Why the Car After Your Next Car Will Be an Electric: QuickTake

Source: By John Lippert, Bloomberg • Posted: Tuesday, November 7, 2017

Around the globe, automakers and governments are betting big on electric cars. Plans to limit climate change count on getting more carbon-burning vehicles off the road. The transformation projected is enormous: by 2040, Bloomberg New Energy Finance estimates there will be 530 million electric vehicles in use. There’s only one problem: So far, electric cars have been anything but popular. In 2017, they made up about 1 percent of global sales. The good news? They’re getting cheaper fast and able to go further between charges. Still, it’s not clear how soon the trip from the gasoline present to an electric future will be driven by consumer desire rather than government muscle. It’s a trip that could be complicated in the U.S. by a Republican tax plan.

The Situation

The tax plan introduced by Republicans in the House of Representatives would end a $7,500 per vehicle credit for plug-in vehicles. Auto companies quickly are lobbying against it, and the Senate has yet to introduce its version. A growing number of countries are moving in the opposite direction, by setting deadlines or goals for ending sales of new vehicles with internal-combustion engines. Norway, which is adopting electric cars faster than anywhere else, has a timetable for 2025; France and the U.K. have set deadlines of 2040; and Germany, China and India say they’ll take similar measures, possibly pegged to 2030. California is considering following suit. Its auto emissions rules are usually followed by 10 other states; all together, they make up about a third of the U.S. auto market. China’s intervention will start in 2019, when automakers there will have to meet steadily rising production targets for electric vehicles or buy credits from rivals. Automakers are getting the message. Volkswagen AG announced plans to spend 70 billion euros ($81 billion) to develop electric versions of all its models by 2030 and pay for their batteries. General Motors Co. plans 20 all-electric vehicles by 2023. Volvo will begin phasing out cars that run just on fossil fuels in 2019. Tesla Inc., Elon Musk’s electric-car company, delivered the first of its mid-market Model 3 sedans, although it’s since fallen short of production goals. The extended range version of the Model 3 offers 310 miles between charges. That’s not that much less than many gas-powered cars, though even Tesla’s supercharger can take about 30 minutes to provide a bit more than half that range.

The Background

The first practical electric car manufactured in the U.S. made its debut in 1891; in 1900, about a third of the country’s cars were electric. But cheap oil and Henry Ford’s Model T, which cost about a third of the price of a comparable electric car, established the dominance of internal-combustion engines. Interest in electric cars stalled until the California Air Resources Board began phasing in requirements for automakers to offer low-emission vehicles to fight smog in the 1990s. GM tested electric cars but dropped the experiment after Toyota brought the Prius, a gas-electric hybrid, to the U.S. in 2000. Tesla helped revive interest by aiming to replace electric’s granola-eating image with one of speed and luxury. Early worries about “the long tailpipe” – the idea that electric cars are no cleaner than the fuel burned to generate their power – have eased as power sources have become cleaner. By one estimate, a battery-powered car in the U.S. produces only about a third of the carbon dioxide as a car that runs on gas, a figure expected to fall as solar and wind power more of the grid. A shortage of charging stations remains a daunting hurdle, although California utilities have asked for more than $1 billion in rate hikes to pay for installing them and a partnership among automakers plans to establish 400 on European highways by 2020.

The Argument

There’s little disagreement that in the long run, electric vehicles will be seen as better than their internal-combustion counterparts – more reliable as well as cleaner. And plunging battery prices mean it won’t be too long till they’re cheaper – that could happen as soon as 2025, according to BNEF. Still, car companies worry about mandates like China’s production targets putting them ahead of “raw consumer acceptance,” as GM CEO Mary Barra said in a speech in Shanghai in September. They also want what she called a “continued joint effort” with governments. That means subsidies. But even with the $7,500 federal credit, GM is losing $9,000 on every Bolt electric car it sells in the U.S. Wiping out the credit would likely hit Tesla hardest, since it’s trying to pitch its new Model 3 to a broader market, and doesn’t have the deep pockets of bigger rivals who could make up losses temporarily. Green-minded Denmark this year gave an example of how sensitive consumers are to subsidies: Sales of electric vehicles fell 60 percent there in early 2017 after the government said it would phase out their tax exemptions. Globally, other factors will also play a role: The self-driving cars that automakers plan to introduce in large numbers in the next decade work better with electric engines. And China sees its dependence on oil as a significant national security risk.