Like many environmentalists, I’d love to see lots of people driving electric cars. If broadly adopted, electric cars will go some way towards limiting air pollution, reducing greenhouse gas emissions and undermining the power of oil oligarchs in the Arab world and elsewhere. Electric cars produce what economists call “positive externalities,” that is, consequences that benefit people other than their owners.
But what problem to do they solve for electric-car owners? That question has been on my mind since my recent visit to Israel, when I drove a Better Place car and experienced, first-hand, one of the obvious drawbacks of electric vehicles: They don’t go very far without refueling. [See my January blogpost, Better Place is alive but not well.] This is a problem not just for Better Place, but for other sellers of pure electric cars, like the Nissan Leaf and the Tesla Model S.
Today, I took a closer look at Better Place in a story for the YaleEnvironment360 website. Here’s how it begins:
If you want to sell electric cars, Israel looks like a great place to start. It’s a small country, with most people clustered around Tel Aviv and Jerusalem. Gasoline costs more than $7.50 a gallon, and oil revenues help support Israel’s Arab foes. So it’s easy to understand why Shai Agassi, an entrepreneur who was born in Israel and made a fortune in Silicon Valley, chose to launch his Better Place electric-car company in Israel, while preparing plans to expand in Europe, Australia, Japan, China, and the U.S.
What’s harder to understand is why things have gone so badly. Better Place, which staked out its position in the electric car market with an innovative battery-swapping technology, has sold only about 750 cars in Israel, while piling up losses of more than $500 million. Agassi was forced out of Better Place in October, his successor as CEO quit in January, and the company has put its global rollout on hold. Better Place needs to raise more money this year, and that won’t be easy, insiders say.
Start-ups often stumble, of course, but Better Place’s woes raise questions that matter to anyone who cares about electric cars and their future in a low-carbon economy. Has Better Place sputtered because of its own mistakes, or are the company’s difficulties a sign of the broader challenges facing electric cars?
As part of my reporting (much of which didn’t make its way into the story) I spoke to executives at General Motors, Nissan, the charging network eVgo and others, to see how electric cars are faring here in the U.S. Last year, Americans bought 52,000 all-electric cars or plug-in hybrids–vehicles, that is, designed to run primarily on electricity, like the Leaf, the Chevy Volt and the Tesla. That’s about 0.35% of U.S. car sales, which topped 14.5 million in 2012. By comparison, the best-selling passenger car, the Toyota Camry, sold 405,000 units, without, incidentally, the benefit of the billions of dollars in government loans, grants and tax credits that have flowed to the electric car industry. EVs have attracted lots of attention but they have been slow to penetrate the mainstream.
Probably the most important consumer benefit of electric cars is that they cost less to operate than gas-powered cars, although how much less depends upon electricity and gas prices. EPA estimates that owners of the Nissan Leaf will save $1750 a year in fuel costs, and that Chevrolet Volt owners will save $1350 a year, compared to buyers of the average new car. Buying electricity for an EV is the equivalent of buying gas for about $1 a gallon, says the Electric Drive Transportation Association, an industry group.
By most accounts, electric cars are also quiet, fun to drive, high-tech, low maintenance and peppy, their owners say. The Volt topped Consumer Reports’ annual owner-satisfaction survey for two years in a row. Positive word-of-mouth should help drive future sales.
Then there are those positive externalities. EVs reduce oil dependence. And, most important for environmentalists, they curb greenhouse gas emissions, particularly in places where electricity is generated by low-carbon sources. A thorough 2012 analysis by the Union of Concerned Scientists concluded “in every part of the country, EVs outperform most gasoline-powered vehicles when it comes to global warming emissions.”
It’s for all these reasons, as well as the elusive promise of “green” manufacturing jobs, that the Obama administration — which set a goal of getting 1 million electric vehicles on the road by 2015 — has thrown its wholehearted support behind the electric-car and battery industries. An energy department program made guaranteed loans of $1.4 billion to Nissan North America, $529 million to troubled Fisker Automotive (which is reportedly up for sale) and $465 million to Tesla. Battery companies A123, which went bankrupt, and LG Chem, which has yet to scale up US production, got grants of about $132 million and $151 million, respectively. Meantime, electric car buyers, including those willing to fork over $101,000 for a Tesla, are eligible for $7,500 tax credits. Subsidizing millionaires to buy Teslas seems nutty to me, as does providing tax dollars to the battery-makers, but these subsidies have narrowed the sticker price gap between EVs and comparable gas-powered cars.
What no amount of government subsidy can do is solve the problem of “range anxiety,” that is, the fear that you will run out of power with nary a plug in site. Better Place offered a battery-swapping model, but it’s not working, so far. What we’re left with are a couple of competing approaches, both of which require tradeoffs. Nissan’s Leaf and other all-electrics rely, in part, on public charging stations, which are few and far between. The Chevy Volt has a backup gasoline engine, adding expense and weight.
John Curl, a product planning executive with Nissan, told me that owners of the Leaf quickly learn to overcome any anxiety. Typically, they drive about 30 miles a day, so that an overnight charge at home gets them all the power they need. Depending on driving conditions, the 2013 Leaf and its 24kWh lithium-ion battery, delivers a range of about 80 miles. “You realize that you’re not driving as much as you think you are, and you find that the Leaf is a very, very good car for daily transportation,” Curl says.
For longer trips, electric car owners will have to rely on companies like eVgo, which is building networks of fast-charging stations, known as Freedom Stations, in Houston and Dallas, greater Washington, D.C., and along the West coast. These so-called fast chargers can deliver about 150 miles of added range per hour, according to Arun Banskota, the president of eVgo, which is owned by utility company NRG Energy. Other chargers, located in office buildings, shopping centers and airports, will deliver about 12 to 24 miles of range per hour.
Over time, Banskota says, the lower operating costs of EVs will drive them into the mass market. But the paradox of electric cars is that the economics make sense only if the cars are driven a lot, to recoup the higher sticker price–and that requires convenient, ubiquitous charging. “It’s going to happen, but I think it is going to take longer than anyone projected a few years ago,” Banskota says. “We’ve learned how challenging it is to change consumer behavior.”
The Volt asks less of its owners. It carries a gasoline engine and a 9.3 gallon fuel tank to supplement its electric motor so that “you don’t have to worry about finding a plug,” said Larry Nitz, who is executive director of electrification for GM. While the Volt has a smaller 16.5 kWh battery and thus less pure-electric range than the Leaf — roughly 25 to 45 miles per charge — that design reduces battery costs and provides enough power for most trips. “Most customers get a lot of gas-free driving,” Nitz said. Critics scoff at the Volt as an clunky compromise because you are “always dragging a redundant drive train around with you,” a rival exec said. But Nitz says having gasoline in reserve delivers peace of mind. “You have to start somewhere,” he said.
The Volt and Leaf are pricey, with MSRPs of $39,145 for the Volt and $28,800 for the Leaf, before those $7500 tax credits kick in. The Volt is the bigger seller in the US, while the Leaf is the global leader. Sales for both cars are growing briskly, and no fewer than 30 EVs from Ford, Toyota, Mitsubishi and others will be on the road next year.
Meantime, though, all cars are becoming more efficient. My last two cars–a Honda Fit and a Honda Civic hybrid–get good gas mileage, and I simply don’t drive enough miles (6,000 a year) to upgrade to a more expensive electric car, much as I would like to.
So I’m still not sure exactly what the electric car makers are selling to the mainstream buyer. Lower operating costs? A hedge against rising gas prices? The elimination of the inconvenience of visiting the gas station? Or just a fun ride?
Brett Smith, who has been tracking the car industry for years at the Center for Automotive Research in Ann Arbor, summed up the problem up nicely when we spoke: “Except for a very, very small group of people, an electric car is an inferior good at a higher price.”
No wonder EVs are a tough sell–at least for now. Of course, cheaper batteries or $5-a-gallon gasoline could change the equation in a hurry.