Thursday, September 29, 2022

California Leads The Way On Electric Vehicles: But Probably Down A Dead End

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HOLLYWOOD, CA, – JANUARY 16: Actor Leslie Nielsen with his Rolls Royce and Bentley cars at his … [+] Hollywood Hills home January 16, 1992 Hollywood, California (Photo by Paul Harris/Getty Images)

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Clean energy advocates are gaga over California’s new electric vehicle mandates because the size of California’s vehicle market suggests to them that the rest of the nation will have to follow suit, if only because auto manufacturers don’t want to have to segregate markets. The target of 35% of new vehicle sales as zero emission vehicles in 2026 and 68% in 2030 should theoretically cause automakers to shift to overdrive to meet this supposedly laudable goal.

People of a certain age will recall that we have been here before. In the 1990s, California announced a set of mandates for cleaner cars, ultimately reaching a certain market share for so-called zero emission vehicles. (Constructing and powering the vehicles resulted in significant emissions, such that many called them ‘remote emission vehicles’.) Not only were they not derided as overly ambitious—at least by advocates—but many states in the Northeast also adopted them, despite having very different environmental challenges. The figure below shows estimates of zero emission vehicle sales under the mandate, and the actual sales figures for battery electric vehicles (BEVs).

California’s 1990s Mandate for ZEVs and Actual (thousands)

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Based on data from The Keys to the Car by James MacKenzie.

Much has changed, especially battery technology and software, meaning that a current electric vehicle is far superior to those from the 1990s, as the table below shows. However, while many hail the great progress in performance, they did not assail GM’s EV1 for its shortcomings. Hollywood stars like Leslie Nielsen embraced the EV1, although he also embraced Rolls Royce cars which hardly renowned for low greenhouse gas emissions.

Automakers are not immune from irrational exuberance either. After an advance in fuel cell technology in the mid-1990s, some automakers predicted six figure sales within a decade—a target that was missed by a factor of 100. Plans are nice but sales are what matters.

And the evasiveness advocates display over the question of costs is informative. Few actually discuss specific costs but instead talk about how much cheaper batteries have become, without mentioning that BEV prices haven’t dropped at anything like that amount. This is hard to gauge because there are few BEVs with a lengthy sales record, the Nissan Leaf being an exception. Its price hasn’t dropped since introduction, but its range has improved so that it has arguably become 8% per year less expensive. Of course, ICE prices have also dropped by about 2% per year, cutting the advantage. And the Tesla
TSLA
Model 3, touted before introduction as affordable at $35,000, now has a base price of $47,000. Yet when confronted with costs, advocates too often resort to comparisons with cell phone prices, which is rather like comparing, well, batteries and computer chips.

But be wary of excessive skepticism that turns to denialism. Electric vehicles today are admittedly far more capable than those of the 1990s; the figure below compares Tesla’s Model 3 and GM’s EV1 and the progress is undeniable. That said, it remains the case that BEVs are much more expensive and much less capable than conventional vehicles, costing $10-20,000 more for comparably sized cars. Their effective ranges are usually one-half that of ICE vehicles, and even worse in cold weather, while ‘refueling’ is far more inconvenient. Imagine buying a stove that cost more, couldn’t cook the largest meals, and shut down for hours after moderate use.

Comparison of 1990s Vintage BEV and Current

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The lesson: enthusiasm from advocates for a technology like electric vehicles should be treated with extreme caution, and the media’s love of a good story, especially involving whiz-bang new tech, should be largely disregarded. The focus on falling battery prices to the exclusion of car prices and the discussion of proposed models rather than actual sales is more evidence of irrational exuberance than likely success.

And where does this policy lead? The figure below shows a projection of California BEV sales given their market share target and assuming that total sales are stable at 2 million vehicles a year. The 68% market share target for 2030 translates into BEV sales of 1.36 million that year. California has a rebate for BEVs of $7,000, though not all sales are eligible. If all BEVs got the full subsidy, that would be a budgetary hit of $10 billion in 2030. Plus, billions more for charging stations. The IEA has suggested 1 charging station for every 10 vehicles, which means about $5 billion or more to add 140 thousand charging stations, most of which would be slow chargers. But nobody in California complains about taxes or the cost of living, right?

California Auto Sales (millions)

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Finally comes the question of mandates. California believes that if they require car makers to sell a certain number of vehicles, people will buy them. How is that going to work? Will a steel curtain drop on the section of showrooms with ICE vehicles when their quota has been reached? The implication seems to be that automakers will have to ramp up prices drastically for ICE vehicles to make them less desirable. But then, will state troopers stop people at the border bringing in new gasoline cars they purchased in Nevada? I can imagine car dealerships springing up on the Nevada side of the border the way liquor stores crowd the New Hampshire side of the Massachusetts border. But, at least that will create jobs—in Nevada.

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