My post on the problem of subsidies for electric cars here the other day prompted a vigorous discussion in the comment thread, much of it about things I didn’t say.* Let me step back and reset the discussion with a few broad propositions about the subject before introducing something new.
1. Electrification of our overall energy use is a trend that has been under way for some time, and will continue. For example, back in the 1970s almost three-fifths of America’s end-use energy consumption came in the form of fossil fuel combustion. Since then we’ve been steadily electrifying, such that now the fossil fuel share is down to something like two-fifths. The electrification trend has occurred chiefly in the commercial, industrial, and residential sectors of the economy. Transportation has been the last sector of energy use to electrify because of the difficult problem of the severe limitations of battery technology.
2. Electric cars are probably the future, though that future may be a while off yet, and may depend more on the revolution in self-driving cars than in large breakthroughs in batteries, in which lots of urbanites will decide not to own a car at all, but will use Uber-like self-driving cars which can be rotated from a constantly recharging fleet. (And that assumes that Amazon doesn’t eventually deliver absolutely everything to us at home—including food—in self-driving robotic units, which would cut down a large number of trips we take in our cars today. Aside: Skynet smiles.)
3. Teslas are really cool to drive. Electric cars do deliver vastly superior energy conversion to the wheels, which is why the acceleration in a Tesla is fantastically fast—comparable to a high end Porsche or even a Maserati. But notwithstanding the new Model 3 being sold at a cheaper price (and probably at a loss), Tesla still loses money, and depends on an endless appetite for new capital to keep going. Will investors continue to pour money into Tesla? Maybe. I don’t count them out. But the business model has to change if this is really going to work.
I think we are more likely to see mass market electric cars from the traditional Big Three auto makers in the fullness of time, because they can absorb the losses through their sales of high-margin SUVs. It used to be claimed that GM lost money or broke even on Corvettes, though I do not know for certain if this is or was ever true, but the point is, a diversified product line allows more room to innovate with cars than a single-type manufacturer like Tesla.
4. Whether cars or any other energy use, the long-term success depends on the technology being scalable without subsidies. Full stop.
5. The cost of battery technology, Tesla claims, has fallen by 75 percent in recent years, and needs to fall further to be cost competitive with fossil fuels. But almost no one ponders this dilemma: if we continue making progress on lithium battery technology (the main battery technology for the time being) such that it is competitive with fossil fuels in the marketplace without subsidies, the demand for lithium is going to soar, because we’ll want to use it for other things in addition to cars. For one thing, better battery technology for base load storage is essential to making wind and solar power more scalable.
How much? A 1000x increase in lithium demand is not at all out of the question. Is there sufficient global supply? Will environmentalists support vastly expanded open-pit mining to produce all that lithium? (That’s the easiest question to answer: No.) In other words, we may be swapping one extracted resource constraint (oil, gas, etc) for another.
6. It is far from clear that even electric cars are the slam dunk environmental winner that its cheerleaders say. Aside from the fact that at present the electrons that go into the battery in many states (Ohio, Indiana, etc) come predominantly from coal, a number of wells-to-wheels life cycle analyses show that the total environmental impact of electric cars is surprisingly high. Tradeoffs are a bitch, and if there’s one thing environmentalists don’t do, it’s tradeoffs.
Which brings me to today’s terrific article on electric cars by Greg Ip in the Wall Street Journal: “Electric Cars Are the Future? Not So Fast.” Do read the whole thing if you have a subscription, or access it through Google here. Some samples:
Many optimists think falling battery costs mean electric vehicles (EVs) will inevitably displace the internal combustion engine (ICE). Last week, Bloomberg predicted electric cars would become “price competitive” with ICE cars in eight years without subsidies.
But such scenarios hinge not just on the cost of batteries but on the price of oil and the efficiency of competing vehicles. Economists Thomas Covert, Michael Greenstone and Christopher Knittel, in an article for the Journal of Economic Perspectives, estimate that at the current battery cost of $270 per kwh, oil would have to cost more than $300 a barrel (in 2020 dollars) to make electric and gasoline equally attractive. If battery costs fall to $100, as Tesla Founder Elon Musk has targeted, oil would have to average $90. . .
Tesla will find plenty of wealthy niche buyers for its high-priced cars once it exhausts its credits. But for electric vehicles as a whole, hybrids have a sobering lesson. From 2005 to 2010, some hybrid buyers enjoyed a $3,500 tax credit. Sales kept rising after the credit expired, peaking at 487,000, or 3.1% of total vehicles, in 2013, according to Edmunds.com, when gasoline averaged $3.51 a gallon. A surge in oil supply, thanks to fracking, caused gasoline prices to plummet to $2.36 a gallon this year, and hybrids’ market share has dropped to just 2.1%. . .
Electric vehicles are meant to be recharged at night. Economists Joshua Graff Zivin, Matthew Kotchen and Erin Mansur note in a 2014 article in the Journal of Economic Behavior and Organization that night is when electricity is most likely to come from burning coal. They estimate electric vehicles account for more carbon dioxide per mile than existing cars in the upper Midwest, where coal-fired plants are more prevalent, and more than comparable hybrids in most of the country.