Doubling down on electric cars?

I felt like taking on a sacred cow for my latest column at The Week, and so I chose … electric cars.  They’re quite the rage in green circles, and certainly with the Obama administration, but they’re hardly alone in that.  The Bush and Clinton administration put efforts into R&D for electric vehicles in order to end our dependence on foreign oil and curtail emissions in order to improve our environmental outlook.  And it’s not just liberals, either; longtime conservative activist Gary Bauer has signed onto the Energy Security Leadership Council along with two former generals and FedEx’s CEO Fred Smith to push for policies favoring electric vehicles.

But do electric vehicles make sense for energy independence, environmental improvement, or just plain common economics?  I argue no:

The life span of car batteries in electric vehicles will run as short as three years, possibly as long as eight years. At that point, consumers will have to buy replacements in order to keep the vehicle operational. For the Nissan Leaf, that will cost about $10,000, at least as predicted now. Car owners could rebuild their internal combustion engines four times over for that price.  …

Where do we plan to put all of the dead batteries that will necessarily have to be discarded? Some (but not all) components can be recycled, and those elements which must be disposed are not terribly eco-friendly, depending on the kind of batteries made. Lithium ion seems to be the direction most car manufacturers are heading, which poses fewer disposal risks to the environment — but still poses risks in mining and manufacturing, especially to groundwater.

Lithium also poses another blow to the argument for the electric car — its domestic availability. Eighty-five percent of the known reserves are inBolivia, Chile, and China, and lithium is not the only element needed for large-scale production of car battery systems. Large flake graphite is also needed, and China controls 80 percent of the market, along with other “rare earth” elements. Far from ending our dependence on foreign resources, we will merely exchange our dependence from the Middle East to China, which is not exactly an encouraging thought for our future.

Even if we did have these elements in abundance, we would need to mine and drill for them. Those are precisely the activities that environmentalists and short-sighted government policies have been blocking for decades in coal, oil, shale, and natural gas. Besides, “peak lithium” may arrive long before “peak oil,” as the Argonne National Laboratory estimates that we only have enough lithium available to manufacture car batteries through 2050 — less than 40 years from now. A lithium “crunch” could occur by 2017 — which also hardly lends confidence to the reliability of the electric car as a long-term solution.

And where do we get the electricity to charge millions of vehicles?  We’re already having problems with the electric grid, a point that seems to come up a lot in political campaigns but not much in actual governance.  Instead of deriving energy through gasoline through internal combustion, car owners will have to pay electric companies to provide the juice.  Those providers will have to build new production plants to supply it.  What sources will those plants use to generate electricity for the millions of new vehicles that will need a charge?  Right now, the only resources that could supply that massive level of need would be coal, natural gas, and possibly nuclear power, none of which environmentalists want used for electricity now.

Take a stroll through the comments at The Week if you get the chance, too.  Several commenters said that with this attitude, we’d still be driving horses and buggies.   The difference is that the automobile was a private-sector solution for personal transportation needs, not a government program for environmentalism. The car didn’t require decades of subsidies and policy barriers against its competition in order to succeed; it succeeded on its own terms, in both economics and in the needs of the consumer.

Consumers seem to already understand that, as the sales of Chevy Volts and Nissan Leafs have been less than spectacular.  In some cases, they may also be part of a three-card monty to hype the vehicles and stick some money in the pockets of dealers — at taxpayer expense [see update 1 for GM, Nissan response]:

But I discovered something far more disturbing during my search. Many Volts with practically no miles on them are being sold as “used” vehicles, enabling the dealerships to benefit from the $7,500 credit supplied by the American taxpayers on each car. The process of titling the Volts technically makes the dealerships the first owners of the vehicles, which gives them the ability to claim the subsidies.  The cars are then offered to retail customers as “used” vehicles.

The practice of dealerships purchasing from one another is not uncommon. “Dealer trades” are done all the time in the industry. What is very unusual is for the receiving dealership to be able to maximize profits at the expense of taxpayers by claiming tax credits of $7,500. It is also very rare for dealerships to part with any model that has higher demand than supply, as GM claims is the case with the Volt. In addition to qualifying dealerships for a $7,500 tax subsidy, the titling process also allows GM to record Volt sales even if the cars are sitting on dealership lots.

While most of the dealerships offering “used” Chevy Volts for sale are Chevy dealers, I also found other manufacturers selling Volts with low mileage as “used” cars. A Kia dealership in California that I contacted seemed to suspect that they were doing something a bit underhanded when I called them to inquire about a “used” Volt for sale with only 30 miles on it. After I identified myself as being an associate with the National Legal and Policy Center, I was placed on hold. I was then told by a sales manager that the Volts offered at that dealership were rental cars with higher mileage on them. I later called the same dealership back posing as a potential customer and confirmed that a “used” Volt with only 30 miles on it was available. This also raises the question of why GM or Chevy dealerships would be selling Volts to other manufacturers’ dealerships when they claim that there are not enough of the cars to meet retail demand.

A Chevy dealer in Chicago was more upfront with the info given on a “used” Chevy Volt with only 10 miles on it. The vehicle was being offered at MSRP. When I asked if I was eligible for the $7500 tax credit, I was told that I probably wasn’t since the dealership was applying for the subsidy. This practice is one of the more egregious abuses to date purloined upon taxpayers as a result of the GM bailout. The intent (even if misguided) of the $7500 tax credit offered on the Chevy Volt is to encourage consumers to buy “green” vehicles, not to offer an opportunity for dealerships to game the system and maximize profits at the expense of the taxpayers. I also suspect many purchasers of “used” Volts will attempt to claim the $7500 tax credit for themselves, thus bringing the total tax subsidy on such transactions to $15,000 if not disallowed by the IRS.

Like most attempts by government to pick winners and losers, it doesn’t take long for corruption to set in.

We may need to move beyond the gasoline-powered car for our future, but so far, electric isn’t a choice that makes sense in economic, environmental, or independence contexts.  So what does?  Natural gas might be a better choice.  It’s been in personal vehicle technology for decades; I drove a natural-gas taxi for a brief period of time in the 1980s, and they have limited use even today, mainly in government vehicles.  The fuel burns clean, and the source is abundant in the US if producers would be allowed to explore and extract it.  At the very least, it makes more sense than the current electric-car push.

Update: GM and Nissan respond to the NLPC’s allegations in Automobilemag:

A dramatic report from a Virginia-based non-profit claims that Chevrolet dealerships are stealing a federal tax credit from customers, but General Motors says that’s not the case, and that the accusations are “confused.”

To help offset the high cost of new green cars, the federal government offers buyers of electric cars like the Chevrolet Volt and Nissan Leaf a $7500 tax credit. However, the National Legal and Policy Center says it has identified two dealerships that titled a new Volt and claimed the $7500 tax incentive for their own coffers, then resold the vehicle as used. Buyers of a used Volt are ineligible for the tax break, leading the NLPC to accuse Chevrolet dealerships of “gaming” the tax credit.

In response to the report, Volt spokesman Rob Peterson says there is little cause for concern. The two dealerships contacted by the NLPC are legally unable to sell a new Chevrolet Volt.  One is a Kia dealership in California, which can’t sell the Chevy for obvious reasons; the other is a Chevrolet dealer in Chicago, which can’t sell a Volt as a new vehicle as Illinois is outside of the car’s launch markets.

Peterson said there’s no real issue with the practice so long as dealerships are honest with customers — and based on the NLPC report, both dealers willingly inform customers that the cars are technically used, and are therefore ineligible for the tax credit.

Yes, but both cars were “used” with less than 100 miles on them.  Someone got the tax credit, and if it wasn’t the dealers, then who?

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