hour. This price differential probably explains the difference in cost between the Volt and the Leaf. But the cost per unit energy delivered is unlikely to match ICEs for some time, if ever. There is a fundamental limit in how much the cost on the rest of the vehicle can be reduced to compensate, before the product feels cheap and unstylish. People who buy and use electric vehicles are simply going to end up shelling out more to start with. For that, they pay considerably less (about a third less) when refueling with electricity as opposed to gas.

The reduced cost for fueling and for service could make up for some of the extra cost. If you figure most people drive around 12,000 miles per year and that the car gets the 35 mpg projected for the fleet average in 2016 and that the car needs at least 2 services per year for the 5,000 mile checkups, an ICE vehicle requires around $1600 per year if gas is around $3 per gallon. For an electric, the same miles require only around $300, and the vehicle will most likely require no service.  Over a projected ten year lifetime, the electric will save around $13,000, which more than compensates for the after subsidy difference in cost between an ICE vehicle and an electric, but doesn't approach the before subsidy difference. Naturally, the range restriction remains.

There are some companies working on clever ways around the range restriction. Project Better Place is working on a system where the battery is swapped out at charging stations en route if your trip lasts longer than the range of the battery on a single charge. Most likely, cars with swappable batteries will be somewhat cheaper than those with built-in batteries. Since batteries do wear out, having the batteries be easily swappable will also extend the life of the rest of the car. But the requirements for putting in infrastructure for battery swapping are fairly daunting in a country the size of the US. Even proven carbon reduction options such as E85 fuel aren't available everywhere. This is one reason why Better Place is focusing on small countries like Israel and Denmark, or small places like Hawaii and metropolitan areas. But, in the end, Better Place is just one company and unless they can somehow get their system standardized, they are unlikely to make much of a dent in the transportation carbon footprint.

In fact, exactly this could be said for electric cars and plug-in hybrids in general. While the current enthusiasm for electric cars certainly is a hopeful sign, they are really unlikely to make much of a dent in the nation's transportation carbon footprint for some time. They are not priced competitively, and they are only useful for very limited purposes. Even more important, there are millions of ICE vehicles on the road today, and after the financial crisis of the past two years, most people are not even in a position to buy a new car, much less one that costs up to twice as much for a third the range. The only way to really reduce the nation's transportation carbon footprint is to get people to drive less. That option costs essentially nothing, or, if you consider public transit fares, far less than owning and driving a car.

For myself, I've pretty much decided that my next car will probably be a Nissan Leaf, an all electric.  The reasons are pretty simple. The after subsidy cost is competitive with a Prius. I can fuel the car free from the electricity generated by my rooftop. And, most importantly, electric cars get to drive in the carpool lane with one driver. I often have meetings I need to go to during the day, and  I am invariably pressed for time. If the meetings are near rush hour, the freeways can slow down, so being able to drive in the carpool lane is a really valuable perk. It's a somewhat perverse incentive, but one that I value.

On the other hand, I'm now bicycling to work once a week, which is not near what I was doing a couple years ago. But it is the best I can do with my current work circumstances, and I rarely use the car on the weekend unless it is raining or we're going out of town.

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