It's Time to Kill the Car Culture, Drive a Stake Through Its Heart, and Electrify Mobility
Stop debating the viability of electric cars, and work on fixing our broken transportation paradigm.
My friend and colleague John Petersen has it in for the electric car. Recently he wrote a summary of his anti-electric car views, entitled "It's Time to Kill the Electric Car, Drive a Stake Through its Heart and Burn the Corpse." Did I mention he also has a flair for the dramatic?
Many electric vehicle (EV) advocates, or "EVangelists," as he calls them, have tried to refute his arguments. One of the more coherent attempts was "Tesla and the Future of the Electric Car," which I recently reprinted as a guest article on AltEnergyStocks.
I personally find both arguments incomplete. Petersen has a strong libertarian streak, and the thought of wasteful subsidies drives him to distraction. EV subsidies top his list of pet peeves, although he's curiously a fan of government meddling in the transportation market when it comes to CAFE standards. The EVangelists often correctly point out that Petersen is overly pessimistic about innovation, but they focus too much on the potential of innovation to reduce the price and increase the durability of vehicle battery packs. Yet even the true battery experts are skeptical of the rapid advances in batteries EVangelists predict. I find both sides to be too focused on "winning" the argument when what we all should be doing is trying to overcome the very real economic barriers to EV adoption.
Like the EVangelists, I believe in the power of innovation. But it is the nature of innovation to appear where it is least expected. Battery technology will advance, but the innovations which reduce our dependence on fossil fuels for transportation need not be innovations in battery technology. Innovations to our mobility system have the potential to reduce the use of oil far more quickly than than improvements in batteries, even while battery innovation will continues. Such innovations are likely to include potential better battery chemistries and manufacturing, as well as improvements in the rest of the battery, such as better separators, or other changes most of us have not yet thought of.
Those battery innovations we can foresee will only bring marginal improvements to battery performance. As energy efficiency professionals know, giant qualitative improvements come not from replacing a building's components with more efficient ones, but by redesigning the whole system with energy use in mind. The same is likely to be true in our transportation system: just replacing internal combustion engines (ICE) with electric motors leaves all the potential gains from system improvement on the table.
To get some idea what sorts of system changes may be effective, it helps to understand the costs of our current car paradigm, and why simply replacing the ICE with electric drive alone is unlikely to lead to the widespread adoption of EVs.
Most of the objections to electric cars, and certainly Petersen's, focus on the up-front cost of the car, and the difficulty of paying this back based on the lower operating costs of an electric car. The key to understanding EV economics (or "EVconomics") is that compared to the cost of the fuel a gas tank holds over its lifetime, it is practically free, while the cost of a rechargeable battery is comparable or even greater than to the cost of all the electricity/fuel it will hold over its useful life. While ICEconomics is all about the cost of fuel, EVconomics is about getting the most out of the expensive battery, while the cost of the electricity to charge it is relatively unimportant.
A car battery which is only recharged at night will be fully cycled no more than once daily, and probably much less if the car is not driven to its full range every day and may stay in the garage some days. Because of this, it seems unreasonable to expect an electric car battery to go through more than 300 full charge cycles a year, while 200 full cycles per year is probably closer to the real world average for cars charged only at night. Since EVs get between 2 and 6 miles per kWh, while gasoline vehicles (not counting hybrids) get between 15 and 40 mpg, I will use as an approximation that 1 gallon of gas can be displaced by about 8 kWh. That means that each kWh of a battery pack will displace approximately 25 gallons of gas with 200 kWh, and at most 38 gallons of gas with 300 kWh in a year's use. The following chart shows the number of annual savings expected for each kWh of an electric car's battery for different driving/battery recharging intensities.
If electric cars are to become truly mass market, they will need to accommodate drivers who normally only use half of their potential range a day, and don't drive some days (for about 100 full charge cycles per year, represented by the yellow line) as well as the most intensive users with 300 or more full charge cycles per year. The yellow line only reaches breakeven over five years with the most optimistic (many would say unrealistic) battery improvement scenario, and then only with gasoline prices doubling to $9 a gallon, meaning that EVs will not make sense for casual drivers any time in the foreseeable future.
EVconomics of the Urban Commuter
Yet even EVangelists do not consider causal drivers to be ideal electric car users. They tend to focus on the urban commuters. Such urban commuters have regular commutes that allow them to use most of their battery range on a near daily basis (300 full charge cycles per year, represented by the middle green line on the chart.) For this group, a five year payback can be achieved if we assume battery prices falling to a more believable $750 per kWh and gas prices rising to a not-incredible $4.80 per gallon. Yet such intensive usage might reasonably be expected to shorten battery life, meaning that a shorter three year payback might be needed to make the electric car economic. (Note that a battery's life depends not only on the number of times it is cycled, but the depth of those cycles, and how long it is kept at full charge. Keeping a Lithuim-ion battery at full charge or fully depleted can be particularly damaging.) A three year break-even would require either a battery cost breakthrough and gas at $5.20, or significant battery improvement and gas at $7.50 per gallon, which seems possible, but is not likely in the next few years.
In other words, without daytime recharging, significant increases in the gas price and significant reductions in battery prices are required to make electric cars economic for even the most intensive drivers. Only with daytime recharging and average usage of more than a full charge cycle per day (500 full charges per year) do EVs begin to make economic sense with current ($4) gas prices and ($1000/kWh) battery prices. Current prices lead to a five year breakeven at 500 full charge cycles per year, although some increase in the gas price or reduction in battery prices will probably be needed to accommodate the reduction in battery lifetime that would come from such intensive usage.
Societal Benefits and Costs
At this point, it would be easy to conclude that Petersen is right, and EVangelists are high on "hope-ium," since massive improvements in battery economics or massive increases in the price of gas would be required to make EVs economical beyond the small niche comprised of vehicles that can be recharged frequently.
That conclusion would be premature, as it only considers the economic benefit of fuel savings as a possible motivation to buy an EV. If we were only motivated by economics, no one would ever buy a sports car, let alone a Hummer. (Admittedly, no one is buying Hummers anymore, but there was a time in the early 2000s when they were wildly popular.) Most people buy vehicles because of what the vehicle says about them, not for the economics.
In addition to non-fuel economic benefits such as the possibility of using EVs for grid services such as frequency regulation, and the much lower maintenance costs of EVs (bye-bye oil changes and brake pad changes, not to mention trips to the gas station.) Even if EVs are not lower cost than ICEs, they do a good job lowering the volatility of fuel costs, which can be a significant help in budgeting, as monthly expenses will not swing wildly with the price of gas.
In terms of societal benefits of electric vehicles over conventional vehicles, there are
- advantage that electricity is produced from domestic sources, leading to increased economic growth
- the reduction of conventional pollutants in our cities leading to better health,
- less noise pollution
- the ability to use our existing electricity infrastructure more intensively and so get more value out of it
- The potential to reduce the cost of renewable electricity
- traffic congestion
- pollution (even if a vehicle is charged with renewable electricity, that electricity could have been used to reduce the use of fossil electricity if it had not been used for driving)
- traffic accidents leading both to property damage and injuries/fatalities
- increased road maintenance and construction costs
- The potential increases in the cost of electricity
(these may be minimal with smart charging, but could be
I'm not swayed by arguments that it makes sense to subsidize natural gas vehicles in preference to EVs because they currently are a more economic solution. Natural gas vehicles are a band-aid "solution" to the problem of peak oil, as they depend on a limited fossil resource. Natural gas vehicles only delay the day we will have to transition to renewable transportation fuels, and so the necessary infrastructure for refilling natural gas vehicles will only delay the day that we shift to a truly sustainable transportation infrastructure.
It makes sense for society to subsidize a technology to the extent that society benefits from that technology. Natural gas vehicles lack some of the societal benefits of EVs (the potential to lower the cost of renewable electricity integration, reduced noise,) and have more societal costs, namely an increase in the price of natural gas which will be a consequence of increasing demand. As such, the case for societal subsidies for natural gas vehicles is much weaker than the case for subsidies for EVs.
The Right Sort of EV Subsidy
To the extent that the societal benefits of electric vehicles outweigh the societal costs, it makes sense to subsidize their adoption. Nevertheless, there are much better ways to do this than to subsidize the purchase of vehicles. Such subsidies will maximize societal benefit from EVs, not the benefits to individual EV owners.
Any intervention to favor EVs should focus on maximizing societal benefit, not benefits to individual users. From my discussion and chart above, it is clear that there are at least three possible paths to broad EV affordability:
- Increased gasoline prices would make EVs more practical by increasing the incremental savings of using electric drive
- Breakthroughs in battery manufacturing and technology would increase EV affordability by reducing the cost of batteries.
- Increased deployment of charging infrastructure would allow EV owners to recharge more often and receive more benefit from each kWh of battery pack. This would in turn make EVs with smaller battery packs more practical, and bring down the overall cost of EVs.
- Funding EVs for public use.
Increasing Gas Prices
Since driving carries external costs to society (congestion, pollution, accidents, and road maintenance), raising gas prices through a gas or carbon tax not only helps to make electric vehicles more affordable, it makes ICE drivers internalize some of those societal costs. Yet since many of these negative externalities of driving are common to all cars, including EVs, gas taxes are not the most efficient way to address these externalities. A much better way in terms of economic efficiency would be charges based on Vehicle Miles Traveled (VMT), since fuel efficient vehicles (including EVs) create just as much congestion, road wear, and as many accidents as inefficient ones. The best argument for using gas taxes instead is simply that we already have the mechanism in place, and therefor gas taxes would be easier to implement than VMT charges. Gas taxes have the side effect of encouraging EV ownership, but they do nothing to address the societal costs of congestion, accidents, and road maintenance.
On the other hand, in the current political anti-tax climate, raising gas taxes is probably a non-starter, even if it were done in a revenue-neutral way with the increased revenues being used to reduce other, less economically efficient taxes. VMT charges might actually be more politically acceptable, if they replaced existing flat fees (such as vehicle registration and insurance.)
Battery and EV Research
Scientific and technical breakthroughs often hold significant benefits for society as a whole, while investors are seldom able to capture much more than a small fraction of the benefits. Hence, it is easy to justify public funding of research into advanced batteries, since better, cheaper, longer lasting batteries will benefit all of society. Such research funding is likely to be money much better spent than subsidies for individuals buying plug-in vehicles.
As I demonstrated in my analysis of EV economics above, frequent charging can greatly improve the economics of EVs. More frequent charging requires neither uncertain technical breakthroughs nor politically intractable increases in gas prices. Subsidizing the deployment of a network of public charging stations also has much broader benefits than subsidizing EV purchases, because public charging stations benefit current and future plug-in vehicle users, not just the individual EV owner who receives a rebate.
Charging stations on the fringes of the network bring benefits to plug in vehicle owners even if they are never used, because the existence of a nearby charging station gives an EV owner the confidence needed to overcome range anxiety, and hence use more of a vehicle's battery capacity on a given trip, and since such charging points are unlikely to recoup their costs through usage fees, subsidizing charging stations at the edges of the network is easy to justify because their societal benefits are high while their profit potential is low.
One charging infrastructure stock is ECOtality (ECTY), afavored electric car investment of Jeff Siegel at Energy and Capital. Although I think electric vehicle infrastructure is the right sort of investment for society, I'm less sure buying this stock is the best idea for stock market investors. The company has little debt, but is rapidly burning through cash, and seems to be a long way from profitability, with a -127% operating margin (i.e. they are losing more money on every sale than they get in revenue, even before paying for overhead.)
That said, ECOtality's prospects would be greatly helped if government did the right thing and shifted electric vehicle subsidies to infrastructure rather than the purchase of cars. But my faith in government doing the right thing these days is quite low, given the incredible level of partisan bickering, ideological grandstanding, and incredible idiocy which were recently on display in Washington in the form of a game of fiscal chicken played with the possibility of default by our so-called leaders on Capitol Hill in the debt ceiling debate.
If we are going to subsidize EVs directly, it makes much more sense to subsidize EVs used by as many people as possible, rather than those owned by individuals. EVs in public transit make a lot of sense in this regard, since the benefits of lower operating costs flow not to private individuals, but to the all the users of public transit.
The other advantage of electric vehicles for public transit is that many are well suited to electrification. Electrification of rail and trolley bus routes is economic on more heavily traveled routes, as many trains can share the same electric infrastructure. Such routes could be extended short distances at fairly low cost by adding batteries to trolleys and electric locomotives to increase their range onto less frequently used routes without electrification. When these trains or trolleys return to the electrified portion of the route, the batteries could be recharged while the bus or locomotive was still in service, allowing many charge cycles per day, making this sort of EV economic even at current battery prices.
Giving car-sharing services such as Zipcar (ZIP) incentives to use EVs may also make sense since these vehicles are typically rented by the hour and return to a limited number of fixed locations where charging points can be located. Measures to encourage e-bikes among bike-sharing services make sense using a similar logic. Although e-bikes have more associated emissions than traditional muscle-powered bikes, the electric assist on e-bikes opens bicycle commuting to the less physically fit who might otherwise choose to use a car. If even one e-bike ride in five displaces a car journey, there will be a net benefit in terms of congestion and emissions.
Electric drive technology, especially batteries, has not yet reached a point where EVs make economic sense when compared to traditional hybrid electric vehicles or ICE cars. Until it does, the primary drivers of EV adoption are likely to be the intangible benefits to EV owners. Like sports cars and SUVs, EVs are most likely to be bought by individuals who like what EV ownership says about themselves. In this situation, it makes no more sense to subsidize the individual purchase of EVs than it makes sense to subsidize the purchase of granite counter tops.
Yet current economics of EVs do not mean that government cannot or should not take useful measures to promote the transition from ICE to electric drive. Just because today's EV technology is not economic in the context of our current transportation paradigm does not mean that EVs have no potential. Appropriate policy can ensure that EVs both suceed and are a benefit to society as a whole. Nudges such as VMT fees which reduce the societal cost of driving and encourage the use of alternative transport which is more suited to electric drive are one example of such policies.
There are many useful niches for electric drive technology in vehicles that can be charged more than once a day, and better charging infrastructure and support for battery research can make useful contributions to making electric drive an economic and practical part of the solution to the challenge of peak oil which can also help with the challenge of climate change by aiding with the integration of variable renewable energy into the electric grid.