When Illusions Confront Reality

The illusion of the electric car replacing the internal combustion engine didn’t begin with President Obama but he gave it a big boost with his $800+ billion stimulus package. And, crony capitalists were all too willing to take taxpayer money to pursue a grand illusion.  Some no doubt were motivated by the technological challenge but I suspect that most  were just plain rent seekers who enriched themselves without being too concerned whether they could produce an electric car that motorists would  buy.

Over the past four years, the sales targets for electric cars and plug in hybrids have fallen far short of the lofty objective set by President Obama.  Just last year in his State of the Union he predicted 1 million EV sales by 2015.  In the past two years, Americans have bought a total of slightly more than 70,000, and many of those may have been purchased by the government.

There are at least two lessons to be drawn from the big push on electric vehicles.

The first is that forcing technology rarely works, especially if the government is forcing technology for someone else to use.  The problem is not that manufacturers can’t build an electric car.  It is that they can’t build one that is competitively priced with a range that people expect.

Several years ago, The National Academy of Sciences conducted an assessment of battery technology.  It concluded that a major breakthrough was needed to lower the cost of the lithium ion battery from about $1000 per Kwh to $300 which would make an EV cost competitive.  It concluded that no such breakthrough was foreseen.  The NAS conclusions have been confirmed by more recent research.

But that didn’t deter environmental advocates or an Administration bent on changing the way our economy works.  They believe that if you throw enough money at a problem, surely something will come out of it.  What has come out of it has been bankruptcies and little demand outside of the Hollywood crowd.

The sorry state of the EV industry was made worse by a self inflicted wound by the head of Telsa Motors which loaned one of its $100,000 dream cars to a New York Times reporter for a test drive.  The reporter’s test turned into a PR disaster for Telsa and EVs.  The car repeatedly ran out of juice—batteries don’t have a lot of range in cold weather—and ended up being hauled back to Delaware on the back of a flat bed truck.  To make matters worse, Telsa’s CEO got into a public war of words by attacking the reporter’s integrity.  He forgot the old adage that you shouldn’t get into a tiff with a company that buys ink by the barrel.

The second lesson is that if there is enough federal money being thrown around, shrewd business people will find a way to grab it while making themselves appear to be socially and environmentally responsible.  This is a manifestation of the Baptist and Bootlegger theory of public policy. When Baptists were actively attempting to restrict the sale of alcohol, bootleggers were all too willing to support them. Restricted supply left the market to them.

So it is with the EV.  Companies like Telsa Motors, and Ener1, LG Chem and A123 Systems sprung up to make money pursuing the green agenda. The fact that so many of these firms failed is telling.  But, thanks to an Administration who believes it can remake our economy with subsidies, they simply took more skin from the game than they put in while gaining praise for being environmentally responsible.

If Silicon Valley entrepreneurs and others are committed to developing the electric car, they should invest their own money.  Competition in the market place rather than competition for hand outs is where technology and innovation will come from.