The Many Costs of Obama’s Electric Car Folly

Obama/Volt photoIt appears that there is no end in sight to the Obama Administration’s costly quest to electrify America’s auto fleet, despite the recent flurry of reports that continue to confirm that the benefits of electric vehicles (EVs) are practically nonexistent in comparison to the costs. One of these reports even came from Obama’s own NHTSA (National Highway Traffic Safety Administration) panel which downplayed the importance of EVs and claimed that electric cars will only need to account for between one and three percent of car manufacturer’s product portfolios by 2025 for lofty government EPA requirements to be met.

The article on the NHTSA panel findings states, “Despite those findings, the government has willingly shoveled millions of dollars at manufacturers and consumers in a ploy to popularize electric cars.” I would whole-heartedly agree with that, except it has been “billions” of dollars shoveled, not “millions.” And money is not all that has been shoveled as the hype for plug-in EVs like the Chevy Volt misrepresented the potential for the current technology claiming huge demand for a vehicle that was to be a game-changer. The demand has still not materialized, but the costs to taxpayers and consumers continue to climb.

The costs to both taxpayers and consumers are accumulating in many areas, some more obvious than others. President Obama initially dumped $2.4 billion into the EV market in the form of grants (primarily to develop the much-hyped Chevy Volt) back in 2009. Federal tax credits for EVs cost taxpayers $7,500 per vehicle sold. State tax credits add an average of close to $2,000 each. Less obvious is the fact that drivers of EVs are not paying their fair share of gasoline taxes to maintain the nation’s highways.

Consumers of all new vehicles will have to pay the price as well. Automakers are currently absorbing huge losses for EVs, which are still not economically viable. These costs will have to be passed along to buyers as more commercially logical gas-powered cars will have to see price increases to make up for the losses. As reported by and Bloomberg, if automakers do not offer steep discounts on EVs they will not be able to meet increasingly strict state and federal requirements.

Another price being paid that has not been widely publicized is the depreciation cost for cars like the Chevy Volt. As may have been expected, expensive cars utilizing technologies that will quickly become obsolete are depreciating at a rapid pace. The Detroit News reports that used EV prices will fall 30% in 2013. According to the piece, “A 2011 Chevrolet Volt with a manufacturer’s suggested retail price of about $40,000 has fallen in value to about $21,235, or 49 percent of the original value.” Of course, taxpayers absorbed almost half of the losses on a Volt over the two year period that the car lost half of its value.

Actually, most of the EVs “sold” are in fact leased vehicles. In these cases, automakers (primarily General Motors with the Volt) have relied upon subsidized lease terms that put the cars on the road for limited periods at artificially low payments. Taxpayers get burnt, but automakers like GM will have to take back the cars and lose more money when they need to be resold as used cars. This will further hurt resale value for EVs. In the case of GM, government-owned Ally Financial provides the leases and may actually end up absorbing some or all of the losses. It is unclear if taxpayers will take the hit as President Obama continues to try and funnel taxpayer funds to the Volt and GM via Ally Financial. The Administration has shown no inclination to remove taxpayers from Ally, as most of the public is not even aware of the fact that they are owners of the lender formerly known as GMAC.

Ironically, one of the losers of the EV folly is the green agenda itself. As a misguided and costly focus is placed on an attempt to force unpopular EVs on the public, other viable technologies may be getting ignored. As automakers are forced to develop EVs as a solution to governmental requirements, natural gas vehicle technology development falls to the wayside. It is unclear if natural gas is the answer, but shouldn’t alternate technologies that might be more economically viable than EVs be considered?

The Washington Free Beacon reports that the Congressional Budget Office (CBO) has admitted that EVs will need continued tax subsidies to have a chance of success. Absurdly, these subsidies will have to remain in place until 2020 and gas prices will need to be high for cars like the Volt to be competitive. From the article, “American gasoline prices would have to reach approximately $6 per gallon for a 16-kilowatt hour vehicle, such as the Volt, to reach price parity with gas-powered cars in its class (…) it would take approximately $12,000 in tax credits for the government to completely offset the steep price of hybrid technologies.”

If the government continues its illogical campaign to pour money into the EV market, which can not survive on its own merits, the ultimate cost will end up being in the hundreds of billions of dollars. Worst of all, there will be no significant benefits of doing so. In fact, development of alternate technologies which should be allowed to develop in the free markets is being hampered; technologies that might have more benefits to reducing emissions and lowering oil dependence. Washington should cut our losses and stay out of trying to pick winners and losers in the field of alternative energy technologies, particularly when billions of taxpayer dollars are at risk. They’re just not that good at it.

Mark Modica is an NLPC Associate Fellow.