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Should Congress pull plug on electric car subsidies

By Nicholas L. Cain and Mark J. Perry

Published: Sunday, May 27 2012 12:00 a.m. MDT

In an age of budget challenges, we must scrutinize all government spending — but considering the billions we spend dealing with the health impacts of air pollution, the limits of domestic oil and the security risk of importing it, our support for clean vehicles makes economic sense.

The EV tax credit will phase out as sales increase, so if we want to cut wasteful subsidies, we should reduce outdated subsidies to the fossil fuel industry and redouble our support for clean and green approaches.

Nicholas L. Cain is a researcher and doctoral student in environmental public policy at Claremont Graduate University.

Yes: The market doesn't want them because of price, other problems.

FLINT, Mich. — It's tempting to call the shameful taxpayer subsidy for electric cars — vehicles that are unaffordable for all but a small number of wealthy Americans — this nation's costly little secret.

But it's no secret, and that's the real shame. It's obvious now that electric vehicles can't compete with gasoline-powered cars, even with generous government subsidies.

And for years automotive engineers have documented that the performance of electric vehicles — particularly their short range and battery uncertainty under real traffic conditions — falls short in virtually every aspect.

What's truly shameful is that such disparities have done nothing to change policy. Subsidizing electric vehicles has been a devil's bargain, making the development of other alternative technologies like conventional hybrids and advanced gasoline engines more difficult.

Since 2008, taxpayers have spent or provided loan guarantees of $6.5 billion for electric vehicles. That includes $2.4 billion for battery and electric drive component manufacturing, $3.1 billion in loan guarantees for electric vehicle projects and $1 billion in tax credits for the vehicles.

The price that American taxpayers pay for commercializing electric vehicles is painfully evident in the billions spent on green projects that are driven by politics rather than performance.

Instead of letting plug-in vehicles like the Nissan Leaf, GM Volt and Ford Focus Electric compete on their own against fuel-efficient gasoline-powered cars, the government has used subsidies to create an artificial market that otherwise would not exist.

Using taxpayer dollars to favor one automotive technology over another is contrary to the free-market principles that undergird our economy. Simply put, subsidizing electric vehicles doesn't make economic sense.

That's evident in the lackluster sales of the vehicles. Even with a $7,500 tax credit, GM sold a meager 7,671 electric-hybrid Volts in 2011, far fewer than its goal of 10,000. Nissan sold 9,674 all-electric Leafs.

We won't even come close to President Barack Obama's prediction a few years ago that 1 million electric cars would be on the road by 2015.

The production costs of electric cars have not dropped to make them competitive with gasoline-powered vehicles. The average American can't afford an electric car. Barring a huge run-up in gasoline prices, it would take more than a decade of driving to offset the Chevrolet Volt's $41,000 price tag or even the Nissan Leaf's still hefty window sticker of $33,000.

And the bills can pile up. Unless you're willing to wait eight hours to recharge your car, you'll want a high-speed recharger installed in your home, adding thousands of dollars to the cost. Maintaining an electric car is more expensive than a conventional car, because there are not many repair shops capable of doing the work.

And a battery that costs about $20,000 may last only eight years, leaving customers with a vehicle that has little resale value.

How does the government justify spending taxpayer money to subsidize wealthy Americans buying expensive cars?

Supposedly the price of electric cars will come down as volumes increase, making the vehicles more affordable. But even if the federal tax credit increases from $7,500 to $10,000, as Obama has proposed, and other states mimic California by adding an additional $1,500 tax credit, Americans may not buy electric vehicles because of their shortcomings in size, comfort and range.

The surest way to guarantee a product's failure is to subsidize it. Over time, cars that succeeded in the marketplace have been those that were developed and commercialized without government involvement.

If a technology isn't capable of succeeding on its own economic merits, there's no amount of taxpayer support that will ever make it a commercial success.

Mark J. Perry is a professor of economics at the University of Michigan in Flint, and a scholar at the American Enterprise Institute (www.aei.org) in Washington.

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