Electric Vehicle Subsidies: On the Road to Nowhere

“In the late 1890s, at the dawn of the automobile era, steam, gasoline, and electric cars all competed to become the dominant automotive technology. By the early 1900s, the battle was over, and internal combustion was poised to become the prime mover of the twentieth century.”

-David Kirsch’s The Electric Vehicle and the Burden of History (2000)

“The credit is in fact working. It just needs a little more time.”

-Genevieve Cullen, Electric Drive Transportation Association (July 2019)

Milton Friedman once remarked: “Nothing is so permanent as a temporary government program.” He also observed that so-called infant industries protected by the government “never grow up.”

Both insights apply to federal policy toward plug-in electric vehicles, specifically the up-to $7,500 per vehicle tax credit introduced in the Energy Improvement and Extension Act of 2008, as modified by the American Recovery and Reinvestment Act of 2009.

The decade-old federal credit is phasing out as each manufacturer records 200,000 in sales. Tesla reached this threshold last year, followed in April by GM (Chevy Bolt and Volt). With other automakers on the brink, the drive is on to—you guessed it—extend the “temporary” tax inducement.

The Driving America Forward Act (H.R. 2256; S. 1094) would raise the sales cap to 600,000 with a slight decrease in the credit to $7,000 per vehicle beyond the first 200,000. The extension is supported by Toyota, Fiat Chrysler, BMW, Ford, Tesla, General Motors, Honda, Volkswagen, as well as environmental groups and electric utilities.

“The credit is in fact working,” stated Genevieve Cullen of the Electric Drive Transportation Association. “It just needs a little more time.”

Why extend the credit? Because, admitted Gil Tal, director of the Plug-in Hybrid and Electric Vehicle Research Center, University of California–Davis: “When we sell a $40,000 car, the sensitivity to the incentive is much higher.” In plain language, EVs are too expensive for many buyers and renters without the subsidy.

Subsidy Squared

The federal tax credit for car buyers is only the most visible subsidy for EVs. Other government favors and requirements include:

• State rebates and/or other favors (reduced registration fees, carpool-lane access, etc.) in California, as well as in 44 other states and the District of Columbia.
• Tax credits for infrastructure investment, a federal program which began in 2005 and, after six extensions, expired in 2017.
• Federal R&D for “sustainable transportation,” mainly to reduce battery costs, averaging almost $700 million per year.
• Credit for EV sales for automakers to meet their corporate fuel economy (CAFE) obligations.
• Mandates in California and a dozen other states for automakers to sell Zero Emission Vehicles—a quota in addition to subsidies.

A hidden government subsidy is the virtual absence of retail taxes comparable to gasoline and diesel, which account for approximately 18 percent of the total price. It is speculated that EVs will be targeted if and when their numbers grow—a potential risk for buyers.

Familiar Criticisms

With such government largesse, EVs still only accounted for 2 percent of US vehicle sales last year (.36 of 17.3 million sold). Left with a price premium, EV buyers are affluent, an example of an upside-down wealth transfer.

A major scale-up of EVs also brings into question the cost and availability of rare earth minerals essential for the jumbo batteries, as Robert Bryce has calculated.

The relatively limited range of EVs between charges, creating range anxiety compared to conventional vehicles, is exacerbated by seasonal temperatures. The American Automobile Association found that at 20 degrees, the average driving range fell by 41 percent in a heated EV. In 95 degree weather, the loss was 17 percent with air conditioning.

“As long as drivers understand that there are limitations when operating electric vehicles in more extreme climates,” warned AAA, “they are less likely to be caught off guard by an unexpected drop in driving range.” Sure enough, a Polar Vortex earlier this year in parts of the country reduced driving range as much as 30 percent.

Environmental Gains?

All these subsidies produce marginal environmental advantages at best. As Amory Lovins once stated, EVs are really EEVs—“elsewhere-emission vehicles”—given that fossil fuels generated almost two-thirds of electric power in the U.S. last year.

Battery production and disposal is the rest of the story that proponents of “deep decarbonization” (electrifying everything in the quest to shift from fossil fuels to renewables) scarcely consider.

Historical Failure

The limitations of electric batteries as an alternative to the internal combustion engine was recognized at the beginning. Thomas Edison advised a 33-year-old Henry Ford in 1896:

Electric cars must keep near to power stations. The storage battery is too heavy…. Your car is self-contained—carries its own power plant—no fire, no boiler, no smoke and no steam. You have the thing. Keep at it.

Eighteen years later, in what was described as “Mr. Ford’s personal project,” the industrialist gave Edison the opportunity to design an economical battery for a new Ford Electric. The experiment failed. The cost and weight of the alkaline battery could not meet the price and range requirements of the oil-powered internal combustion engine.

The burden of history continued in the 1990s when General Motors unveiled the two-seater “Impact” (EV1). Despite a mandate by the California Air Resources Board to jumpstart a market, GM ended up crushing its vehicles for scrap. Chrysler, Ford, GM, Honda, Nissan, and Toyota also ended their smaller EV experiments.

The rise, fall, and fall of electric vehicles (EVs) in the United States is well documented. “No electric car since 1902, regardless of battery or drive train,” concluded one book, “had been able to compete effectively against its contemporary internal combustion counterpart.” The electrics’ burden of history, 117 years old, hangs on by a federal tax credit and other aforementioned non-market policy preferences.

Conclusion

Consumer verdicts for more than a century offer insight for today. Just as proponents of wind and solar to generate electricity want to believe their world is new and futuristic, electric-vehicle interests pretend theirs is new, just needing a little more subsidy and time.

But far from an infant industry, electric vehicles are a mature, deficient alternative to conventional vehicles as judged by consumers. Extended subsidies will simply prolong the uneconomic and require future extensions. It’s time to level the playing field and let the market decide.

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