The recent economic turmoil has had plenty of victims, among them a number of cleantech companies like Solyndra. These greentech failings certainly have short-term consequences that include loss of employment, but many business commentators have noticed a disturbing trend, especially in the EV battery market.
Is America really surrendering its lead on electric cars just a few short years into this experiment? It is starting to look that way for five reasons I outline below.
1) Greentech Loans Are On Hold
Ever since the “Solyndra Scandal”, the Obama Adminstration has backed off of granting any new greentech loans. This has caused companies like Bright Automotive, which hoped to bring a 100 MPG utility van to market, to go belly up, while other companies like Fisker Automotive have seen their loans cut off for failing to meet certain production criteria.
The reason for this is simple; it is an election year, and Obama doesn’t want to give Republicans anymore ammunition for their anti-government ideology. Once the election is over, this all might change…but by then it might be too late.
2) Meanwhile, China Is Buying U.S. EV Makers
A123 Systems, a battery maker who has contracts with companies like Fisker Automotive, recently sold a controlling interest for $450 million to Wanxiang Group, a Chinese auto parts maker. Earlier in the year, Ener1 emerged from Chapter 11 bankruptcy under the control of Russian billionaire Boris Zingarevich, whose name sounds more like a James Bond villain than a battery investor. Ener1 also has a deal with a Wanxiang subsidiary.
Both A123 and Ener1 received tens of millions of dollars in U.S.-backed greentech loans. While America may be repaid for its investment, we are basically funding battery startups only to let the Chinese swoop in and reap the rewards. That sucks.
3) Consumers Don’t Want Electric Cars
The U.S. auto industry as a whole isn’t doing as well as it hoped, and the electric car market is especially dismal. Nissan sold just 395 EV’s in July, and other automakers haven’t even broken into triple digit sales of their electric car offerings. Unless gas prices skyrocket, it doesn’t look too good for electric car sales; Obama’s goal of 1 million EV’s by 2014 might not even get 1/3 of the way there.
Without strong demand for EV’s, the market is simply oversaturated with batteries and battery makers. While this might push the price of batteries down, it is also going to push a lot of companies out of business. That’s capitalism, baby.
4) …And Even Automakers Don’t Want To Build EVs
Chrysler’s CEO Sergio Marchionne put it best when he said “The economics of electric vehicles simply don’t work.” The high cost, limited range, and lack of infrastructure all mean that buying an electric car is more a lifestyle choice than a car purchase. Automakers realize that the market for EV’s is extremely limited, but government mandates mean they have to build them. Rather, automakers would rather focus on hydrogen fuel cells, and even the government seems on board with pushing hydrogen over electric cars.
Something tells me that forcing a company to produce a product is going to result in the bare minimum amount of money and effort invested. A good example is Ford’s Focus Electric, which received just 10% the normal marketing budget for a new vehicle launch, a paltry $10 million. Ford is hedging its bets against EV’s.
5) Gas Prices Just Aren’t High Enough
$7 a gallon is supposedly the magic number when it comes to getting Americans to change their driving habits, and really affect change in oil consumption. Sure, some of us have cut back on driving, and perhaps have bought more fuel-efficient cars (I know I have done both). But anecdotal evidence suggests that Americans have simply adapted for $4 a gallon gas.
Until gas prices reach a certain threshold, and stays there, electric cars will have a difficult, if not downright impossible time of gaining any significant market share. This is especially true now that economy cars have received a makeover across all brands, delivering on average 35 MPG+ in cars that are much better than their predecessors.
Why spend $30,000+ on an electric or plug-in hybrid, when I can get a car rated at 40 MPG highway for half that?
Despite all of this, I think electric cars will stick around for a while. For city dwellers and those who don’t drive a lot, EV’s make sense, doubly so if those people are business owners. But no matter who wins the November elections, I think electric vehicles are in for a rude awakening.