Tuesday, May 30, 2006

Asking the Wrong Question

Sony is releasing a documentary entitled "Who Killed the Electric Car?" You can view a trailer here:

I'm not very optimistic about the movie, based on the trailer, but more on that in a moment. First I want to point out that "who killed the electric car" is the wrong question. Or at least, it's not the important question. The important question is "should the electric car have been killed", or more precisely "do the benefits of the electric car exceed the costs".

It's not clear that the benefits exceed the costs. Electric cars may be very expensive to produce. GM's EV1 was certainly expensive. It also didn't meet the safety regulations of the late 1990s, which apparently helped end the program. (EDIT: The safety bit has since been removed from the Wikipedia entry.) It is likely the case that electric cars are associated with positive externalities, since they reduce air pollution. A complete cost-benefit analysis would require calculating the externality costs of a mile driven with a conventional vehicle, compared to the externality costs of a mile driven with an electric car. Perhaps it is the case that the benefits of eliminating that pollution justify the production of electric cars. The wikipedia link above says that there were a great many people interested in buying the EV1 when GM ended the program, but I suspect that the number would be smaller now, as many of the potential buyers have likely bought hybrid vehicles, which may be substitute goods.

Let's pick a big number for the externality. Say, $5,000. Suppose the federal government gave every buyer of an electric car $5,000 in order to encourage purchases. Using the EV1's lowest price of $34,000 (The wikipedia article doesn't say what year that price comes from, or I'd adjust it for inflation), that would make the price to a consumer $29,000, plus tax and other fees. You can buy a new Toyota Prius for $23,000. Is the all-electric car worth an extra $6,000? Surely not. By my calculation, $6,000 would buy about 1,700 gallons of $3.50 gasoline. If you're not very good at getting good gas mileage from your Prius, you might get 40 mpg (my wife averages 44 to 48 mpg). So 1700 gallons could take you 68,571 miles in your Prius. That's quite a bit of driving. If you average 12,000 miles a year, you could drive almost six years on the savings from buying the Prius instead of the electric car. Not to mention you don't have to wait for the Prius to charge; you can refill it quickly whenever you want. On the other hand, after six years the electric car might start to pay for itself.

The trailer for "Who Killed the Electric Car?" hints that maybe oil companies had something to do with it. That doesn't make sense. Car companies get revenue from selling cars, not gasoline. If people want cars that don't use gasoline, car companies will sell them, if they can make a profit. If oil companies really had such control over car production, hybrid cars also wouldn't succeed. Yet they have. As much as oil companies may not like competition from other energy sources, there isn't really much they can do about them. Perhaps the full movie is much more sophisticated than the trailer and discusses these problems, but I'm not optimistic.

Some day we may have electric cars. It may even be some day soon. Many people are experimenting with converting their hybrid cars to work as plug-in hybrids. This allows them to spend more time running off their batteries, and less time using their internal combustion engines. Calcars says that their current conversion of a Prius to a plug-in hybrid costs $10,000, but they hope to get it down to $5,000.

I'll wager that in forty to fifty years we'll all be driving electric cars, charged using energy generated from solar power plants and other clean energy sources.