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Friday
Aug172012

Electric Vehicles: Too Big to Fail?

By Christopher A. Sawyer

Lots of people say they're interested in EVs, but when it comes time to lay down the cash...

Despite all of the hype surrounding electric vehicles and battery breakthroughs, as yet there is no strong market for electrified vehicles. Here’s a snapshot of the current situation:

  • Sales of electric vehicles in Western Europe topped out at just fewer than 11,000 in the first half of 2012.
  • On a sales basis, these vehicles accounted for 0.15 percent of the market, equivalent to a minor rounding error.
  • Combined, just fewer than 3,100 Chevy Volt/Opel Ampera models were sold in that same period.
  • Renault, one of the most vocal promoters of electric vehicles, has quietly dropped plans to build batteries in Portugal, opting instead to buy them directly from Korean supplier LG.
  •  U.S. Chevy dealers were more successful, shifting 8,817 Volts through the first six months, well ahead of the 3,543 Leafs Nissan dealers sold or leased through July 2012.
  • Ford is about to launch an onslaught of vehicles, hybrid and plug-in hybrid versions of the C-Max people carrier and Fusion sedan, and an all-electric Focus hatchback.
  • Mitsubishi has halted production of its iMiEV electric vehicles for Peugeot and Citroen due to non-existent sales.
  • BMW will be adding high-tech carbon fiber and aluminum i3 and i8 models to its lineup, the former available in all-electric or range-extender (i.e. Volt) form.
  • Cadillac will introduce its version of the Volt in 2014.
  • Tesla has just introduced its (still expensive) Model S, while Fisker is struggling through teething troubles with its Karma model as it prepares a smaller, less expensive model named the Atlantic.
  • You can even buy an EV smart car.
  • Even with these entries, 2012-2013 electrified vehicle sales are not expected to exceed 2% of the market.

Electrified vehicles are not selling, but this doesn’t mean this technology should be summarily abandoned. There is some truth to the claim that the market will take time to warm up to the technology, and sales will increase as customers become more familiar with electrified vehicles. Whether this is enough to build a sustainable share is debatable, especially if tax rebates and other incentives are reduced or abandoned.

Ford may have the best plan out there, building the majority of its consumer electrified vehicles (all but the Fusion models) off the mainstream Focus platform. With flexible assembly techniques, it can increase or decrease their number to meet demand, without disturbing production of its bread-and-butter vehicles, and meet the needs of consumers globally. When combined with the proliferation of naturally aspirated and EcoBoost powertrains, this process gets the catchy title, “The Power of Choice,” but choice has nothing to do with it.

The success of Toyota’s Prius models does not explain the rash of electrified vehicles on dealers’ lots or in development. Nor does the potential profit from the sale of these vehicles even begin to cover the billions of dollars and millions of man-hours being spent to create them. As can be seen by sales figures thus far, the number of vehicles far outstrips potential buyers. This is expected to continue for at least a decade, even should there be major range/charge time battery breakthroughs.

Demand is not driving this train. Politics is providing propulsion. The American taxpayer, who is paying himself out of the tax receipts sent to Washington, subsidizes them. These are redistributed via monetary incentives to those who adopt the “virtuous” behavior. The same scenario is being played out in capitals around the world as consumers are cajoled before eventually being forced to adopt the green agenda.

But bribing the electorate with its own money isn’t enough. Pressure is being applied through the free market to goad buyers into this new technology. Rather than raise taxes on gasoline and diesel to fund this folly, a sure-fire recipe for losing elections, politicians have been restricting the supply of oil by refusing to tap reserves and preventing exploration. This has a three-fold purpose: 1) it places blame squarely on the free market, which is reacting to signals of supply, demand and uncertainty, 2) it gives politicians a platform on which to jawbone energy security, the need for alternative sources of energy and the necessity to change our “extravagant” way of life, and 3) it places the electorate’s focus squarely on their vehicles and, by association, the auto industry, by forcing it to face the specter of rising energy prices each time they fill up their car. It’s enough to make you agree with Mark Twin’s assessment that, “There is no distinctively native American criminal class except Congress.”

Because of this folly multiple billions of dollars will be siphoned off to support a technology that can’t support itself. And a technology, as we have shown on these pages, that is not especially green. We are not running out of oil any time soon, and the sky is not about to fall in on us, despite an unusually hot, dry summer... in the U.S. (Europe was cold and wet) Electrified vehicles have a place in the global car park, but not at the expense of freedom of choice, movement and thought. Unfortunately, as the level of investment in this technology proves, it has become like a bloated financial institution allowed and encouraged to expand. It is too big to fail. However, unlike many who believe the auto industry and the global economy can absorb this misdistribution of resources to support a so-called “virtuous” agenda, I believe this bubble also shall pop. The question is: Who will be around to pick up the pieces?

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