Government Skewers Its Own Investments In Electric Cars

It's been a bad two days for electric cars.

First, the Congressional Budget Office skewered the government's rebate program for electric car buyers, saying the program doesn't actually do anything to boost electric-car sales. Then Toyota announced it is scrapping plans for a small all-electric car, according to Reuters, because nobody wants them.

And on Tuesday, electric car maker Tesla said it is cutting its 2012 revenue projections because production of its heralded Model S car have been too slow. The same day, Consumer Reports announced they find the $100,000 extended-range electric Fisker Karma to be "plagued with flaws."

Taken all together, the news is making conservatives ecstatic. They've mocked, ridiculed and been downright angry about the money the Obama administration is pouring into hybrid and electric cars. They argue the government is meddling in a market of stuff nobody wants to buy.

"What Obama did was use the power of government money to insert himself into market decisions that he was ultimately dead wrong on," said Ben Howe, a blogger and video producer from South Carolina who made a parody commercial of the Chevy Volt. Although light on facts, the parody demonstrates how some people see the Volt and other battery-powered cars: As a joke.



"The market has spoken loudly and clearly: We're not interested in this," Howe said.

But that might not be entirely correct. The Chevy Volt, which is bolstered by a $7,500 government rebate, had its best sales month in August. (That's also when GM was piling on incentives, which probably helped a lot.) Demand is especially strong in California, which is the Volt's biggest market.

And Tesla said the reason Model S sales are slow is not because of lack of demand. The company has had issues with its suppliers, and has been unable to get all of its parts either done correctly or done on time. The issues have put them four or five weeks behind schedule.

On the flip side, sales of the all-electric Nissan Leaf are sluggish this year, down 31.5% since 2011.

The CBO said its analysis shows that all federal programs aimed at electric cars – including consumer rebates, research and development loans, and other government incentives – will have cost the government $7.5 billion by the end of 2019. Tax credits for consumers, which have the biggest impact on whether or not these cars can be affordable for most people, make up one quarter of that cost.

But many people buying electric cars or advanced hybrids now aren't buying because of the rebates, the CBO said. Many of them could afford the cars even without the tax incentive.

Even supporters of battery-powered cars admit that the cost equation doesn't make a ton of sense right now. But they believe that as more drivers adopt electric cars or advanced hybrids, the price will start coming down. Max Baumhefner, a sustainable energy fellow at the environmental group Natural Resources Defense Council, told the BBC that electric cars are just like other technologies, like pocket calculators and cellphones, which started out expensive and then came down in price.

But he also pointed out there are plusses to owning a car that doesn't run on gas:

"Unlike petrol, the price of electricity doesn't go through the roof every time there's a hurricane in the Gulf of Mexico or violence in the Middle East," he told the BBC. "It's a cleaner, largely domestic fuel; the price of which is heavily regulated." Driving on electricity costs about one quarter the price of gas, he said.

A better way to get people to adopt electric cars would be to increase the federal gas tax, the CBO said, which would drive up gas prices and force consumers to seek out more fuel efficient cars. But good luck finding an elected official who would support that -- American voters have made it clear they won't support anyone who merely suggests we should pay more for gas.


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