The Electric Car Contradiction

Fall 2009 issue — The vision of the electric car is a totem to the Progressive movement. But is it a realistic vision?

Progressive-inclined businesspeople are thick on the ground in Silicon Valley, a bastion of environmentalism. Since information technology can operate at a comfortable distance from the factories of energy producers, an entrepreneur can make millions in IT without ever deviating from his or her green creed.

The Obama Administration has proclaimed a new “green tech” era. One of the poster children of this new era—and one of the chief targets for increased subsidies—is the electric car. Silicon Valley venture capitalists are actively engaged in various electric car projects, the most notable of which is Tesla Motors, run by PayPal co-founder Elon Musk. Tesla sells an electric high-performance sports car and has plans for additional models in coming years.

There is a rational case for investing in electric cars. If they could be manufactured at comparable prices to gasoline-powered cars, electrics could be attractive to consumers. Electric cars can offer higher performance than gasoline-powered cars, and the cost of electricity per mile is radically lower than the cost of gasoline per mile. And electric service reaches everywhere in the first world. The sticking point is the cost and weight of the batteries to store that electricity.

Battery technology has advanced enormously in the last ten years, mostly due to the demand for better, lighter batteries in cell phones and portable computers. If battery performance continues to advance at around 8 percent per year, as it has been, it won’t be long before a battery pack big enough to power a car for, say, 300 miles will become relatively affordable. Technological advance is rarely so linear (Moore’s Law notwithstanding), but a raft of related nanotechnology research holds out promises of significant advances over the coming decade.

Tesla Motors’ business plan describes the electric car as a market-priced, profit-making proposition. The company intends to follow the standard development pattern we’ve seen in consumer electronics like PCs, cell phones, DVD players, and PDAs.

First, sell a luxury item in small quantities at high prices to early adopters. The Tesla sports car , which sells for north of $100,000, sports a lithium-ion battery pack good for 200+ miles of driving. The car also competes well in the market segment populated by Porsches and Lamborghinis.

Second, work up economies of scale and climb the learning curve until you can produce a middle-priced product in greater quantities, again competing with the quality range in the market. This is the Tesla Model S , intended for 2011, which looks to compete in appointments and performance with Lexus and BMW cars in the $50,000 range.

Third, more economies of scale and tech advances drive costs down enough to make a mass product (competing, say, with hybrids in the $20,000 range). This is an economy car slated for production in 2013. (Tesla is also currently contributing to a Daimler-Benz “Smart” brand economy car project that is in testing). If the costs can be managed right, if the company can hold its technological edge, and if battery costs per kilowatt-hour capacity keep falling fast enough, it could happen.

That’s the straight business case for electric cars. But most of their advocates are too “progressive” to just want a better, cheaper car. They want a cleaner, greener vehicle, too. They want to drive without guilt. As evidence, see Who Killed the Electric Car? Or read AutoblogGreen . Electric cars will liberate Americans from foreign oil, proponents say. (If widely adopted, they would indeed, since electric plants tend not to use oil). And it is possible to charge an electric car off of solar power; you would need a huge solar set-up to do it, since a car uses more energy than a typical house does in a day. Or you could charge a car off of nuclear-generated electricity, and thus drive “carbon-free.” The trouble is, only nuclear generation is close to being cost-competitive—and greenies swallow hard at that fact. There’s no proof that shifting people to electric cars would be a cost-effective means of addressing the human costs of global warming. And only a dubious chain of argument links decreasing oil imports to improving U.S. national defense.

Right now, electric cars can only compete in the most expensive, luxurious end of the car market, where successful sales number in the few thousands. But in North America, Europe, China, and Japan, governments are continuing to shovel taxpayer money at electric car projects. General Motors, America’s government-owned car company as of 2009, will be offering up its Chevy Volt plug-in hybrid within a year or so, but so far the project, even with subsidies, is more of a corporate research and advertising campaign than a serious, profit-oriented venture. And many other companies are designing electric cars and waddling up to the government teat for an infusion of tax dollars.

That vision of the electric car (subsidized, money-burning, resource-wasting) is a totem to the Progressive movement—and it could be small, short-range, and low-powered, too, which wins points for “simple living.” But subsidies lead to inefficiencies and dependent attitudes. They rarely lead to strong, profitable products. Did steel protection make U.S. steel-makers efficient? Has Amtrak ever worked its way back to profitability? If Progressives are for progress, then they will want to see electric cars flourish only if these vehicles are a solid business proposition. But then, are Progressives really for progress?

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