Could $462 Billion Get Americans into EVs?

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Americans have yet to be switched on by electrified vehicles. Even with a growing line-up of hybrids, plug-ins and pure battery-electric vehicles, their collective share of the U.S. new car market is barely nudging five percent.

But New York’s Chuck Schumer, the Senate Minority Leader, thinks he has a way to get folks to plug in. Senator Schumer says that if Democrats regain control of Capitol Hill in November 2020 he’s prepared to submit a three-part, $462 billion plan to promote EVs and other zero-emission vehicles, such as those running on hydrogen fuel cells.

The legislation, the Senator suggests, could have a double pay-off. Since most of the benefits would go to those building and buying American-made BEVs, the planned legislation, “could position the U.S. to lead the world in clean auto manufacturing,” he said.

The Porsche Taycan not only marks the German marques entry into the BEV market but also becomes the first electric vehicle to use super-fast 800-volt chargers. (Photo: Porsche.)

On the flip side, EV proponents, environmentalists, and more than a few leaders in the auto industry itself, worry that the very opposite situation may be developing. The US is “absolutely” at risk of becoming a laggard, not a leader in EVs, warns Sam Abuelsamid, a principle analyst with Navigant Research, especially with the Trump Administration’s plans to roll back federal fuel economy standards and California’s ability to set even tougher CO2 mandates.

Right or wrong about the specific plan he’s proposing, Abuelsamid and others say the NY Senator is right about one thing: the U.S. needs a push if it is, indeed, to become a leader in clean, green automotive technology.

There are plenty of other contenders, including Europe where Volkswagen alone is committing $12 billion just for the 50 or so all-electric models it plans to bring to market through its various brands by 2025. European automakers, in general, have gone from being deeply disdainful of battery technology – long preferring their familiar diesels – to embracing it whole hog.

Japanese manufacturers are equally enticed, this past month’s Tokyo Motor Show glowing with all manner of concept and production battery cars. That includes several from Toyota, the giant automaker also confirming that it will roll out a prototype for next year’s Tokyo Olympic Games using potentially breakthrough solid-state batteries. That technology promises to be smaller, lighter, more energy dense and, critically, more affordable so, whomever can scale it up for mass production could rule the EV market.

Nissan was the first automaker to mass market an EV. It’s Ariya concept hints of plans to expand its BEV line-up. (Photo: Nissan)

Right now, however, it’s China that seems increasingly well-positioned to dominate. The world’s largest automotive market last year also became the first country to see sales of more than 1 million plug-based vehicles, about three times the demand in the United States.

For those who want to promote both the development of an electric vehicle manufacturing sector and then create consumer demand, China would certainly be worth studying closely. As its car market came to life at the beginning of the new millennium, there were relatively few controls on emissions. Now, with cities like Beijing and Shanghai choking with smog, regulators have begun moving aggressively. The New Energy Vehicle regulations passed in 2017 put a premium on plug-based technology, with an emphasis on BEVs.

In a country with a hybrid consumer and command economy, meanwhile, federal and regional regulators exercise outsized powers that also give them significant control over who builds which vehicles. And, right now, they’re putting a premium on BEVs and the companies that build them, like BYD and NIO.

The payoff has been difficult to miss, 2018 bringing record EV sales of 1.1 million electric vehicles in China, up 300 percent from 2016 and 55 percent of global demand. Sales in the U.S., by comparison came to a much more modest 358,000.

BYD’s plug-in hybrid Tang is already a hit in China. (Photo: BYD)

But China also provides a cautionary tale. In July, the Beijing government decided to drop its direct-to-consumer incentive program which triggered “the first time we saw a drop in EV sales in many, many years,” said Michael Dunne, a long-time Chinese auto analyst and head of consulting firm Zozo Go. “It is highly likely there will be a shake-out,” he warned, among companies focusing exclusively on electric vehicles, notably including Nio.

The U.S. has also gotten a warning about the double-edged sword of incentives. When Congress enacted incentives for zero-emission vehicles, they put a cap on the number of vehicles that would cover for any single manufacturer, assuming that, by now, organic demand would take over.

Tesla became the first automaker to test that theory when it topped the 200,000 threshold and, in January, had the maximum $7,500 federal tax credit slashed to $3,750. Sales plunged, forcing the automaker to cut its own prices which, in turn, led it to report a record loss for the first quarter. The incentives were halved again in July and will vanish in January 2020, further straining the automaker’s bottom line – though cost-cutting helped it deliver an unexpected third-quarter profit.

General Motors and Nissan will soon see their federal incentives phased out, raising questions about what will happen to products like the Chevrolet Bolt EV and the Nissan Leaf.

Ford’s Mustang-inspired SUV prototype – shown here in Winter testing – will be its first long-range electric model. (Image: Ford)

There are more homegrown examples of how incentive programs might fall short of expectations. That, notably, includes the Cash-for-Clunkers program Congress authorized back in 2009. A study of what was officially known as the “Car Allowance Rebate System,” or CARS, found it missed most of its objectives. According to researchers Ted Gayer and Emily Parker of the Brookings Institute, the program created only a fraction of the 70,000 jobs targeted by the White House Council of Economic Advisers.

And, from a standpoint of getting polluting vehicles off the road and replacing them with cleaner, more fuel-efficient models, the study concluded that “the cost per ton of carbon dioxide reduced from the program suggests that the program was not a cost-effective way to reduce emissions.”

Could the Schumer plan do better? It offers three goals:

  • Most of the $462 million would be a Clunker-like plan, incentivizing motorists to trade in gas-powered vehicles for American-made electric or hydrogen fuel-cell vehicles;
  • About $45 billion would be invested in the deployment of a nationwide public charging infrastructure, addressing what is often highlighted as a key roadblock to broad EV adoption;
  • Another $17 billion would help fund the retooling of U.S. plants to produce batteries, EVs and hydrogen fuel-cell technologies.

A more carefully targeted program could work, contends analyst Abuelsamid. And, since the incentives would stretch out over as much as a decade, it would give the industry time to not only bring out more appealing products targeting a broader swath of the market, but also to bring to market new technologies, such as solid-state batteries, and drive down EV costs in the process.

Incentives can work, especially when carefully planned and executed. But there are plenty of examples of where they miss the mark. Sen. Schumer will need to show that his plan is more than just a politically inspired band-aid.

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