Two Republican Senators, John Thune of South Dakota and Chuck Grassley of Iowa, have sent a letter to Energy Secretary Steven Chu asking about taxpayer loans to Michigan-based battery maker A123 Systems Inc.
A123 Systems, which makes batteries for electric vehicles, has been in financial difficulties and was publicly embarrassed when it was discovered the company had shipped defective batteries to Fisker Automotive. A defective A123 battery caused the failure of a Fisker Karma automobile as it was undergoing testing by Consumer Reports. The recall that followed cost A123 nearly $70 million. At one point, A123 Systems said it might not have enough cash to make it through July.
A123 was the recipient of a $249.1 million grant made through the American Reinvestment and Recovery Act of 2009. While the Obama Administration has not yet said how much of the grant remains untapped, Grassley and Thune indicated they believed there was still about $120 million left.
While Grassley and Thune had sent an earlier letter to the Obama Administration, their most recent inquiry was triggered when Chinese-based Wanxiang Group announced it would make a $450 million investment in A123, raising the possibility the Chinese firm could take ownership of the U.S. company, while that company remained eligible to receive millions of U.S. taxpayer funds. A123 Systems says it expects the first $25 million of the Wanxiang investment as early as this week.
In addition to questioning continuing U.S. government funding of A123 in light of the Wanxiang investment, Grassley and Thune are also concerned about transfers of technologies and jobs to China if Wanxiang decides to convert its debt to equity, which could give Wanxiang an 80% share of A123 Systems. As they correctly point out, the idea behind the grant program was the development of a domestic industry and creation of American jobs.
Elsewhere in the land of electric vehicles, serious questions have also been raised about the viability of Fisker, which was cut off from government funding because it failed to meet certain production benchmarks. Fisker has stopped work on its ex-GM plant in Delaware and just named a new CEO, Tony Posawatz, former vehicle line director for the Chevrolet Volt.
After a much-ballyhooed launch of the Focus Electric, Ford management decided to offer it to fleet customers only.
While the Senator’s motives may be based in partisan politics, the issues they raise are valid. Between government grants and loans and cash pumped in by investors and automakers, billions of dollars have been thrown at a technology that clearly isn’t market-ready and that hasn’t reduced the cost of electric or plug-in hybrid vehicles to a point where they can be considered by the mainstream consumer market.
So far this year, automakers have reported 20,546 sales of pure-electric or plug-inhybrid vehicles. That’s about 0.24% of the U.S. light vehicle market; 2.5 times the volume in the first seven months of 2011. That’s impressive until one learns that more people have bought Fiat 500s than all the electric cars combined. In addition, if all those Volts, Leafs, etc., qualified for the special tax credit, American taxpayers have chipped in more than $150 million, just since January, to help electrics buzz off dealer lots.
An even more instructive look at the EV market is the figures for pure-electric cars, factoring out extended-range plug-in hybrids like the Toyota PHV and Chevrolet Volt. For the first seven months of 2012, automakers sold 4,859 vehicles, down 0.7% from the 4,894 sold in the same period of 2011. The July numbers are actually much worse: sales plunged 48.6% from 932 to 479, mostly due to a 57.6% dive in sales of the Nissan Leaf. Nissan says it is having distribution problems with the Leaf, which went on sale nationwide earlier this year, but the decline in volume following a market expansion may say more about demand than distribution.
| U.S. ELECTRIC AND PLUG-IN HYBRID SALES: JULY 2012/YEAR-TO-DATE | |||||||
|---|---|---|---|---|---|---|---|
| Brand & Model | Jul-12 | Jul-11 | Change | YTD 2012 | YTD 2011 | Change | |
| 1 | Chevrolet Volt | 1,849 | 125 | 1379.2% | 10,666 | 2,870 | 271.6% |
| 2 | Prius PHV | 688 | 0 | N/A | 5,021 | 0 | N/A |
| 3 | Nissan LEAF | 395 | 931 | -57.6% | 3,543 | 4,806 | -26.3% |
| 4 | Mitsubishi i-MiEV | 33 | 0 | N/A | 366 | 0 | N/A |
| 5 | Ford Focus Electric* | 38 | 0 | N/A | 135 | 0 | N/A |
| 6 | Honda Fit EV | 7 | 0 | N/A | 7 | 0 | N/A |
| 7 | Smart forTwo EV* | 6 | 1 | 500.0% | 135 | 88 | 53.4% |
| 8 | BMW Active E | 0 | 0 | N/A | 673 | 0 | N/A |
| All Electric/PH Cars | 3,016 | 1,057 | 185.3% | 20,546 | 7,764 | 164.6% | |
| All Light Vehicles | 1,153,682 | 1,059,601 | 8.9% | 8,425,842 | 7,392,167 | 14.0% | |
| Market Share | 0.26% | 0.10% | 0.24% | 0.11% | |||
| *Not sold in consumer market at this time. | |||||||
There’s talk of increasing incentives and increasing promotion balanced by talk of ending incentives and cutting government investment, but there doesn’t seem to be much talk about the core issues: Is there a valid business case for the electric car as a consumer product at this time? And are there alternatives that can achieve some of the goals identified for electric cars, such as favorable environmental impacts and reduced demand for petroleum as a fuel? The answer to the first question would seem to be no while the answer to the second is a resounding yes.
The negative answer is not solely due to the American experience: the European market for electrics is also very weak, and high European fuel prices would seem to provide a strong incentive.
Consumers, with some justification, do not see an electric car as a viable replacement for a conventional vehicle. Even with the new battery for 2013, the Volt goes just 38 miles on a single charge before it switches over to the conventional engine to charge the batteries. In that mode, the Volt gets 37 miles per gallon, a figure easily beaten by less expensive vehicles. For the majority of real-world daily trips, the Volt can operate in pure-electric mode, fulfilling its promise, but even there it is a $40,000 compact car: a luxury, not a necessity. It’s a niche product that is absorbing money at a rate that is disproportionate to any possible return in terms of environmental benefits or reduction in dependence on foreign oil.
The alternative can be found in the hybrid market where there are now 37 models with combined seven-month sales of nearly a quarter-million units, led by the Toyota Prius family, one of the best-selling models on the market. Sales growth in the segment is more than four times higher than overall growth in light vehicle sales and no federal incentives have been required.
Another segment, though one that has been hampered by manufacturer and consumer perceptions, is clean diesels. Currently just three automakers, BMW, Mercedes and Volkswagen, offer diesel-powered cars and crossovers. American manufacturers offer diesels in some light truck models. Diesels offer improved fuel economy and reduced greenhouse gas emissions and the latest systems offer significant reduction in nitrogen emissions, as well. Due to the fact that most automakers offer diesels in their European car lines, the investment required for adaptation and approval for the U.S. market is not a major financial challenge.
Both of these technologies offer realistic avenues to reach the fuel efficiency goals the government has set for 2025.
Investment, both public and private, into battery and fuel cell technology needs to continue; the high-efficiency electric vehicle is the future of transportation and it will be important for the United States to be a major player in that future. However, it needs to be accepted that research does not operate on a timetable and that not all investments will bear fruit.
As we have seen, the short-term returns from our electric vehicle investments have not met their goals. But it’s because we have set goals dictated by politics, propaganda and quarterly statements, not by reality. In short, we have set ourselves up for failure and have, so far, achieved it.
As a nation, we have a literal Smörgåsbord of resources, like natural gas, and technologies available to reduce our dependence on foreign oil, if that is really what we desire. The same is true for incremental reductions in emissions of greenhouse gases (greenhouse gas emissions are actually easy to reduce: burn less fuel; produce fewer carbon emissions). We need to stop insisting on the one dish that is not ready and feast instead on those that are.
