"Why So Many Critics After 17,000 Electric Vehicle Sales in First Year?"
by Randy Essex and Ben Holland, cross-posted from the Rocky Mountain Institute
Figures this week showed that the first mass-produced electric cars in the United States, the Nissan Leaf and Chevrolet Volt, had total sales of 17,345 in 2011, the first year in which they were available. Compared with sales of 9,350 gas-electric hybrids in 2000, the first year the Honda Insight and Toyota Prius were offered in the U.S.—where total hybrid sales have now topped 2 million—17,000 might seem like a decent start for EVs.
Instead, they are under fire—even as gas prices jumped because of Iran’s threats to close the Strait of Hormuz, a chokepoint in global oil trade.
The Washington Post [last] Sunday called for elimination of the $7,500 tax credit for EV purchases, and Mike Kelly, a congressman from Pennsylvania who is a car dealer, has introduced legislation to end the credit.
Rocky Mountain Institute sees EVs as a crucial step in moving the United States away from fossil fuels for reasons of national security, human health, environmental protection and durable economic advantage. EV benefits go beyond fuel economy.
Reinventing Fire, RMI’s new, peer-reviewed book backed by 30 years of Institute research, shows that EVs—ultimately made of ultrastrong, ultralight materials that dramatically speed energy savings—can become energy storage vessels that feed electricity back into a revamped, more-secure electrical grid.
A great deal of difficult work on how we generate and distribute electricity stands between today’s reality and that vision, extending far beyond EV sales and incentives. Recognizing that Washington is all but paralyzed by partisan gridlock, Reinventing Fire calls for no new acts of Congress. Business must lead this ambitious transition to a safer, cleaner, stronger America, with rational state-level regulatory changes.
Of course people respond to incentives, and the EV tax credit—written to phase out when a manufacturer’s sales hit 200,000—is a proven way to spur a socially desirable change. Governments have long subsidized transportation, directly and indirectly, from granting rights for oil drilling to building our vast network of roads with tax dollars. Because Congress has approved tougher fuel economy standards, creating an incentive for EV buyers similar to the hybrid incentive that was phased out as sales grew would seem like consistent policy.
These calls to repeal the EV credit show both that the nation can’t necessarily count on Congress to guide its energy future (though, in fairness, Congress is a long way from acting on this) and that the nation’s media are adopting a flawed narrative about EVs. It is becoming pro forma that news stories about EVs say that Volt and Leaf sales disappointed this year and that the Volt is under investigation for battery fires. (General Motors on Thursday announced a fix to strengthen the Volt battery case, a day after niche EV maker Fisker, which has had no fires, recalled 239 cars to study similar issues.) Most EV media pieces—the Post editorial being no exception—lack context about early hybrid sales and the fact that two Volt fires started under extreme conditions in a laboratory, unlike the tens of thousands of real-life fires each year in gas-powered vehicles.
The Post editorial (which incorrectly said the Volt fires occurred in “road tests,”) took this tilted narrative to a new level, saying, “The Obama administration says that the credit helps build a market for EVs, which helps create jobs. Given the price of eligible models, like the $100,000 Fisker Karma, that rationale sounds an awful lot like trickle-down economics. …” The piece cherry-picked the Fisker’s price tag as an example of overpriced EVs, but made no mention of the best-selling EV, the Leaf, which lists for about $32,000 before the tax credit.
Despite criticism, experts believe EV sales will grow. LMC Automotive, which doesn’t count the Volt as an EV because it has an onboard generator that kicks in when battery gets low, projects pure EV sales of 95,000 by 2016. (GM plans to produce about 60,000 Volts worldwide next year.) “The Volt fires and the Fisker battery issues may scare some people off, but so far no one has been hurt or injured so I don’t think the market will collapse,” said Mike Omotoso, senior manager of Global Powertrain Forecasts for LMC. A survey by Pike Research found that 40 percent of Americans—a very sizeable market but down from 48 percent two years ago—are “extremely” or “very interested” in owning an EV.
Federal policy aside, tax credits can be driven at the state level. For instance, Colorado has had a tax credit that goes up to $6,000, depending on the price differential between the EV and a comparable internal combustion vehicle. RMI’s Project Get Ready, which works with partner cities and private business to help prepare the nation for EVs, has seen growing movement toward incentives at the state and city level.
RMI has long advocated carefully designed, revenue-neutral “feebates” that can be enacted at the state level. (In fact, the California Legislature passed such a program in 1980, but it was pocket-vetoed by Gov. George Deukmejian.)
A feebate system, which is agnostic toward vehicle technology, levies a fee on the least efficient models in each vehicle class to finance a rebate for the most efficient vehicles in the class. The more efficient the auto, the bigger the rebate. In this way, the government doesn’t pick winners or steer consumers away from, say, crossover vehicles that can four children, a dog and some sports equipment. Feebates provide a powerful price signal that influences auto-buying decisions the instant they’re made and maintain a continuous incentive for automakers to innovate.
Here, the Post editorial, in its short-sightedness, helps make RMI’s case:
“Electric cars are not likely to form a significant part of the solution to America’s dependence on foreign oil, or to global warming, in the near future,” the Post says.
This is not a near-term battle that can be won by whipsawing manufacturers between tougher fuel economy standards and repealed consumer incentives. If we as a nation view it that way, we will continue to wring our hands when madmen threaten to close the Strait of Hormuz and will continue to tie our security to the stability of Saudi Arabia and its royalty’s ability to manage the oil market.
We can aim high, striving to end America’s fossil fuel dependency by 2050 by engaging our ingenuity and private enterprise engine to claim a $5 trillion prize and lead in the world’s clean energy race. An alternative to that is to bicker over short-term incentives and outcomes and to put innovation in a shooting gallery because it didn’t take over the U.S. vehicle market in its first year.
Randy Essex is editorial director at the Rocky Mountain Institute; Ben Holland is a project manager on the electric vehicle team at the Rocky Mountain Institute. This piece was originally published at RMI.