Why Are We Subsidizing Obsolete Electric Car Technology?

We now have had some time to digest the groundbreaking news from General Motors that it is working on a “Tesla-Killer” electric car that will get 200 miles on a charge and cost about $30,000. The most obvious takeaway is that the news is more unfounded green hype from GM, something that they have been guilty of in the past when they over-promised on the Chevy Volt. The best indicator of how serious a challenge to Tesla the new report really is would be found in Tesla’s share price, which has gone from about $165 a share at the time of the news to the current price at around $185. While that barometer would give the indication that GM is once again exaggerating the potential for its latest green miracle car, let’s assume that the technology to develop a car that goes 200 miles on an electric charge at a price of $30,000 really is not too far off.

An important question develops if we make the assumption that electric vehicle (EV) technology will make the leap in the near future to produce such vehicles as described by GM. Why are taxpayers subsidizing the current generation of EVs which are obsolescent? In GM’s own vision of an American fleet of cars that can go 200 miles on a charge at a cost comparable to gas-powered vehicles, the admission has to be made that cars like the Chevy Volt and the Nissan Leaf will quickly become the dinosaurs in the green auto segment.

GM is envisioning a new battery technology that differs greatly from the hybrid, lithium-ion based system utilized in the Volt. Any taxpayer money spent on the current technology does not translate into a faster arrival for a new battery technology. It is most likely that the present versions of EVs will be replaced, not improved upon. Arguably, if GM did not produce the money-losing Volt, it would have even more money to invest in developing a feasible EV of the future.

The Volt has already been one of the fastest depreciating cars on the market as GM had to cut prices and raise the amount it loses on every vehicle sold so that demand for the vehicle could be artificially manufactured. What will happen to the value of the tens of thousands of Chevy Volts that become obsolete? Look for GM and/or government-owned Ally Financial to have to absorb losses on leased vehicles that are eventually returned and worth much less than what their residual values were calculated at. And the enthusiastic green ideologues that outright purchased their Volts will have a rude surprise when they trade the vehicles in for a fraction of what they paid for them.

Most disturbing and illogical of all is the fact that taxpayers are paying for an obsolete technology that has done nothing to lower the price of gas at the pumps. The billions of dollars in subsidies for the current generation of EVs have done practically nothing to improve the environment or lessen America’s oil dependence. Only out of touch politicians and green energy extremists could possibly think that this is money well-spent. The fact that the general public is only fed deceptive hype by companies like GM, which is still managed by Obama appointees, helps to ensure that a true debate about EV subsidies will never happen.

The federal subsidies for Chevy Volt sales in August alone cost taxpayers about $25 million. Assuming a realistic sales goal for all EVs of 10,000 a month, the annual cost to taxpayers climbs to close to a billion dollars a year. This excludes state subsidies which add to the bill. As sales grow, so grows the cost to taxpayers. Consider that we will likely get to President Obama’s goal of a million EVs on the road in a few years (about the time that new technology should arise) at the cost of $7.5 billion in federal subsidies. The only beneficiaries seem to be the wealthy buyers of the cars (which can cost upwards to over $100,000 for a Tesla Roadster) who receive the $7,500 federal tax credit.

GM and its shareholders are not being helped by the subsidized Volt sales. The company loses an undisclosed amount with every sale. The number of EVs being sold is too small to make an impact on America’s oil consumption, as proven by current prices at the pump. There are still environmental concerns with the manufacturing and disposal of volatile lithium-ion based batteries. Despite all of the drawbacks to pushing a perceived green technology on the public before the technology is ready, the costly push continues.

To be fair to automakers like GM that offer money-losing EVs to the public at the expense of taxpayers, the companies have little choice as they are forced to meet rising Obama Administration fuel efficiency requirements. Unfortunately, the technology does not currently exist to build electric vehicles that are efficient enough to be both profitable and offer enough value to succeed in the free markets without taxpayer handouts.

I don’t expect an end to the insane subsidization for the current field of obsolete EVs. When the eventual arrival of feasible technology for alternatively-powered vehicles comes, the billions of taxpayer dollars spent on the previous failed generation will be as gone and forgotten as cars like the original Chevy Volt, whose initial claim to fame was being able to go about 35 miles on an electric charge before getting around 30 MPG on premium fuel at the price of $40,000. We will then be left to wonder why anyone thought that was such a great accomplishment in the first place.

Mark Modica is an NLPC Associate Fellow.