Short-Circuiting the Electric Car Business

While Obama has spent billions on artificially increasing vehicle production, what about demand?

Another frustration for President Obama: U.S. companies making electric cars and batteries they hope to sell to China, Europe and other markets can’t do business abroad unless they make the products there, according to a Sept. 28 report from Scientific American. The administration was expecting to manufacture 40 percent of the world’s high-tech batteries for electric vehicles and hybrids by 2015. Although the markets will probably flourish overseas, the companies that make electric cars, hybrids, and high-tech batteries for these vehicles can do business there only by manufacturing on foreign shores.

Jason Forcier, vice president for automotive solutions for A123Systems, Inc., based in Watertown, MA, said: “Can we export our batteries to China? The answer is no.” Last year, the Obama administration gave A123Systems $250 million to expand its battery manufacturing in the United States. Forcier said that to grow the battery industry in the United States, demand has to come from the U.S. “to create energy independence and jobs.” Neither, however, can be created to anywhere near the extent to fulfill the administration’s wishful thinking.

Government subsidies aren’t limited to electric cars though. In August, touring a Chicago Ford assembly plant cranking out SUV Explorers, Obama announced a $250 million loan guarantee from the Export-Import Bank for the company. “To all those nay-sayers in Washington...who said that investing in you...was the worst investment we could make, I wish they were standing here today,” Obama was quoted as saying by the Chicago Sun-Times. But Obama must have forgotten that Ford, unlike GM and Chrysler, did not take a federal bail out.

Meanwhile, the green movement in Germany is questioning the supposed environmental benefits of electric cars. The German branch of the World Wildlife Foundation (WWF) discovered to their surprise that “carbon dioxide savings were so small,” according to WWF vehicle expert Viviane Raddatz. Germany, with 41 million cars now, hopes to have one million electric cars or hybrids by 2020. Raddatz said CO2 emissions would be cut by only 0.1 percent.

When Obama campaigned for the Presidency in 2008, he called for the ambitious goal of 1 million electric cars on our highways by 2015. When George W. Bush was in the White House, he saw hydrogen as the future energy of the auto industry. By last summer, however, Obama had laid out his goal for the country’s cars and trucks: They would come “with a plug,” Scientific American reported. The stimulus package provided $2.4 billion for development of plug-ins and the advanced batteries needed to power electric cars. At the same time, Obama chopped $100 million (60 percent) out of federal money intended for hydrogen cars. Soon to follow was the Energy Department’s handing out $25 billion in grants to aid car manufacturers and parts suppliers retool with the hope of making more green-efficient cars and trucks. Car manufacturers have long urged the government to avoid picking winners. They weren’t happy about the decision to slash funding for hydrogen production. But the government’s ownership stake in GM and Chrysler just might influence industry decisions.

The federal Loan Guarantee Program (LGP) was slammed by the U.S. Government Accountability Office (GAO) in July for inconsistent or unfair treatment of applicants. The Obama administration had shifted the program into high gear, trying to get billions of dollars worth of awards out the door as fast as possible to support purportedly innovative energy technologies. But the GAO found the program didn’t deal properly with applicants “seeking more than $175 billion in loan guarantees.” A loan guarantee enables a company in the greentech field to fall back on Uncle Sam if it fails.

A Wall Street Journal story last year referenced auto industry researcher J.D. Power & Associates as saying the average trade-in age for cars has crept up to 6.2 years. In 2009, there were 250 million vehicles on the road,  including buses and trucks; 135 million of them were cars. The difference between electric cars and hybrids is that electric cars are categorized as zero emission vehicles (ZEV). Hybrids, with the internal combustion engine as the primary source of power, has a battery of electric cells, which supplies supplementary propulsion. The hybrid is known as a low emission vehicle (LEV). So, it’s not as “green” as electric cars.

Electric vehicle battery plants are under construction in many locations. “Nearly every big-league automaker—and a whole bunch of smaller ones, including startups—has promised to start producing an electric car sometime in the next few years,” writes Sept.13. Billions of dollars are being spent—a lot of money and effort. “But every time I write about the coming wave of electric cars,” writes columnist John Rosevear, “I hear the same question over and over: Is anybody going to buy these things?” Nissan’s Leaf is due –in limited quantities—in the U.S. in December, he noted. It may tell us a lot, he adds. Production starts in 2012 at a Nissan plant in Tennessee, with the help of a $1.4 billion loan from the Department of Energy. The “carefully staged rollout” is to help Nissan “save face (and money) should it be a flop.”

J.D. Power & Associates, the industry authority, forecasts global sales of electric cars at only 300,000 in 2015, with about half being made in China. A spokesman for the firm said calculation of sales of hybrid cars in 2015 is 280,000. The sales forecast for 2015 for electric cars—the plug-ins of Obama’s one million-car dream world is only 140,000. “That’s not even one percent of the number of other cars that will be on the roads in 2015,” he said.

Once again, throwing scores of billions of taxpayer dollars at greenish technology in the faint hope that carbon dioxide can be reduced and politicians thereby can change nature’s climate is being proven in the car industry to merely be a grand delusion.