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| Also listed in: Economic Policy | Energy Independence Policy | Energy Sanity | Change.gov Policy Analysis and Commentary |
Tags: Auto Finance, auto industry, economic growth, hybrids, Plug in Cars, stimulus
Harold Ford proposed on MSNBC's 1600 Pennsylvania yesterday that one idea for assistance to the auto industry would be the tax rebates for "plug in hybrids". He mentionned that more fuel efficient vehicles cost between $2300 and $3000 more. Mr. Ford suggested that the money go to consumers rather than car companies since money going directly to companies might be mispent.
Arms length interaction with the economy has been the previous rule for the relationship between government and industry, and Mr. Ford is going one step further at indirection. But note that the arms length rule and the voodoo religion of self interest has even been repudiated by Alan Greenspan, so I have to disagree with the general idea that we let the market decide how the money flows in a classic laissez-faire fashion. The auto building activity generated from such incentives could just as easily take place in GM factories in China. Where is the rule or the federal representative that has the power to halt such a move dictated by the logic of corporate self interest?
As a counter proposal, we need to specify production in the US, and provide for intrusive oversight by observers knowlegable about automotive engineering. Further, since consumers aren't buying and won't be for a few years, it is sensible alternative to build inventories of components for future models. It is money in the bank and it keeps factories open in the US. Note that this inventory while financed by the US government represents capital that can be recovered when the compenents are used.
Mr. Ford was working off an idea from previous congressional hybrid car legislation that has been vetted, and that is the cautious thing to do on national television. However, his aides need to work harder. There is a huge difference between hybrids and plug in hybrids. Plug in hybrids are not built by any of the majors (US or Foreign). The Ford Escape hybrid SUV manufactured in the US is currently upgradable by a US (Hymotion-a123systems) product to a PHEV for $32K, and this would be cheaper if done in the factory. No doubt the same could be done for hybrids built by GM. Second. While it is true that a "Hybrid" vehicle will cost $2300 to $3000 more per vehicle, for a plug in hybrid compact, the battery alone necessary for a 40 mile all electric range costs $10,000. GM's target is to get the cost down to 63 cents per watt, but current costs are around one dollar per watt, so the 12KWH battery needed for compact cars like the Volt or Prius will require in excess of $10K.
Financing PHEVs can be done with a revenue neutral program to self pay these batteries by surcharging the electricity needed to fuel the cars as if they were being fueled by gasoline. This leverages the higher price of gasoline (electricity in most of the US represents 89 cent per gallon "gasoline" (electricity at national average of 10 cents per KWH that will take current technology PHEVs the same distance as an gasoline equipped vehicle). This is revenue neutral if the cost of gasoline is at $3.50, a price point which will return to when the global economy is booming again. Further details on this particular revenue neutral plan may be found at policypedia.
But the question is, how do we know that GM, Ford, or Chrysler will build the fuel efficient vehicle in the US? Currently, GM is closing factories in the US and building them in China. Koppel had a special on China that noted that the most successful car company in China is GM (along with VW), and that more Buicks are being sold in China than America (Because it was a favorite of the emperor and the former ruling elite, it is the prestige car ahead of Mercedes and the like).
The point is, if Congress incented only electric vehicles, they would be paying for Toyotas and Renaults made in the third world. If they narrowed it to GM, Ford and Chrysler, why wouldn't these be manufactured somewhere else besides the US? If we want these factories kept open, Congress needs to directly specify that the money be spent to build electric car components in the US.
If we are to have successful intervention to lift our auto industry from the door of oblivion, then we need folks knowlegable of the fundamental automotive technologies that will be key to america's future.
Amory Lovins is a well known energy expert that has advocated production of more efficient vehicles. His claim is that US automotive industry is fully capable of producing exceptionally efficient vehicles, but that management has not been motivated to give their engineering staffs that goal.
While Lovins may be pushing the envelope with what is possible in the near term, it would be wise to consult advocates such as he who are knowlegable of automotive technology that have contacts with engineers currently working in the big 3.
Without such advocates advising Obama's plan for automotive industry recovery, the money may well be spent in ways that do not benefit our longer term energy goals.
For example- you need folks that know that while GM's Allison hybrid transmission developed for hybrid buses (the EP50) has been scaled for use in US SUVs, it is part of their former strategy to gradually phase in hybrid technology by augmenting gas vehicles with occaisional propulsion by electricity. Should any of the 25 billion go to such parallel hybrid system components? If so, it would be money spent on throw away technology.
If you know you need steel bridges, don't execute a make work project building wood bridges that will have to be ripped out.
The question is, how do you know which technology choices to make? Arms length economic theory states you let markets decide and you don't micromanage. Even if we do decide to let the auto companies drive the development, we need some traffic cops on the beat that are looking over their shoulders and keeping them honest.
So hire Lovins or someone like him to indentify some automotive technologists that can look over the shoulders of GM, Ford and Chrysler plans. We need guys that are advocates of electric vehicles, are knowlegable, and can't easily be bamboozled. This is a deterence strategy. The object is for the big three to get it and pursue the goal themselves in good faith. If you do it without traffic cops, then what the heck- Ford will see if they can get away with cutting a corner here or there, and if they are not caught, so will the others.
The technology for hydrogen (fuel cell) cars unfortunately has languished since experiments were started in the 60s. After 4 decades, cars remain fragile, cost hundreds of thousands of dollars, have a short life span, and require an entirely new infrastructure for hydrogen retail sales.
The infrastructure for electric vehicles is an electric outlet in the garage.
Lastly, the economical source of hydrogen is fossil fuel (natural gas). Converting from electricity is possible- through electrolysis is only 40% efficient under ideal circumstances. Charging a battery is 80 to 85% efficient. So why would you want to charge a hydrogen fuel cell. The current status is- hydrogen makes zero sense.
Can we grow wind, solar, geothermal and wave generation by 1% per year? You bet. And we can pay for that new generation by surcharging the power. Even relatively expensive Solar PV is paid off in 15 years including finance charges at 24 cents per KWH. That's the equivalent of paying $2.13 per gallon of gasoline. So by charging for the recharge electricity at the same rate as $3.50 gasoline, we can pay not only for the battery, but for the alternative power to fuel it.
Regardless, even if coal is used to generate the electricity, it is cleaner than gasoline. That is because a gasoline engine uses less than 20% of the energy in gasoline, whereas modern coal plants easily get double that efficiency. So even if coal was the power source you have cut your global warming due to cars in half.
All of this material was self taught from the internet. Anyone can do this stuff, provided they have the time and interest. If anyone is interested in the citations on the data, they are at the above referenced policypedia article.
My bet is your friend does not have a car that will go 40 miles on a single charge, will do 60mph, is powered by batteries that will last for 10 years, and observes US safety standards (like not incinerating its occupants- think flaming laptop battery problems).
The cost of the battery is the main problem. If it is financed like we pay for cell phones, then their high initial cost is simply spread over over the life of the vehicle in the form of fuel costs (surcharged electricity).
These loans would be very high quality since they are paid from utility bills, and backed by the US government.
What better way to displace the toxic debt on the books of the finance industry?