Obama's $5 billion delivers slow jolt to electric vehicles
Photo credit: GM
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WASHINGTON (Bloomberg) -- President Barack Obama has put $5 billion in taxpayer money behind his goal of having 1 million electric cars on U.S. roads by 2015. The Republican presidential ticket says it's money wasted on "losers."
Whether the technology itself is a loser or consumers are merely slow to adapt to new things, car buyers so far haven't embraced electric vehicles in numbers close to Obama's goal.
Electric-vehicle sales since 2011 totaled fewer than 50,000 through September, just 5 percent of the president's target.
"The reality is: that business model isn't there yet," said Brett Smith, co-director of manufacturing, engineering and technology at the Center for Automotive Research in Ann Arbor, Mich. "It isn't there yet for volume. It isn't there yet for reaching the mass consumer. And it probably isn't going to be there for a while."
Obama's $5 billion invested in electric cars includes loans and grants to car and battery producers, spending on charging stations and $7,500 tax credits to car buyers. Recipients of loans and grants include Nissan Motor Co., which got a $1.4 billion loan to build the Leaf and its battery pack in the U.S,; Fisker Automotive Inc., which Romney's running mate Paul Ryan criticized in last week's vice presidential debate for building its first model in Finland; Tesla Motors Corp. and A123 Systems Inc.
A123 Systems filed for bankruptcy protection in Delaware today after running short of cash in recent months. Supplier Johnson Controls Inc. agreed to purchase A123's automotive business in a transaction valued at $125 million.
Nascent technologies
Electric vehicles aren't the first nascent technology the U.S. government has financed. Others have eventually spawned a mass market.
Obama's $5 billion investment in electric cars -- part of $90 billion spent by his administration on green energy -- compares with about $4 billion from his 2009 stimulus plan that went to increase the use and availability of high-speed Internet service.
That money has paid to deploy or improve 72,152 miles of network lines, according to a September report by the National Telecommunications & Information Administration, the Commerce Department arm that administers the program.
"Government investment in high-risk, high-reward technologies is critical," said Matthew Stepp, a senior clean energy policy analyst at the Information Technology and Innovation Foundation in Washington who wrote a report about electric-vehicle battery investment released last week.
"The last century of breakthrough technology development has shown this to be true," he said. "But with any breakthrough idea, it sometimes takes a while to develop new technologies and make it to market."
Volt, Leaf
As recently as June, General Motors Co. CEO Dan Akerson forecast as many as 40,000 sales of the plug-in Chevrolet Volt this year, lowering his previous goal of as many as 60,000. The automaker delivered 7,671 Volts in 2011 and 7,997 in its first 13 months of sales.
Through September, GM said it has sold 16,348 Volts this year. After inventories swelled to 84 days' supply in July, GM in August said it would halt Volt production for four weeks this month and last month. The days supply for Volts fell to 49 in September, compared with an industry average of 59 days, according to TrueCar.com.
Nissan Motor Co. CEO Carlos Ghosn in 2009 said Obama's goal was, if anything, too modest. Sales of Nissan's Leaf, the only mass-market electric car sold in the U.S. that doesn't have a backup gasoline engine, have fallen 28 percent this year through September compared with last year, its first full year of sales.
'Can't fail'
The Leaf's hurdles include its price and consumer complaints that its battery range is less than the 73 miles per charge the U.S. Environmental Protection Agency says it averages, said Alan Baum, principal of auto-industry researcher Baum & Associates in suburban Detroit.
"This can't fail," Baum said. "Is it going to sell 100,000 next Thursday? Of course not. But they've put a lot into this, and they need this to be successful."
Leaf drivers operate their cars for one-quarter to one-third of the cost of a comparable car with an internal-combustion engine, said David Reuter, a Nissan spokesman. The savings depends on where someone lives and what their utility rates are.
"We really do look at this as a long-term strategy, long- term commitment, so we're not as focused on where we've come from as where we can go in the future," he said.
Volt owners fill up their gas tanks every 900 miles or every month and a half, on average, said Michelle Malcho, a GM spokeswoman.
Cost barriers
The Leaf sells for a $36,050 base price, the plug-in Toyota Motor Corp. Prius costs at least $32,000, Ford Motor Co.'s Focus EV starts at $39,200 and the Volt starts at $39,145. Buyers of each qualify for a $7,500 U.S. tax credit.
Those prices are higher than for comparable non-electric models and on par with entry-level luxury sedans such as BMW's 328i, said Jesse Toprak, vice president of market intelligence at TrueCar.com. Fisker Automotive Inc.'s electric-powered Karma costs more than $100,000, while Tesla Motors Corp.'s least-expensive model costs $57,400.
Electric car drivers also need places to recharge their vehicles. Without access to them, pure electrics won't run and plug-in hybrids have to burn gasoline. As of Sept. 30, according to the Energy Department, there were 13,659 electric charging stations in the U.S., a country of 3.8 million square miles.
"I don't think the technology is scary or causes people to hold back," said John O'Dell, senior green car editor for auto researcher Edmunds.com. "The price of the technology does, and the inadequacies of the technology do."
Car fires
Fisker has recalled the Karma three times, with one stemming from a fire, and GM struggled last year to sustain interest in the Volt after a vehicle crash-tested by U.S. regulators caught fire.
GM improved protection of the battery packs and U.S. safety officials, while finding electric cars were no more fire-prone than conventional models, convened a forum on battery safety in May.
"If you have a technology that doesn't quite meet expectations or has a connotation of something negative happen to it, even if it is like the Volt fire and probably not the fault of the vehicle, it can damage perception and the acceptance of the vehicle," CAR's Smith said. He cited GM's introduction of "horrible" diesel engines in the 1970s that "set diesel technology back decades."
Free leases
When the Volt was introduced in 2011, GM required each Chevrolet dealer to keep one on their lots for promotional purposes, said Michael Martin, a Manassas, Va., dealer who's on the board of the National Automobile Dealers Association.
Martin, who sold 14 Volts last year, said they sometimes attract buyers who end up purchasing lower-priced small cars.
"We've had good interest in the car," he said.
"Obviously it's a little pricey when you start looking at comparable gas-powered products, especially in the Chevrolet line."
GM and Nissan now offer deals so attractive that some people can drive plug-in cars for what they'd save in gasoline each month, Truecar's Toprak said. The Leaf can be leased for $199 a month, according to LeaseTrader.com.
The economics are particularly favorable in California, where regular gasoline on Monday cost an average of $4.61 a gallon, according to AAA, the nation's largest motoring organization.
'Mainstream' buying
Toprak commutes 17 miles a day each way in Los Angeles. He tested a Volt for a month, charging it at free stations near his office. He estimates that charging it at his home would have cost about $1 a day, compared with the $300 he spends on gasoline in an average month.
"If I can lease a Volt for up to $270 a month, that's essentially a free car for me," Toprak said in an interview.
Nearly a fifth of plug-in sales have been in California, which has set a goal of having sales of zero-emission vehicles account for more than 15 percent of the state's new-car purchases by 2025.
Volt sales are improving in key markets, GM's Malcho said in an e-mail.
"We are starting to move away from the early tech adopter to more mainstream consideration in markets like California, Michigan, Illinois and Florida," she said.
SUVs needed
Sales might rise if automakers produced a plug-in small SUV rather than small and mid-sized cars, O'Dell said.
This year, new plug-ins on the market include Toyota's Prius, Ford's Focus and Honda Motor Co.'s Fit, which counts 32 sales this year. Toyota, the biggest maker of hybrid autos, plans to produce an electric RAV4 sport-utility vehicle costing more than twice as much as the gasoline version. Toyota in May said it plans to deliver 2,600 of the $49,800 SUVs over the next three years.
Not all automakers are counting on the technology's acceptance in time. Chrysler Group LLC in September announced it was suspending tests of plug-in hybrid trucks and looking for new battery technology after some powerplants overheated. Honda and Hyundai Motor Co. have invested more in fuel-cell vehicles.
Volkswagen AG, based in Wolfsburg, Germany, is focusing on improving its gasoline and diesel engines and on natural-gas cars, Jonathan Browning, its top U.S. executive, said last week.
"I don't believe it's the place of government to choose between those technologies," Browning said in a speech in Washington. "As opposed to having a singular focus on electric vehicles and electrification, there are all these other technologies out there."
Plug-in skeptics
Republican presidential candidate Mitt Romney has called Obama's support of electric vehicles "crony capitalism" and running mate Ryan has called for all green-energy subsidies to be eliminated.
Green energy was a topic in the first presidential debate Oct. 3 in Denver. The candidates square off again tonight at Hofstra University in Hempstead, N.Y.
Increasing sales of advanced-technology vehicles including electric cars show the administration's strategy is working, Clark Stevens, a White House spokesman, said.
"The goal of the administration's support of advanced vehicles is to foster a domestic industry that develops and manufactures these advanced technologies here in America, and more importantly the jobs that come with them," Stevens said in an e-mail.
CEO Elon Musk of Tesla, which along with Fisker was called a loser by Romney during the first presidential debate, says while Obama may have been premature with his 1 million goal by 2015, it won't take much longer.
"I don't think it's likely to be a million in three years, but I do think perhaps we'll see a million in six to eight years," Musk said Sept. 21.
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