Electric Cars: ‘Not Ready for Prime Time’

William O’Keefe, CEO of the George C. Marshall Institute, has a report out on the government’s intervention in the electric-car market. His conclusion:

Political forces, not the market place, are pushing PHEVs into the market through large subsidies in the form of rebates, tax credits, aggressive CAFE standards and perhaps a little coercion. Without subsidies and political pressure, it is doubtful that there would be much demand, except by the wealthy early adopters who want to make an environmental statement.

Using tax dollars to push this technology into the market results in a misallocation of resources, makes it more difficult to reduce the federal deficit, and is not sound energy policy. As noted at the beginning of this paper, there are better ways to address energy, climate and security issues than through technology forcing.

The Chief Executive of Ford Motor Company, in an interview with CEO Magazine, stated “the internal combustion engine has a lot of room for improvement.”21 He went on to mention direct-fuel injection, turbo-charging, integrated electronic, new light weight materials, and improved air flow. J.D. Power and Associates identified other ICE improvements, such as variable valve timing, cylinder deactivation, and start-stop technology. Together these technology improvements could result in a 40% reduction in oil use, according to the NAS. The newest generation diesel engines, although more expensive than ICEs, could also increase miles-per-gallon efficiency by 30% or more.

The government’s track record with technology forcing is not encouraging. A 1983 article in Science reviewed the lessons from government industrial innovation policy. Although the assessment is almost 30 years old, nothing in the intervening decades has changed the validity of its conclusions. In the case of the government “picking winners” or identifying projects that will be winners, the authors conclude, “the historical record seems, for a change, unequivocal. Unequivocally negative.” They go on to say “try(ing) to identify projects that will be winners in a commercial market competition, is always seductive, but the evidence, from our studies and others, suggests that such strategy is to be avoided.”22

Some try to make the case for government intervention by pointing to its role in developing the internet. But, that is a poor analogy. The internet was developed by the Department of Defense to meet specific communication needs. Only then did it move into the commercial market. In the case of the EV, the government is attempting to push a product into the market and use gimmicks to get the consumer to purchase it. That is a dubious strategy.

None the less, the federal government keeps trying. DOE provided Nissan Motors with a $1.4 billion loan to help with the cost of manufacturing the Leaf. If Nissan is convinced that the Leaf is a next generation vehicle, it should be willing to use investor money to demonstrate that, not taxpayer dollars.

The government’s push for electric cars at the expense of supporting a portfolio of technology strategies and its distrust of market forces is a big gamble that goes against history and the power of consumer choice. Whenever the government engages in top down manipulation of the marketplace, there are unintended consequences. And there surely will be this time, even if they cannot be identified at the outset.

The entire report is available here [PDF].

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