The Electric Car Might Be the Perfect Second RideEd Wallace
(This story has been updated to correct an error about the IRS tax deduction.)
"The long-suffering poor will rise up and bless Mr. Edison." —the St. Louis Post-Dispatch, October 6, 1903, on word that Thomas Edison would build a $450 electric car.
It was in 1902 that Studebaker Brothers Manufacturing decided to enter the automobile industry as a sideline to its profitable wagon business. At first, because electrics were then the top volume sellers, the company's owners believed they were the vehicles of the future. One of their first electric cars was delivered to the New York home of Grace Fish, daughter of J.M. Studebaker and wife of the company's executive committee chairman.
Grace's Studebaker's electric car was simplicity itself. To move forward, all one had to do was push the drive lever ahead. On Grace's first outing, a man walked in front of her car and she ran him over. Panicked, she threw the drive lever into reverse, running the man over a second time. Her attempt to dislodge him from her undercarriage resulted only in a third thrashing.
Surprisingly, the man was little the worse for Grace Fish's first outing in her electric car. She parked it there, swearing never to drive again.
Not too long after, electric automobiles were left parked, en masse, across America. The roaring success of the original 1901 Curved Dash Oldsmobile convinced the auto industry that gasoline-powered vehicles stood the best chance with consumers. In 1900 electric cars had been the volume leaders. They were dead 10 years later.
Today, 108 years after Grace Fish's first and last motoring adventure, the auto industry is promoting the idea that this past is our future.
nationwide recharging stations?
Along the way there have been promises of hydrogen-fuel-celled vehicles, turbine engines, natural gas-driven, and hybrid electrics—although, to many automotive engineers, the hybrids promise little more than what smaller, simpler diesel engines could deliver. The latest consensus is that our automotive future will be filled with plug-in hybrids and electric cars. The only question is whether most people will pay the high price of admission.
In the past the American public hasn't taken to smaller cars, much less those that could easily strand people miles from home if their battery discharged completely. Moreover, a common thought is that for electric cars to reach a reasonable level of acceptance, the government would need to build nationwide recharging stations to ease the fears of timid consumers that electric cars won't get them home.
Both fears can be assuaged with knowledge. Electric cars will be as convenient as those powered by gasoline (or the coming natural gas vehicles). Plug-in hybrids don't need expensive new government infrastructure to recharge on the road.
Much has been made about the three top electric cars that will hit the market soon. In order of media impact they're the Chevrolet Volt, the Nissan (NSANY) Leaf, and the Mitsubishi (MMTOF:US) i-MiEV. General Motors has announced the price of the Volt at about $40,000, less the $7,500 federal tax rebate; Nissan has posted an after-rebate price of $25,280; and a Mitsubishi executive has suggested a possible net-after-rebate price of $22,000 for that company's vehicle. In July, Honda (HMC) and Volkswagen (VOW) both promised plug-in hybrids and pure electric cars for the U.S. market within two years.
who wants to buy the cars—and where?
The first dilemma awaiting these upcoming electrics is that the people who could most easily offset the higher cost of compact, electrically powered vehicles are the ones who spend the most on gasoline. By the same token, those whose travel demands make them use the most gasoline are the ones who could least afford the inconvenience of an all-electric vehicle.
The second obstacle, at least for manufacturers, is that they still have no idea who will be the primary owners of these new vehicles, or in what regions the cars are likeliest to succeed. This would be a corporate repetition of the mistakes made when the last wave of electric cars was offered in the mid-1990s.
Recently GM Chairman and Chief Executive Officer Ed Whitacre promised that the Chevrolet Volt would be sold in Austin, Tex. The capital city has well-known environmental leanings (at least for Texas), but the image is not entirely accurate. Families in Austin buy more gasoline per household than those in any other city in America. They're not so green after all, Ed.
For whatever reason, the auto executives' misguided goal is to bring to market a functional electric car that America's self-proclaimed environmentalists will take to heart. So GM, Honda, Toyota (TM) and Ford (F), to name a few, once brought these vehicles to market primarily in California, hoping to tap into the state's well-known green attitudes. After years of offering super-cheap leases on its EV-1, GM found fewer than 500 individuals to take advantage of its "green car" lease offer.
In the mid-1990s, the farthest one could hope to get on the battery pack was 40 miles. It was reasonable to fear leaving downtown Los Angeles and getting stuck in traffic on Highway 101 for hours, with no way to recharge a dying battery. That reality put off most potential buyers and became the most valuable lesson GM learned from its $1 billion EV-1 mistake 15 years ago. It's why the Chevrolet Volt has an onboard generator.
a gas-free run to the store?
In 1955, George Romney, then head of American Motors, gave a speech called "The Dinosaur in the Driveway" about our irrational love of large automobiles that was driving Detroit's profits. One line stands out as the perfect example of Romney's position: "Cars 19 feet long, weighing 2 tons, are used to run a 118-pound housewife 3 blocks to the drug store for a package of bobby pins and a lipstick." Romney, always the good Mormon, couldn't stand wasteful habits.
Now, imagine a world where that quick store run required no gasoline. That's the sole promise of an electric car.
The ideal place to sell electrics is thus in smaller metropolitan areas, where the daily drive to work or to shop is 10 miles or less, there's little traffic congestion, and the buyer is demographically upper-middle-class and educated. Under those conditions there's no reason to fear going out and having your battery become depleted before you can get back home, removing the top objection to electric car ownership.
Using North Texas as an example, electric cars might easily find an audience in Denton or Fort Worth. They're less likely to succeed in Dallas, for the distance and traffic reasons cited above. Already in my Fort Worth neighborhood, two people own electric cars. That's the GEM E4, sold through a local Chrysler dealer. It's nothing more than a glorified golf cart with real street limitations—no doors (they're an option), no air conditioning, and not even freeway-capable.
The next generation of electric and plug-in hybrids will finally bring electric cars up to real-world driveability.
government demand drives innovation
There are critics. Edward Neidermeyer, editor of the website thetruthaboutcars.com, published an op-ed in The New York Times on July 29, trashing the expense of public financing for the upcoming Chevrolet Volt. That simply demonstrated his spectacular lack of understanding as to how technology is often advanced in America.
Jack Kilby's invention of the microchip for Texas Instruments (TXN) in 1958 certainly changed the world. But it was our government's massive demand for chips to further the missile and space races that improved the chip's design—while dropping its price from $32 in 1961 to $1.25 a decade later. Likewise, it was the government's huge investment in creating the world's fastest triggering device for modern weapons in 1966 that turned out the element needed to invent the airbag system for your automobile. One could list pages of government research expenditures for new medicines that have saved countless millions of lives.
Neidermeyer also objects that, for the Volt's $33,500 net price tag, one ends up with less head and legroom than in the upcoming $17,000 Chevrolet Cruze. That logic is specious. It's also cheaper to buy the Cruze than to buy a new BMW 3 Series, but how many BMW (BMW:GR) shoppers would settle for a Chevy compact because it is financially more viable?
Meanwhile, Charles Lane at Slate says taxpayer money is being wasted on electric cars, asking: "Where does the federal government get off spending the average person's tax dollars to help better-off-than-average Americans buy expensive new cars?" Again, the tax facts are not on his side.
Self-employed individuals, or corporations that provide expensive cars to executives, have long depreciated those cars against gross income to lower their tax liabilities. That's assuming they didn't write off most of each lease payment, or take the 50-cent-per-mile, IRS-allowed, mileage deduction. In any case, it doesn't cost the taxpayers a penny. In reducing the tax liability of a high-wage earner's salary, it costs the Treasury Dept. revenue.
car buying: not a logical process
Other critics, such as my friend Robert Bryce, author of two exceptionally brilliant books on the myth of U.S. energy independence, Gusher of Lies and Power Hungry, are critical of the energy conversion rates for electric cars. Many fuel-efficient vehicles, he says, are much cheaper to own.
There is perfect scientific logic to Bryce's arguments, but his position fails to acknowledge the fact that the average buyer doesn't base car purchases on logic. If absolute value and efficiency per unit of energy were the only things people considered when buying a new car, Kia (KIMTY:US) dealers would not be able to keep their $12,000 Rio in stock. Every $91,600 Mercedes-Benz S550 would be rusting on a dealer's lot.
Here's what the next generation of electric cars can do and how their capability differs from that of past cars: They can serve as the perfect second car for families to do local shopping and short runs around town. Let's update George Romney's 1955 speech: "Cars 8-feet long, weighing 1 ton, and using a few cents' worth of electricity can now be used to run a 125-pound housewife 3 blocks to the drug store for a package of whole-grain biscotti and organic lip plumper."
In essence, having an electric car in the family to use just for city commuting means being able to distance the family a little from current and future volatilities in the oil and gasoline market. Not to mention being able to opt out of our nationally mandated ethanol scam. It's not as though Americans are averse to owning more than one car. According to the 2005 Census, more than 21 million U.S. households have more than two cars.
electric cars aren't really "green"
This does not mean that the new electric cars will become a major volume market, now or in the long term. Nor can they replace most families' need for a fully functional gasoline-powered sedan or SUV. Let's say the average family uses 2.8 gallons of gasoline per day in its second automobile. After critical sales volume is achieved, it would take only 6.8 million electric cars across the country to reduce our oil consumption by 1 million barrels per day.
That could take decades—or might never happen. However, even under the most optimistic appraisals (and given the extremely low emissions put out by our modern automotive fleet), it is doubtful that electric cars will do anything to reduce air pollution levels across the U.S. The auto industry's misguided promotion of electric cars as "green" should be moved into the hype category.
I recently spent a short amount of time in the new Mitsubishi i-MiEV in the hot Texas sun. The air conditioner worked well, the acceleration was breathtaking (and sure to cut the vehicle's overall range, if used often), and it was comfortable and highly maneuverable. In short, it was an extremely impressive piece of engineering. After test-driving that vehicle, I suggested to the wife that we place an order for one.
No, it won't and can't replace our 2008 Acura RL, except in fulfilling 100 percent of our local driving. I find it extremely appealing not to purchase 900 gallons of gasoline a year—laced with 100 or more gallons of corn-based ethanol—for our second car.
early Model Ts were expensive, too
This would not be a purchase based on deep-seated environmental concerns. It's simply one small vote for removing us from the crude oil cycle. True, direct savings in gasoline purchases for this second car would amount to around $2,400 annually. In the near future, as oil becomes further constrained and prices again skyrocket (over legitimate supply and demand issues, unlike the speculator-led climb from 2005 through 2008), we could potentially save the entire net price of the i-MiEV in just over five years.
Electric cars or plug-in hybrids are not for everyone. Maybe it's fair to say they will never replace the majority of cars in our automotive fleet. As for their high price, few remember that when Henry Ford brought his original Model T to market in 1908, it cost about a year's salary for the average professional worker. It took six years to bring the Model T's price down to simply half an annual income, and an additional 11 years to further halve that price.
The lease on the upcoming Chevrolet Volt is already set at $100 a month less than that of the failed EV-1 of the '90s. The Mitsubishi i-MiEV costs just a little more than other, likely more substantial, compacts sold here.
The tax argument is wrong. So is the extremely intelligent and accurate "principles of thermodynamics" argument. Buyers of electric cars will cast a simple, one-person vote against Congressional mandates for ethanol, against speculators in the oil market, against wars for crude oil. These will be votes issued with the certainty that in the next decade, peak oil production against demand will likely send gasoline prices to uncontrollable levels. Few will be doing this out of some naïve belief that electric cars will replace gasoline-powered vehicles or will do anything to reduce pollution. It's just that in the end, voting with one's pocketbook has a greater potential to change the country than a vote at the ballot box.
I'm willing to bet that others will feel the same way.