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How PHEVs and EVs Will Sabotage America's Drive For Energy Independence

John Petersen

Yesterday I asked a frequent commenter and staunch electric vehicle advocate whether he ever questioned the ethics of building an EV that can save one owner 400 gallons of gas per year while using enough batteries to build ten Prius-class hybrids that could save their owners a combined total of 1,600 gallons of gas per year. I then spent an hour in stunned silence as the critical importance of that question crystallized in my mind. I didn't get a responsive answer from the commenter, but I did get one of those rare moments of clarity when everything suddenly falls into place.

For years the mainstream media, scientists, elected officials and promoters have written and spoken ad nauseum about how a new generation of plug-in hybrid electric vehicles, or PHEVs, will liberate America from the tyranny of imported oil. The problem is the promises are based on flawed assumptions and utterly false. At their best, PHEVs and EVs are all sizzle and no steak when it comes to national energy independence. At their worst, they are deep cover saboteurs that will undermine America's drive for energy independence while stridently claiming to be part of the solution.

The simple facts

The average American drives about 12,000 miles per year. If his engine meets current CAFE standards and averages 27.5 mpg, the average American will burn about 436 gallons of gasoline and generate about 4.4 tons of CO2 per year.

The Prius is a hybrid electric vehicle, or HEV, manufactured by Toyota Motor Corporation (TM) that carries a base sticker price of $22,750. The Prius has an enviable 10-year track record of slashing gas consumption by roughly 40% through a combination of idle elimination, electric only launch and recuperative braking. It's a marvel of efficiency engineering that eliminates waste wherever possible. Each new Prius uses about 1.6 kWh of NiMH batteries to save the average owner roughly 174 gallons of gas per year while eliminating 1.7 tons of CO2 emissions.

General Motors is getting ready to launch its eagerly anticipated, irresponsibly hyped and largely untested Volt, a PHEV that will use a combination of electric drive and gasoline engine technology to offer 40 miles of electric only range before the gasoline engine kicks in. The Volt is expected to have a base sticker price of roughly $40,000 before tax subsidies of $7,500 per vehicle. Each GM Volt will use 16 kWh of lithium-ion batteries and save the average owner up to 436 gallons of gasoline per year.

In 2010, Nissan Motors (NSANY) plans to launch its highly touted Leaf, a pure EV that will do the Volt one better by eliminating the gasoline engine altogether. The Leaf is rumored to have a base sticker price that will be competitive with the Volt and enjoy comparable tax subsidies. Each Nissan Leaf will use 24 kWh of lithium-ion batteries and save the average owner 436 gallons of gasoline per year.

The following table summarizes the maximum impact that Toyota, General Motors and Nissan can have on gasoline imports for every 48 kWh of battery capacity used in their products:


Vehicle Battery Gas Savings Number Total Annual

Cost
Capacity
Per Vehicle
of Vehicles
Gas Savings
Toyota Prius $22,750 (a)
1.5 kWh 174 gallons 32 vehicles 5,568 gallons
GM Volt $40,000 (e)
16 kWh 436 gallons 3 vehicles 1,308 gallons
Nissan Leaf $40,000 (e)
24 kWh 436 gallons 2 vehicles 872 gallons

I used 48 kWh for this example because it's the lowest common denominator.

Automotive drive-train batteries are scarce resources, which is why President Obama recently announced $1.2 billion in Federal grants to help finance the construction of new battery manufacturing facilities. Despite the scarcity, developers of outrageously expensive PHEVs, EVs and the lithium-ion battery packs that will be used in their manufacture have convinced a gullible Congress that their products, which will only save a little gasoline, deserve huge Federal subsidies while more modest HEVs, which could save a lot of gasoline, deserve no Federal support.

Does anybody in Washington DC have a calculator and the capacity for independent thought?

The battery wars

Much of the blame for the current state of affairs belongs at the feet of lithium-ion battery developers like Ener1 (HEV), Valence Technology (VLNC), Johnson Controls (JCI) and others that have mounted a highly effective PR campaign to convince everyone that lithium-ion is the only battery technology that's small enough and light enough to power a fleet of PHEVs and EVs. Their illusory promise of energy independence coupled with frequent assurances that the cost, performance, abuse tolerance and cycle-life issues that plague lithium-ion batteries will be solved in the immediate future have led to an absurd situation where the Federal government is heavily subsidizing a wasteful alternative that will ultimately sabotage America's drive for energy independence..

I have written at length about the development path lithium-ion battery developers must follow if they want their products to become cheap enough and durable enough for the automotive market. I have compared the performance of lithium-ion batteries with far cheaper lead-carbon batteries being developed by Exide Technologies (XIDE) in cooperation with Axion Power International (AXPW.OB); by C&D Technologies (CHP) in cooperation with Firefly Energy; and by East Penn Manufacturing in cooperation with Japan's Furukawa Battery Co. (FBB.DE). I have demonstrated that lithium-ion batteries are not necessary in micro, mild and full hybrids where a 77 pound weight advantage and 0.7 cubic feet of saved space can't justify $1,250 in incremental battery cost. I have also explained how billions of dollars in existing lead-acid battery manufacturing facilities can be leveraged to facilitate the inexpensive implementation of micro, mild and full hybrid technologies in the U.S. and Europe in years instead of decades without the short-term supply chain constraints that will impede the commercialization of other battery technologies.

In December of last year I wrote that the energy storage sector needs to take baby steps before it can run and I regularly quote a favorite a line from "The Lost Constitution" by William Martin that says, "In America we wake up in the morning, we go to work and we solve our problems." America has the technical ability and the manufacturing infrastructure to implement HEV technology in all new light vehicles within a decade. If we wait for cheap lithium-ion batteries and cost effective PHEVs and EVs, the process will take far longer, cost much more and offer less flexibility to consumers. I strongly advocate the continued development of lithium-ion and other battery technologies because HEVs are not the journey's end and we can do better. We cannot, however, take a giant leap into the future without first taking the reasonable steps that are available and affordable today.

Notwithstanding the deafening drumbeat of hype from mainstream media, academics, elected officials and lithium-ion battery developers, the undisputed facts are that lithium-ion batteries are not ready for prime time and PHEVs and EVs are little more than vanity items for elitists who will happily let up to fifteen other Americans waste up tp 2,610 gallons of gas per year so that they can save 462 gallons by driving a 100% green car. The hypocrisy is appalling.

DISCLOSURE: Author is a former director and executive officer of Axion Power International (AXPW.OB) and holds a large long position in its stock. He also holds a small long position in Exide (XIDE).

John L. Petersen, Esq. is a U.S. lawyer based in Switzerland who works as a partner in the law firm of Fefer Petersen & Cie and represents North American, European and Asian clients, principally in the energy and alternative energy sectors. His international practice is limited to corporate securities and small company finance, where he focuses on guiding small growth-oriented companies through the corporate finance process, beginning with seed stage private placements, continuing through growth stage private financing and concluding with a reverse merger or public offering. Mr. Petersen is a 1979 graduate of the Notre Dame Law School and a 1976 graduate of Arizona State University. He was admitted to the Texas Bar Association in 1980 and licensed to practice as a CPA in 1981.





was posted on AltEnergyStocks.com.


       

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Comments

You have forgotten one example. A fuel efficient car that can achieve say 55mpg. These cars costs less than a Prius and only have a 0.75 kWh lead acid battery. If you do the same sums as above you get 'Gas Savings' of 13952 gallons. Using your own argument we should all be investing in greater fuel economy without hybrid or EV technology. But I think your logic is flawed. The aim is to significantly reduce the reliance on oil. That is only achieved with the PHEV and EV technology.

The solution to our oil energy dependence will require a radical departure from our current path. I agree that the Volt is an illogical concept. All the money invested in the project produced nothing more than an electric car with an on board generator. I also agree that the cost of an EV is too high to even be considered as part of the solution at this time. Urban sprawl enabled by cheap gas has doomed us to a very rough transition that will not be solved by individual personal transportation regardless of how it's powered.

Hey John, Did you see the compliments that your peers are pouring over this piece? As one of the editors of RareMetalBlog, I am still smiling after being instructed by a leader in our industry and one of the touted 'top specialists' on rare metals and REE sending us instructions to 'memorize the last para' from this piece. Great writing John...

Seriously? "The hypocrisy is appalling?" Your article disappointed me in the way it framed the issues. It's not as if the world's battery supply is fixed.

You would do better to complain about how the steel used in Disneyland's roller coasters would be better used in bicycles, by comparing miles/pound of steel.

If the market demands EVs, let them buy EVs. That's the Friedman view of morality, at least.

P.S. I agree with the general principle that the low hanging fruit always gives the best benefit. You'll save more gasoline changing a car from 15 mpg to 20 mpg than a car from 65 mpg to infinity. Why pick the fruit at the top of the tree when there's still so much at the bottom?

Ted, the economics of the low hanging fruit are:

Save 160 gallons per year in a Prius - 1.5 kWh of batteries;
Save a another 200 gallons in a Volt - add another 14.5 kWh of batteries
Save that last 40 gallons in a Leaf - add another 8 kWh of batteries

Wasting one class of resources in the name of conserving another is by definition hypocrisy.

First of all the price quote for Nissan is wrong. It will be between $25,000 and $33,000 (http://www.allcarselectric.com/blog/1034345_nissan-leaf-vice-president-of-product-planning-discusses-pricing).
Secondly - the comparison is irrelevant. In the case of the Leaf - how many resources are saved by eliminating the gas powertrain? Why don't you calculate the tons of steel, aluminum, rubber etc. and the associated oil saved by making a Leaf in comparison with a Prius. How much oil is consumed in making 32 Priuses in Japan and hauling them over to the US as opposed to making Volts and Leafs right here.
Thirdly - for both the Leaf and Volt there are new battery factories built (right in the US nonetheless). Making a larger battery does not imply exactly that you can make multiple small ones by just dividing their capacity. A somewhat better measure is the cost. A Prius battery is approx 2500, a Leaf (estimated based on the above article) is 8000. So you get 3.2 Priuses for a Leaf (and not 16 as you imply). In that case the number of gallons of fuel saved are almost the same.

So this article is complete BS - but what to expect when it comes from a lawyer :)
Study some engineering and then post.

Business people must tap the best law firm to assist them in their venture to take their businesses else where. They must ask how to properly process their business filing at the Security and Exchange Commission.

John,
While I agee that PHEVs and EVs are hard to justify on pure economic grounds, your agrument above makes two glaringly large implicit assumptions:

1) The number of vehicles per household will not respond to rising gas prices or rising vehicle prices.

2) The number of miles driven will not respond to rising gas/vehicle prices.

If both of these drop dramatically through the greater use of mass transit, and more car sharing (either within households or through formal car-sharing services,) the trade off between 1 EV and 10 Priuses is not so stark. So long as that one EV is used 5 times as much as any of the Priuses (easy with a formal car-sharing service) then the EV will deliver the most economic security benefit.

The net benefit from an EV bus used for mass transit will be even higher.

All this ties in to Jock's comment. We will have to change the way we use cars.

Of course, this is a look at battery cost in isolate. The more apt analysis should focus on total drive train cost. As autos transition from ICE to EV, the balance of drive train cost (ex-battery) will ramp down, so that you may very well get a better fuel savings per economic resource (dollar) expended. In either case, a PHEV like the Volt is probably a waste of engineering resource (unless it helps drive battery technology improvement and manufacturing ramp).

vvd, I beg to differ. the article you linked to says:

"Though the Nissan LEAF's price is not set in stone yet, Dominique further hinted at its price stating that he estimates it will come to market between $25,000 and $33,000. The range is significant, but Nissan has not decided if the battery price will be included with the purchase price of the vehicle. The numbers above may suggest that with the battery pack included, the LEAF will cost $33,000, without the battery pack which could be leased or purchase separately, the LEAF will cost $25,000.

A $40,000 sticker price for the Leaf with a $7,500 tax credit gets you to $32,500 battery included, which is awful darned close to $33,000 in my book.

This is an exercise in battery economics, ethics and government policy. If the government is going to subsidize 24 kWh of batteries and has to choose between subsidizing one Leaf or 15 Prius class hybrids, as a matter of national energy policy the option that saves the most gasoline in the aggregate must win. With total combined gasoline savings of 400 gallons per year for a Leaf or 2,550 gallons per year for 15 Prius class hybrids there is no contest.

All of the HEV, PHEV and EV battery packs consist of hundreds or thousands of cells that are assembled into a pack. They are absolutely fungible commodities.

I spent 7 years studying economics and ethics and certainly know enough about engineering and the battery business to explain them. I don't need to be able to do the work.

Tom, I can't disagree that the way we act in the future may be significantly different from the way we act today, but until the changes come assuming their shape and structure is a real stretch.

Ben, the Federal tax incentives are based on the battery capacity built into the car. If Federal policy is designed to minimize national oil consumption there is only one possible answer, you subsidize the vehicles that save the most oil for each kWh of battery capacity.

You are a brave man for opening the ethics can. There are a multitude of worms in that can, and some of them are quite large. As I have no desire to attract the likely arrows by joining that fray, I will adhere to more factual issues.

An equally concerning, related issue is the extent to which NiMH and Li batteries, and the permanent magnet electric motors, expand our dependence on other countries for Rare Earth Elements (REEs). REEs are critical in these and a wide variety of other products. China's statements just last week regarding restricting export of REEs should cause serious concern. This further supports your argument. But, it also argues for greater emphasis on high efficiency ICE vehicles, for example the new VW Polo with projected MPG on par with (better than?) the Prius.

I did not initially intent to get involved here but might as well - it's gotten too interesting.

Two points John:

1) You would be hard pressed to prove beyond any reasonable doubt that the intent of the Obama Administration's passenger vehicle policies, as reflected through the ARRA grants, is to only or mostly wean the US off of foreign oil. There is a strong industrial policy motivation underpinning those grants that weighs just as much - if not more! - than environment and energy independence considerations. In order to appropriately appraise the federal government's polices in the clean transportation realm, you must broaden your analysis beyond only gas savings per kWh of battery. Otherwise you are, in effect, setting up a reverse straw man - confining your analysis to the point where you can't be wrong. If in 10 years time some of the more challenging battery chemistries have evolved through innovation to a point where they are ready for prime time - a scenario you have identified as highly likely in past articles - and if, moreover, the US manages to get a fair share of the global market, then the policies will have been at least partially successful eventhough they might have come at the expense of greater fuel usage per kWh of battery dispensed initially.

2) Now you're going to say that predicting the future is impossible and that you are not in the business of looking into crystal balls, but rather in the business of analyzing cold, hard facts as they are today. However, falling back on the argument that because forecasting is fraught with uncertainties we should confine our policy-making only to what we know to be true today is as problematic, in my view, as relying too much on what the "future" can deliver. In making public policy, we expect our elected officials to weigh both sets of circumstances: present and future. IF it is true that some of the more complex battery chemistries can deliver significant benefits in the future in the form of reduced pollution and lower gasoline usage, than it would seem rational that they get at least some policy focus even though they may seem inferior to an existing alternative on one very specific metric.

In a nutshell, while your analysis - as always - yields very important insight for investors, it's only partially useful to policy-makers because you ignore a broad range of factors that are critical to making successful public policies.

Mike, the immortal Will Rogers once quipped "There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest of them have to pee on the electric fence for themselves." Guess what I did?

I am seriously concerned about short-term supply constraints on REMs and find that Jack Lifton who frequently posts on Seeking Alpha is a treasure. It's my understanding that Toyota is so concerned about REMs that they've funded a new mine in Vietnam and are angling for ventures in Canada.

Charles, I couldn't disagree with a word. These issues are extremely complex and the national security aspects are among the most important. As a matter of economics, the US cannot afford to continue shipping hundreds of billions of dollars overseas for oil purchases. It's the biggest single drain on American productivity and responsible (IMO) in large part for the market collapse last year. Energy independence is not the only thing, but it ranks right up there with oxygen.

John, you said: "until the changes come assuming their shape and structure is a real stretch."

I agree we don't know what the changes will be, but assuming that there are no changes, as you have done, is still assuming we know what will happen. I think it's safe to say that rising fuel prices will lead to lower miles traveled, and that higher vehicle prices will lead to lower vehicle ownership. How much lower is anyone's guess, but assuming no change is almost gauranteed to be wrong.

Putting aside what we don't know, I see your argument as saying that government subisidies should be targeted at more cost effective measures, in this case HEVs rather than PHEVs... even better would be to focus subsidies on higher milage vehicles, regardless of the technology.

I totally agree with that. Unfortunately, such subsidies are not popular: consider what might happen if solar PV subsidies were all redirected to energy efficiency, a move which I would consider analogous to redirecting PHEV and EV subsidies to high milage vehicles.

In the end, subsidies for PHEVs and EVs are more the "art of the possible" (i.e. Politics) rather than the art of the practical.

Agreed. But in this case the art of the possible is feeding the birds by giving the horses more oats.

"Ben, the Federal tax incentives are based on the battery capacity built into the car. If Federal policy is designed to minimize national oil consumption there is only one possible answer, you subsidize the vehicles that save the most oil for each kWh of battery capacity."

Absolutely no dispute that subsidizing smaller batteries in mild hybrids would yield the largest short-run fuel savings per dollar spent. However, I think that's a false assumption as to the intent of Federal policy. The subsidy is intended to stimulate investments in industry. And hopefully that will yield higher long-term fuel savings on an NPV basis.

Ben, as Tom and you correctly observe, the policy implications go far beyond energy independence and include some very serious national security and even balance of payment concerns. That being said, you don't stimulate a robust battery industry by excluding 95% of the potential customers because their paychecks are not large enough to afford a PHEV or EV. There are also very serious issues about the amount of fuel PHEVs and EVs actually save by the time you take fuel used in power generation into account. I'm not done with my research yet, but I am terribly underwhelmed with the data I've analyzed so far. So stay tuned, this debate is far from over.

There really is a simple solution to the stupidity of PHEVs and EVs and it will require no intervention at all. It's called market forces. I know plenty of Prius owners. They bought them because they were relatively cheap when you factor in the roominess, the ride, the efficiency, cost savings and the "feel good" factor.

Not one of these people could afford $40,000 for a car. No matter how much "feel good" hype is attached to it.

The vast majority of Americans make reasonable purchases. They make compromise decisions with their pocketbook.

These cars will be bought by a handful of wealthy liberals and hardcore treehuggers and the sensible Americans who want to make a difference but be reasonable about it, will keep on buying the Prius.

The analysis assumes that battery capacity is the constraint. Is that true. Isn't there a possible scenario where the price of oil would make it the constraining resource? I remember seeing one of your posts which has a CNN video talking about 3 digit oil prices per barrel.

One major point which is not covered by any comments posted here so far, is the additional health benefits gained by using EV's in cities.

Not only will the exhaust gases disappear, making the air you breathe healthier but noise pollution will also fall dramatically.

Eventually, these will lead to reduced health costs as a side benefit of EV usage.

Employment will also be generated as new power systems will need to be installed to provide charging points in car parks, etc.

Car rental could take on a whole new meaning...ride your bike to the supermarket, buy your groceries, load them in a EV rental, drive home and unload, take the ev back to the store and ride your bike home...you can't get much greener...and you stay healthy with the exercise from riding your bike, or even walking.

Thanks for sharing this information with all through your blog site.Its always fun to visit here.Keep posting.

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