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  • The Electric Myth: Lack of Consumer Demand Killed the Electric Car

    “Don’t wanna lose it, it’s electric! (Boogie Woogie Woogie)” Those lyrics (from Marcia Griffiths’ song “Electric Boogie,” better known as “the Electric Slide song”) are quite indicative of the Obama Administration’s position on the electric car. No matter how much the market and consumers reject the electric car, the government will continue to push forward with subsidies to produce and purchase the vehicle. Charles Lane wrote about the electric car in Saturday’s Washington Post:

    [The ad campaign] asks consumers to make an economic and technological leap of faith—just as both GM and the firm’s biggest backer, the Obama administration, have invested, financially, politically and psychologically, in plug-in hybrids and other electric vehicles. How else to explain the fact that both Washington and Detroit persist in their costly electric-car project despite mounting evidence that the vehicles serve no particular purpose, environmental or economic?

    Lane points to a study from J. D. Power and Associates that says there will be very little demand for electric vehicles over the next decade, even with lucrative federal handouts. If coal produces the electricity that powers the electric vehicle while it runs, the reduction in greenhouse gases is negligible. Other environmental headaches include how to depose of exhausted batteries. The lack of charging infrastructure presents another problem.

    Even so, just how much are electric vehicles running on actual electric? The Chevy Volt, touted as the electric vehicle that could revolutionize the auto industry, isn’t all that electric. Investor’s Business Daily covered this last week:

    Advertised as an all-electric car that could drive 50 miles on its lithium battery, GM addressed concerns about where you plug the thing in en route to grandma’s house by adding a small gasoline engine to help maintain the charge on the battery as it starts to run down. It was still an electric car, we were told, and not a hybrid on steroids.
    That’s not quite true. The gasoline engine has been found to be more than a range-extender for the battery. Volt engineers are now admitting that when the vehicle’s lithium-ion battery pack runs down and at speeds near or above 70 mph, the Volt’s gasoline engine will directly drive the front wheels along with the electric motors. That’s not charging the battery—that’s driving the car.

    Lane adds:

    Fine print on the Volt ad promises just “25–50 miles of electric driving in moderate conditions.” Translation: Much of the time the car will be running on gas, just like ones that cost far, far less than the four-seat Volt’s price of $33,500 (after a $7,500 federal tax credit).

    The story is similar across the pond. British consumers bought a grand total of 55 electric cars last year out of over 2 million vehicles sold. And similar to our government, the cash-strapped U.K. government will provide a ?5,000 subsidy toward each electric car purchased next year.

    The elite receive tax breaks they don’t need. The automakers receive subsidies to produce something no one wants to buy. But it makes environmentalists happy and it throws a bone to a struggling automaker working to turn sales around. It’s Bruce Yandle’s bootleggers and Baptists theory. GM is doing better, but it’s not because of electric vehicle production or the government bailout but rather how bankruptcy forced the automaker to restructure. Making a product no one wants to buy is how GM got into this mess, and now the government’s doing its job to ensure it will happen again.

    Lane sums it up nicely:

    The Obama administration’s commitment of $5 billion in loans and grants for electric cars is the biggest taxpayer rip-off since corn-based ethanol. It benefits no one but a few well-to-do car buyers and politically connected companies. Any “green” jobs these rent-seeking firms create will vanish when consumers reject their products and/or the subsidies cease.

    Posted in Economics [slideshow_deploy]

    16 Responses to The Electric Myth: Lack of Consumer Demand Killed the Electric Car

    1. Mark Hemmingsen says:

      It's easy to sit back and critisise but what does the Foundry propose as a solution?

      The fact is that although expensive at present, EVs do produce less emmissions, even when the electricity comes from a current mixed (renewble and non-renewable) sources. In the current European electricity market, research has shown that a car would have to operate on 4 litres per 100km (sorry, I'm Australian and I don't know the U.S. conversion) or better to out perform EVs.

      When it comes to subsidising the rich, unfortunately that is a bitter sweet pill that exists with all new technology roll outs. The same could be said about mobile phones and the internet in the last decade, but now both are common place in even the poorer parts of the world.

      By implementing schemes to encourage EV usage the market is established and can develop and grow. With this comes more affordable vehicles or options like share-leasing and conversions of older vehicles (and coupled with developments in renewable energy leads to a more sustainable transport future.)

    2. MJF, CT says:

      Proof again that the government thinks the People need to be led by the hand through every phase of their lives.

    3. Tom, WA - the state says:

      haven't electric vehicles been around for more than 100 years? I thought they lost ground when inexpensive oil prices made them less competitive (and a lack of adequate battery technology).

      I am lucky enough to have been driving an electric car for the past 2 months which is fun to drive, built in my home state, uses electric energy for power (75% comes from hydro and wind in WA state) and doesn't require importing oil from other countries (and therefore sending our money out of the country). No subsidies for me. Many more subsidies for the oversized gas powered vehicles which surround me each day. Perhaps a balanced commentary on all the transportation subsidies would paint the most accurate picture. Respectfully,

    4. Alex says:

      Tom, I'm curious as to which electric car made in Washington State you drive that benefits from zero government subsidies? Please give us more details so we can confirm this. I'm skeptical!


    5. Alex says:

      Tom: Also, what are the subsidies for "oversized gas powered vehicles" that don't also apply to hydro and wind energy in Washington? (i.e. I'm assuming you refer to tax credits to oil/gas firms, which all told are a minuscule fraction per unit of energy derived from these sources compared to subsidies for hydro and wind, and which also pale in comparison to the actual taxes paid by said energy firms, not to mention taxes collected on said oil/gas paid by consumers) If I'm wrong, please explain.

      Cheers, :)


    6. Peter Lawson says:

      I just saw this and had to repost it-

      "Just like the 2008 recession and the wall street/bank scams; nobody in DC will investigate this because people from both parties will go to jail.


      Everything here can be fact checked and verified but you, on your own, using commonly available university databases, the public library and online references.

      For each 1/2 MPG of improvement in vehicle efficiency per model of car, Detroit insiders lose 4 billion dollars in oil industry kickbacks. 100 MPG cars have been demonstrated for decades but Detroit has refused to make them because of the kickbacks. But now the insiders are switching to electric because oil is running out and causing too much cancer. BUT: A large part of the electric car projects are just a scam to get a certain group of VC's to control the lithium fields in Afghanistan! He who controls the electric cars controls the trillions of dollars of lithium revenues. It is just like oil all over again. The U.S. Department of Energy had one guy, who George Bush appointed running $25B worth of taxpayer money. He was working with 3 other guys in this small group who gave the money only to hooked n car companies who they could control the battery orders for and thus control the Lithium profits. Steve Rattner has written his book: Overhaul to try to save his name and make himself lok like a hero yet the SEC has charged him with investment fraud and bribery of officials. The press says he is a crook who operated for back-office investors like these:

      Dmitry Medvedev Came to Silicon Valley on June 22, 2010 and met with some of the venture capital companies that helped lobby the leverage for the electric car companies that just got funded. Only the car companies got funded that would play in this scheme and who have interests in Global X Lithium ETF (NYSE: LIT), Sociedad Quimica y Minera de Chile (SQM), FMC Corporation (FMC), Rockwood Holdings (ROC) and similar lithium gatekeepers.

      Ener1 Battery Systems who got zillions of the dollars from DOE per the Loan Guarantee and ATVM Director Lachlan Seward, formerly with Chrysler, who cut out all of the non-Detroit loan applicants, is controlled in part by Russian “business man” Boris Zingarevich.

      Boris Zingarevich is best friends with the Russian President Dmitry Medvedev, who arranged for all of Russia to extend current agreements signed with foreign automakers between 2005 and 2008 granting preferential duties on imported components for eight years in return for sourcing 30 percent of parts locally, according to the Industry and Trade Ministry. Once those arrangements expire, the carmakers would need to commit to buying 60 percent of components in Russia within six years to get more tax breaks.

      Dmitry also appears to own interest in lots of Lithium processing and mining company technology in Russia which is pretty close to Afghanistan.

      Afghanistan is: the "Saudi Arabia’ of lithium".


      American geologists have discovered huge mineral deposits (Many $1 trillion of dollars worth) throughout Afghanistan, according to the New York Times. Lithium, gold, cobalt, copper, iron, among other valuable minerals are lying beneath what is already a war-torn country with little history with mining. Off and on over the decades, geologists—Soviet, Afghan, American—would investigate and chart some of Afghanistan’s mineral wealth, only to put the work on hold as violent conflict erupted. Now, corruption, in-fighting between the central and district governments, foreign interests, and greater zeal from the Taliban might come into play to disrupt a potential economy evolving around these natural resources. With the Ministry of Mines, a Pentagon task force is now helping organize a way of handling the mineral development and bidding rights. How this unfolds socially, environmentally and politically should be interesting.

      The New York Times reports: The value of the newly discovered mineral deposits dwarfs the size of Afghanistan’s existing war-bedraggled economy, which is based largely on opium production and narcotics trafficking as well as aid from the United States and other industrialized countries. Afghanistan’s gross domestic product is only about $12 billion. The two most prevalent minerals are copper and iron. Niobium, used for making superconducting steel, has also been found.

      The effort to get that money for Ener1 was strong armed by Republican Sen. Richard G. Lugar, one of the deans of Congress, and his junior colleague, Democratic Sen. Evan Bayh.

      Richard Lugar and Lachlan Seward co-managed the Chrysler Bail-out.

      Lachlan Seward was appointed by George Bush to run all of the tens of billions for the DOE ATVM and Loan Guarantee Programs. He & Matt Rogers gave most of the money away to their closely aligned interests and negated competing applicants. –

      Another place near Afghanistan that there is lot's of Lithium is in Mongolia. Blum Capital has targeted the Lithium fields in Mongolia, said to be the second largest fields after Afghanistan in the region. Mongolia touches Russia so mining and equipment access could first take place there via Russia. China wants the Mongolian Lithium too so there is some two-way bidding that each country (Russia and China) do not know about. The owner of Blum Capital is Senator Feinsteins husband. She recently made him the Goodwill Ambassador to Mongolia.

      Blum's wife, Senator Dianne Feinstein, has received scrutiny due to her husband's government contracts and extensive business dealings with China and her past votes on trade issues with the country. Blum has denied any wrongdoing, however. Critics have argued that business contracts with the US government awarded to a company (Perini) controlled by Blum may raise a potential conflict-of-interest issue with the voting and policy activities of his wife. URS Corp, which Blum had a substantial stake in, bought EG&G, a leading provider of technical services and management to the U.S. military, from The Carlyle Group in 2002; EG&G subsequently won a $600m defense contract. In 2009 it was reported that Blum's wife Sen. Dianne Feinstein introduced legislation to provide $25 billion in taxpayer money to the Federal Deposit Insurance Corp, a government agency that had recently awarded her husband's real estate firm, CB Richard Ellis, what the Washington Times called "a lucrative contract to sell foreclosed properties at compensation rates higher than the industry norms.

      Pan American Lithium Corp is led by Andrew Brodkey, CEO, President and Director – who has 25 years in the mining industry as a mining engineer, lawyer and senior executive with a focus on corporate legal and business development activities at major mining companies with an emphasis on Latin America, including Magma Copper Company and BHP Copper Inc. Mr. Brodkey also created the International Mining & Metals Group of CB Richard Ellis, Inc (“CBRE”). He and Mr. Blum work together on Lithium deals

      " In 2009 the University of California Board of Regents, of which Blum is a member, voted to increase student registration fees (roughly the Univ. of California equivalent of tuition) by 32%. Shortly thereafter, Blum Capital Partners purchased additional stock in ITT Tech, a for-profit educational institution. These events suggest a conflict of interest on Blum's part. Also see: http://la.indymedia.org/news/2010/09/242044.php and http://www.floppingaces.net/2007/04/02/the-silenc… and http://www.washingtontimes.com/news/2009/apr/21/s

      Sen. Feinstein got the Fremont, Calif. NUMMI plant for Tesla in exchange for political and campaign support from Tesla and kept other carmakers away from the NUMMI plant and helped TESLA pay for it with TAXPAYER money from the ATVM and Loan Guarantee funds run by Lachlan Seward and Facilitated by Richard Lugar so that her husband & his VC friends would get more Lithium battery deals under their control.

      America "should" get all the Lithium before the competing empires get it but this private group of special interest manipulators should not get to take billions of dollars of taxpayer money to set themselves up with a personal arrangement at the expense of the taxpayers and the American companies they killed off by their manipulations. That is the bad thing that is happening here."

    7. Tom says:

      I certainly get confused by all the subsidies that run rampant in our society. I saw this from a 1997 article on the topic. Seems that ALL of our energy production benefits from some degree of subsidy:

      “Figuring out exactly, or even roughly, how much oil companies receive in subsidy turns out to be a complicated challenge.

      “Europeans are thought to spend about $10 billion or so (USD equivalent) annually to subsidize fossil fuels. By contrast, American oil and gas industry might receive anywhere between $15 billion and $35 billion a year in subsidies from taxpayers.

      “The exact number is slippery and hard to quantify, given the myriad of programs that can be broadly characterized as subsidies when it comes to fossil fuels. For instance, the U.S. government has generally propped the industry up with:

      – Construction bonds at low interest rates or tax-free

      – Research-and-development programs at low or no cost

      – Assuming the legal risks of exploration and development in a company's stead

      – Below-cost loans with lenient repayment conditions

      – Income tax breaks, especially featuring obscure provisions in tax laws designed to receive little congressional oversight when they expire

      – Sales tax breaks – taxes on petroleum products are lower than average sales tax rates for other goods

      – Giving money to international financial institutions (the U.S. has given tens of billions of dollars to the World Bank and U.S. Export-Import Bank to encourage oil production internationally, according to Friends of the Earth)

      – The U.S. Strategic Petroleum Reserve

      – Construction and protection of the nation's highway system

      – Allowing the industry to pollute – what would oil cost if the industry had to pay to protect its shipments, and clean up its spills? If the environmental impact of burning petroleum were considered a cost? Or if it were held responsible for the particulate matter in people's lungs, in liability similar to that being asserted in the tobacco industry?

      – Relaxing the amount of royalties to be paid (more below)

      “While it's easy to get bent out of shape that the petroleum industry "probably has larger tax incentives relative to its size than any other industry in the country", according to Donald Lubick, the U.S. Department of Treasury's former Assistant Secretary for Tax Policy, remember that subsidies are important across all sectors of the energy industry.

      “For instance, nuclear power wouldn't be viable without subsidies – most governments pay between 60 and 90 percent of the cost of construction of new plants. Solar wouldn't be what it's become without significant German, Californian, U.S. federal and other incentives. Ethanol and biodiesel in the U.S. enjoy large subsidies (agricultural industry subsidies).

      “Subsidies, per se, aren't a bad thing.”


      We certainly subsidize our road systems, which in turn enables a greater use of the fossil fuels. And then those wars in the Mid-East … some of those costs certainly arise from our fossil fuel habits.


    8. Linda Nicholes, Anah says:

      I think you are absolutely incorrect in your assumption that there will be very little demand for electric cars. As a person who has been driving a Toyota RAV4 all-electric car for ten years, I know how dependable and low maintenance EVs actually are. I find that once people actually experience the smooth, economical ride, once they realize that electricity is multiple times cheaper than gasoline, the frequently-asked question is: "Where can I buy an electric car?"

      The truth is that a gas-powered car covers just 8 miles for every $1. That same $1 will take an EV 50 miles. This is the equivalent of about 150 miles per gallon. Please realize that EVs do NOT have to be powered by the "C" word => coal. Electricity can be produced by solar, wind, geothermal, small hydro, wave action. My two electric cars run on the power produced by my residential solar array. 50% of EV drivers do sport solar panels on their own roofs since the synergy of the two technologies is fantastic.

      If "British consumers bought a grand total of 55 electric cars last year out of over 2 million vehicles sold," it is because very few electric cars were actually manufactured, marketed and made available to the consumer. Henry Ford had it exactly right with the development of mass production. Electric cars are ready to be mass produced; they are coming whether you believe or approve of that fact or not. Almost every major automaker in the world has a plug-in car on their drawing boards, and 2011 will see those zero-emission cars moving from those drawing boards to a showroom near you. All the nay-sayers in the world cannot stop an idea whose time has come.

    9. Paul Scott - Santa M says:

      The comment about subsidies for oil needs to be addressed. In addition to the direct subsidies for the oil industry that total in the billions, there are externalities that haven't been internalized in the price of dirty fuel for decades.

      When oil is extracted, shipped, refined, distributed and then burned in internal combustion vehicles, there is pollution generated every step of the way. The amalgamated pollution is responsible for thousands of American deaths and hundreds of thousands of serious illnesses every year. This is a real cost that is not paid by the purchaser of that fuel.

      It can be argued quite successfully that we would not have gone to war in Iraq had they no oil. We've spent close to a trillion dollars from our treasury so far and thousands of our soldier's lives. Additionally, the RAND Corp. estimates $75-$80 billion more is spent from our treasury every year to protect access to the world's oil lanes.

      When you buy a gallon of gas, you pay nothing for these costs.

      On top of these quite substantial costs, you should also add billions in environmental damage like that found in the Gulf this summer.

      Adding all of these costs to the price of a gallon of gas will show you how much dirty fuels have been subsidized all these decades. The total is in the trillions.

    10. Paul Scott - Santa M says:

      As for the consumer demand for EVs, I sell the Nissan LEAF and can assure you the demand is very strong. We will be manufacturing 50,000 units worldwide in 2011. Of those, 20,000 are slated to come to the U.S. We have 20,000 deposits in hand already and have been closing deals by the hundreds already. The car doesn't even deliver until December and we won't have a lot of them here until spring. By then, we'll open up the deposit link again and we expect the word of mouth will have begun from the initial cars hitting the streets. We won't be able to keep up with demand.

      These vehicles are quite remarkable. They are very quick, quiet as a mouse, and emit no pollution during their operation. If you are a truly good person and run your house on renewable energy, then you have no pollution associated with driving your car, well-to-wheels.

      Best of all, 100% of your energy money stays domestic. When you buy gas, 60% of your money leaves our country and about 90% leaves your community. Since the average American spends between $3,000-$4,000 every year for gas, this represents billions leaving our communities and accumulating in the coffers of some of the most evil people on Earth.

      When you drive an EV, 100% of your money stays domestic with virtually all of it staying in your local community. Most of the money stays in your pocket to be spent on local goods and services. This will generate jobs and wealth in our communities instead of weakening our economy and strengthening that of our enemies.

    11. Redmond Chad says:

      How can you say there was no demand for electric vehicles?

      When the major automakers offered them in California a decade or so ago, they sold and/or leased every one they offered, and there were still waiting lists before they stopped offering them. True, they didn't offer many. But there is no way for anybody to know where the upper boundary was.

      Nobody knows what the demand will be. We'll all find out once they are available. No sense pretending you know that nobody wants one–I want one! The Leaf's first year supply has already been reserved; they stopped taking reservations.

      Your statement about "mounting evidence that the vehicles serve no particular purpose, environmental or economic" was a jaw-dropper. (You didn't cite any evidence–what you cited afterwards was just an opinion piece about the demand for electric vehicles; and you chose the most pessimistic of several that have been offered lately). Clearly saving 80% of our fuel bill is a valuable purpose that will help our economy. Not to mention that the money we do spend will be local, rather than sent to the Middle East to fund…whatever they do with the money. That Middle East oil is almost entirely controlled by governments, not corporations–surely there is purpose to generating our own energy, rather than being dependent on others, especially ones that aren't particularly fond of us?

      And you cite the "If coal produces the electricity that powers the electric vehicle while it runs, the reduction in greenhouse gases is negligible" chestnut. Which is actually true, but less than 1% of the population gets all of their electricity from coal, so why bring it up? On US grid power, which is only about half coal, the reduction in greenhouse gases is huge (if you're trying to do the calculations, and going upstream for electricity, don't forget to go upstream for gas too. No need to run your own numbers though, as there have been several dozen studies done on the subject). Plus you can clean up the grid later (it has been trending significantly cleaner, and coming EPA rules ensure that will continue). Plus you can choose to generate your own personal electricity in a cleaner fashion. Can't do any of that with gas.

      "Other environmental headaches include how to depose of exhausted batteries". Another non-issue. Once they degrade so that the energy density is not good enough for mobility, they will be re-used in stationary applications–some energy companies are already setting up markets to buy them. When they finally die completely (a very long way down the road), then they will be recycled. Why not? They are much more valuable than lead acid batteries, and those all get recycled. Even if one does slip in to the garbage stream, lithium is non-toxic.

      More money staying in the US, less dependency on foreign powers, less pollution in the US, far fewer carbon emissions, and smoother, quieter, more reliable cars to boot…there are plenty of reasons for people to want an electric car!

    12. Edward R. Witt, Esco says:

      Nicolas, your statement "No matter how much the market and consumers reject the electric car…" confuses me. I called a local Nissan dealer just last week reagrding the LEAF and was told the car is sold out for 2011. SOLD OUT! I asked if there was a list I could get on and was told "yes, but it's full". I was also informed that in 2012 Nissan expects large fleets sales to rental car companies and also to companies such as GE. So it will likely be late 2012 before I have the possibility to purchase a LEAF. Then I read your article where you state there's no demand and my jaw dropped. No demand, really?

    13. Nicolas Loris Nicolas Loris says:

      I don't know what the demand for an electric vehicle will be and I hope for the sake of more competition that the electric car does well. My preference is to see the electric vehicle come to the market organically, rather than forced through with subsidies, fuel efficiency standards and DOE research (read: subsidy) programs. Many independent, private reports are predicting that the consumer demand increase very little over the next coming decade. http://businesscenter.jdpower.com/Library.aspx

      If there is consumer demand and if the Leaf has sold out, that's great. But what it suggests to me is that the government does not need to be subsidizing these technologies, nor does it need to be offering a $7500 tax credit to purchase one of these vehicles.

      There are many studies pessimistic about the environmental and economic purposes of the electric vehicle including Deloitte Touche, Boston Consulting Group, Roland Berger Strategy Consultants, professor Henry Lee of Harvard's Belfer Center for Science and International Affairs, and the Massachusetts Institute of Technology's Energy Initiative.

      Re: the British demand falling. It's not just because they produce a smaller amount of electric vehicles. In 2007, 400 were registered. Perhaps when the price comes down and the recession ends, the demand will increase again.

    14. Tom Platt, Florida says:

      Well, I guess it's just another case of the dumb consumer/voter just not understanding what Obama has been trying to tell us – you know, like his speech where he said the Democrats lost a Congressional majority because Obama had failed to effectively communicate the benefits of his health care and electric auto proposals?

      It's just us dumb voters who can't understand what we are being told?

      Translation: if you don't believe in Keynesian economics and a "living" constitution, you're too stupid to understand anything! Only fools believe in "free market" economics and "original intent."


      A Fool for Life!

    15. michael says:

      I want an EV. That makes one potential buyer. Therefore there is a demand if only 1 person. This article is garbage…haha. what a waste of grey matter to read this. Someone please fire this guy. Was this article made solely to generate discussion or what…we're smarter than that duckhead!

    16. Kent says:

      It seems people want to tear up the EV and also wish to pick at people and set back and predict the fact that the EV will be rejected. As with any other item on the market, costs will go down as did flat screens, computers, cell phones, dvd palyers and all other items mass produced over the years. The drive train for the EV is chump change to produce as compared to the ICE and transmission and much less to maintain. The efficiency is much higher as well. Well aboove 90%. The cost is the battery technology. Will it get much less expensive? In my opinion, yes. As with every other technology. Most people want energy independance, and most people drive short distances daily. Yes, we will need a gas car for long drives, but the EV will more then suffice for average driving trip. Many people I've talked to would buy a EV in a second. Don't forget some of the earliest cars were electric. Yes, the ICE killed the EV in the 20th century, but technology has changed alot and continues to daily. When the cost of energy goes back up as it did in 2008 and the economy begins to crash again as well as your wallet shrinking, the people with negative attitudes toward the EV will welcome it.

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