• 2 days PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 2 days Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 2 days Syrian Rebels Relinquish Control Of Major Gas Field
  • 2 days Schlumberger Warns Of Moderating Investment In North America
  • 2 days Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 2 days Energy Regulators Look To Guard Grid From Cyberattacks
  • 2 days Mexico Says OPEC Has Not Approached It For Deal Extension
  • 3 days New Video Game Targets Oil Infrastructure
  • 3 days Shell Restarts Bonny Light Exports
  • 3 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 3 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 3 days British Utility Companies Brace For Major Reforms
  • 3 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 3 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 3 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 3 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 4 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 4 days Rosneft Signs $400M Deal With Kurdistan
  • 4 days Kinder Morgan Warns About Trans Mountain Delays
  • 4 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 4 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 4 days Russia, Saudis Team Up To Boost Fracking Tech
  • 5 days Conflicting News Spurs Doubt On Aramco IPO
  • 5 days Exxon Starts Production At New Refinery In Texas
  • 5 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 5 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 5 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 5 days China To Take 5% Of Rosneft’s Output In New Deal
  • 5 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 5 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 6 days VW Fails To Secure Critical Commodity For EVs
  • 6 days Enbridge Pipeline Expansion Finally Approved
  • 6 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 6 days OPEC Oil Deal Compliance Falls To 86%
  • 6 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 6 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 6 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 7 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 7 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 7 days Aramco Says No Plans To Shelve IPO
Alt Text

Who’s Winning The Electric Vehicle Race?

Automakers and suppliers of automotive…

Alt Text

Tesla Execs Bail As Cash Flow Hits Record Lows

Amid a rough second quarter…

Alt Text

Can India Overtake China In The EV Revolution?

India wants to drastically increase…

Bruce Krasting

Bruce Krasting

I worked on Wall Street for twenty five years. I was an FX trader during the early days of the 'snake' and the EMS. Derivatives…

More Info

Why Is the Government Determined to Support the EV Industry?

Why Is the Government Determined to Support the EV Industry?

The Congressional Budget Office (CBO) did a good job of shredding the electric car industry and the government’s role in its evolution with this report (Link):

CBO - EV

I’m not knocking electric cars, I’m knocking DC’s role in this industry. Washington has provided the loot necessary for research on battery design, it has committed to up to $25Bn of soft loans to the auto industry and it is subsidizing every electric car that is sold. Without the massive support from our “rich” Uncle Sam there would be no electric car industry in the USA. The question is, “Is this money well spent?”

The government’s role with electric cars goes back to the 2009 emergency spending program ARRA (American Recovery and Reinvestment Act):

ARRA provided $2 billion in funding to the Department of Energy (DOE) for grants under that program. Of that amount, $1.5 billion was awarded to battery producers, intermediate suppliers for those producers, and recyclers of vehicle batteries; the other $500 million was awarded to manufacturers of components for electric vehicles and intermediate suppliers of that manufacturing.

DOE’s Transportation Electrification Initiative has made commitments for $400 million in grants for demonstration, deployment, and education projects involving electric vehicles. (Party Time!)

I think it’s important to note that the original objective of supporting electric car production was that it was a plain old economic stimulus. This was dropping money from a helicopter in the hope that it (and all the other money) would stabilize a rapidly declining economy. Another motivation for the federal investment/subsidy was that it created a back-door support package for the auto industry that was falling off a cliff back then.

Washington also agreed to provide $25Bn in cheap loans to the companies who make electric cars. So far, $8.4Bn has been committed. The rest of the money will be doled out before 2019. The money is being lent by the Federal Financing Bank (FFB). Because the loans are guaranteed by DOE, there is no risk of repayment to FFB. As a result, the loans are excluded from the calculation of the debt limit. The 25 ‘large’ is all “off balance sheet”. A very neat trick indeed!

Who is getting the billions of soft loans? What are the terms for these advances? From the FFB (Link):

Federal Financing Bank

Government Guaranteed Loans

The CBO has concluded that electric cars are not a “smart” choice for consumers. From the report:

Because of differences in vehicle design and technology, electric vehicles cost thousands of dollars more to purchase than conventional vehicles of comparable size and performance.

Okay, the cars cost too much. What does the government do? It subsidizes the inefficiency. It pays a cash incentive for each vehicle sold. The subsidy is based on the size of the battery; it ranges from $2,500 to $7,500. But the subsidy is still not enough to make electric cars competitive:

Given current prices for vehicles and fuel, in most cases the existing tax credits do not fully offset the higher lifetime costs of an electric vehicle compared with those of an equivalent conventional vehicle or traditional hybrid.

CBO concluded:

The tax credits would still need to be about 50 percent higher than they are now to fully offset the higher lifetime costs of an all-electric vehicle.

I know that someone is thinking that gas prices are going up, and when they do, electric cars will prove to be a smart thing. I’m not so sure. The CBO provided a breakeven on this line of thinking. If gas prices go north of $6, electric starts to make sense. When gas goes to $10, all of the vehicles break even to conventional autos. The problem I have with this line of reasoning is that if gas were to go to $8, the US economy (and the rest of the world) would come to an economic halt. In that environment a fellow would be grinning if he had an electric car, but he would probably be out of work, and most of the stores he would want to drive to would be closed.  What good does the electric car create for him if things go very bad? Not much.

Gasoline Prices Necessary for Cost-Competitiveness

There is a final argument that could be put forward in support for the mega investment the taxpayers are making in electric vehicles. The environment. Electric cars are “good” for the environment because they don’t produce CO2 gases, right? Actually, that’s wrong. The conclusion from the CBO:

•    In the short term, the tax credits are likely to have little or no impact on total gasoline consumption and greenhouse gas emissions.

•    In the long term, the credits might decrease gasoline use and emissions, but how cost-effectively they would do so is unknown.

DC is on all sides of this mess. It is paying subsidies for inefficient and overpriced cars. It is creating free grants to support an uncompetitive product. It is lending very big money (with long maturities and at low rates) to industry players. Please don’t tell me that car companies don’t go bankrupt. These loans go out to 2034.

The CBO had a few recommendations on what to do with Washington’s headache with electric cars. The one that will probably be adopted is this one:

A larger tax credit is needed to make electric vehicles cost-competitive with higher-fuel-economy conventional vehicles.

That’s the solution? It’s just sending more money down a rat hole.

By. Bruce Krasting




Back to homepage


Leave a comment
  • Hans Nieder on September 27 2012 said:
    What we need is a 6 volt battery car!

    We are sorry to interrupt this broadcast of Dancing With the Stars...

    http://www.rightwingnews.com/democrats/chevy-volt-battery-plant-floundering-despite-151-million-from-obama/
  • Dave - Phoenix on September 27 2012 said:
    This is chump change...

    Energy is the number one challenge facing the nation today.

    The country that solves the energy equation for the replacement of oil will dominate for the next 100 years. We need to ensure that the US is that country.

    The amount of money we spend on EV's equates to a rounding error in the national budget. This is chump change consider the size of the budget and the size of the problem we are trying to solve.

    We are not spending nearly enough money considering how big a problem we face...
  • Dennis Blum on September 28 2012 said:
    Buy a volt, and 5 kw solar panel system, then make all your comments. Most people can take this system and drive without gas or additional electricity from the grid, for a long time. Clean and almost "free". What's so wrong with this? It can work and the volt is a fantastic car by any measure. It is not a cheap Chevy as some people might assume. It compares to a BMW 3 series in comfort, quiet, and overall fun to drive. The extended range generator also makes sense.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News