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Why You Don't Want an Electric Car... Yet

By ITIF Research Analyst Clifton Yin and ITIF Senior Analyst Matthew Stepp

In a recent New York Times Magazine article, “Why Your Car Isn’t Electric,” Maggie Koerth-Baker works through why consumers prefer gas cars over electric vehicles (EVs). She finds that Americans aren’t flocking to EVs because they have a fundamentally different idea of what a car should be. Consumers want vehicles that perform (and cost) like the gas cars they’ve grown accustomed to over the last century. Until EVs meet these performance and cost expectations, consumers will continue to purchase gas cars. Yet, to-date America’s dominant climate and energy policy approaches fail to aggressively address these barriers, instead focusing on deploying today’s uncompetitive EVs. Electrifying America’s transportation fleet requires throwing away these tried-and-failed approaches and instead focusing on innovating better and cheaper electric cars.

In Shifting Gears: Transcending Conventional Economic Doctrines to Develop Better Electric Vehicle Batteries, ITIF takes an in-depth look at how the two default climate and energy policy approaches – informed by neo-Keynesian and neoclassical economic doctrines – have failed to spur the adoption of EVs.

On the one hand, neo-Keynesian economic thinking holds that demand drives economic growth (and innovation). Under such thinking, if companies believe consumer demand for electric vehicles is increasing, they will invest in better EV technologies to produce innovations that meet consumer expectations. Thus, the neo-Keynesian policy of choice has been to subsidize consumer purchases of EVs to boost demand. And it’s a policy that is on the books in America today: consumers can benefit from a $7,500 federal tax break for buying qualifying EVs, as well as a smattering of state incentives.

On the other hand, the neoclassical economic doctrine holds that economic growth (and innovation) is primarily the result of the efficient allocation of resources. In other words, the economy can be viewed as a large market of goods and services that is generally in equilibrium. Under this doctrine, in cases where the market is not in equilibrium – for example, when the societal costs of emitting greenhouse gases (GHGs) are not internalized – government should work to account for those externalities. The most prominent solution to internalize the cost of GHGs is a carbon price. In the case of the transportation sector, neoclassicalists assume that if drivers pay the full cost of burning gasoline, including the cost of pollution and climate change, EVs will become cost-competitive with gas cars and their adoption will dramatically increase. Good examples of such policies are those on the books in many European countries, which through a combination of fuel taxes and carbon pricing schemes, have increased the price of gasoline to $8 to $9 per gallon, while the United States continues to pay around $3 to $4 per gallon.

Yet both approaches have completely failed at spurring a robust EV market. In the United States, EVs make less than a blip in vehicle sales. In total, 286,371 EVs – including hybrids, plug-in hybrids, and battery electric vehicles – were sold in 2011 in the United States, a market share of new sales little more than two percent. Technology Review reports that the nation’s EV battery factories are sitting idle or operating well below their intended capacity.

Even more telling, Reuters reported in September 2012 that Toyota “scrapped plans for widespread sales of a new all-electric minicar, saying it had misread the market and the ability of still-emerging battery technology to meet consumer demands.” Company Vice Chairman Takeshi Uchiyamada observed, “The current capabilities of electric vehicles do not meet society’s needs, whether it may be the distance the cars can run, or the costs, or how it takes a long time to charge.”

Europe is grappling with the same problems. Even though 17 of the 27 European Union countries employed a carbon-related tax on gasoline cars as of 2011 and many countries implement EV subsidies, sales have remained sluggish. Since early 2011, Nissan sold 11,000 battery-electric Leafs in the United States, but only 3,000 in Europe. “European newsletter Automotive Industry Data (AID) said that despite meaty government subsidies, electric cars managed a market share of 0.09 percent in Western Europe last year,” reports The Detroit News. The situation is particularly dire in Portugal, which offers not only direct purchase subsidies, but also income tax relief of up to 30 percent for electric vehicle buyers. Portugal’s Secretary of State for Public Works, Transport and Communications Sergio Monteiro laments, “The average cost [of an EV] is around [$45,000 USD] in Portugal, and we have a reduction of [more than $6,200 USD] subsidized by the state. We only managed to sell 200 vehicles [in 2011].”

None of this should be surprising. As indicated by Koerth-Baker in her NYT Magazine piece, what’s holding back EV adoption is a lack of both cost and performance competitiveness relative to conventional gas cars. EVs can cost substantially more than gas cars, even when considering lifetime operating costs. And the performance of today’s EVs can also be underwhelming. Whereas gas cars can travel more than 300 miles between refueling, today’s EV batteries have a range of less than 100 miles per charge, have difficulty operating in very hot and very cold conditions, and can take anywhere from 30 minutes to 20 hours to fully refuel, depending on the re-charging technology.

The problems hampering EV adoption can be solved, but only if policymakers and advocates stop looking to the neoclassical and neo-Keynesian economic doctrines as the North Star guide to climate and energy policy. Instead, the emerging field of “innovation economics” offers guidance on how policy can spur the development of the kinds of breakthrough technologies that will make EVs and other clean technologies viable. In that vein, Shifting Gears lays out a series of steps that the federal government can and should take to encourage EV innovation. This includes:

  1. More aggressively funding battery innovation, possibly by diverting funds used for the EV tax credit to instead support key battery innovation programs, like the Advanced Research Projects Agency-Energy’s (ARPA-E) Batteries for Electrical Energy Storage in Transportation (BEEST) program as well as the National Labs.
  2. Fostering greater collaboration between the Department of Defense (DOD) and the Department of Energy (DOE) on battery development to create an early market for emerging battery designs and chemistries.
  3. Supporting the creation of a “Battery Shot Initiative” akin to DOE’s SunShot Initiative to coordinate government battery RD&D with the goal of producing a battery with a total system cost of less than $100/kWh and a range of at least 300 miles per charge.

If the world is to substantially reduce greenhouse gas emissions from the transportation sector, EVs must become the vehicle of choice for consumers everywhere. The most important step, however, is greater innovation to create electric cars that they actually want to buy and drive.

Image: Electric Car Concept via Shutterstock

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Recent Comments

douglas card's picture
douglas card on October 12, 2012

I like your conclusions,  but think although the $100 / kWh is good, we only need to get to $200 / kWh or close for EV's to take off. EV's are a niche product and will remain so for a couple more years.  How many drivers would love to have a Chevy Vet in the drive way?  Caddy STS?  Lamborghini?  Porshe?  Lexus GS450h?

Its an easy answer actually - between 10 and 1000 times as many as currently own any of them. Maybe as high as a million of each.  Which one do you not want?

Give people a chance to test drive the model S and a huge percentage of the people who drive it will want one.

This is about cost of ownership - NOT the overall attributes.  All these vehicles are very much appreciated, but the vast majority of us can't even come close to affording them.  In the case of EV's, though, its about feeling good about the environment as well as the money.  As soon as EV's hit the cost benefit ratio, they will take off like hybrids.

Maybe I am being overly picky, but on the other hand, the diff between $100 and $200 is in the $4 to $10K range for the pack, depending on the size.

David Croxton's picture
David Croxton on October 12, 2012

A further consideration if your motive for going electric is to help mitigate climate change is that there is little point if most of the electricity you will use is fossil fuel generated. By the time our politicians wake up, it will be too late.

James Van Damme's picture
James Van Damme on October 13, 2012

Why batteries? Develop a fuel cell that runs on biofuel. Quick refueling & gasoline-like range, easy distribution through existing pipelines.

Nathan Wilson's picture
Nathan Wilson on October 14, 2012

Matthew, your optimism baffles me.  Why do you believe electric cars are inevitable?  Perhaps it's a generational thing.  I grew up as jet airplanes were reaching their limits.  From the 1950s, through the 1970s, each new airplane flew higher and faster than the previous models.  Then they hit mach 0.8 and 35,000 feet, and the improvements stopped (the Concord sailed past these limits, right into economic failure).  

Around this same time, the Apollo space program ended, and the Space Shuttle program began.  The Shuttle failed to bring down the costs of space travel, and did nothing to improve the safety.

Children of the computer age seem to think we can make anything cheap if we try hard enough.  From what I can see, this only works for computers and electronics.  Everywhere else, new technologies improve until they are mature, then they stay the same (approaching but not exceeding some natural boundary).

Electric cars may not be destined to be the transportation workhorses of the post-fossil fuel era.  The answer may be ammonia fueled internal combustion engines.  Because ammonia contains only nitrogen and hydrogen, it will probably always be the cheapest fuel that can be made from solar, wind, or nuclear power.  When ammonia is made from solar power, the energy yield per acre is 40x higher than for biofuel (wind yields 6x more than biofuel) and the water use can be orders of magnitude lower than with biofuel, so the technology is much more scalable, without impacting food production.  In short, ammonia can fulfill the hydrogen economy dream, without the high cost of fuel cells.

Ammonia vehicles are a promising new technology.  But we must invest in them to mature them and create an alternative to battery electrics.

Matthew Stepp's picture
Matthew Stepp on October 15, 2012

Nathan - 

I don't think I'm saying they're inevitable, but instead saying that for them to be competitive and widespread deployable these technological innovations are necessary.  To counter your point - EV's are not a mature technology.  Now to be specific, the current batteries used in EVs like the Volt are older technology, but that's largely because the next-generation batteries are still in the early stages of development.  It's these next-generation batteries, which are significant leaps in advancement, that hold promise so my point is to double down on these efforts. Children of the computer age or not, tech advancements are tech advancements. The Space Shuttle and Concord are apples to oranges comparisons here.

With that said, there are a number of low-carbon transportation technologies - EVs are but on, but also one seemingly closer to realization (or at least to a stage where the barriers to competitiveness are well known). Please see the report for some short discussion on other options. We didn't look specifically at ammonia, but I would agee its an interesting choice.  Unfortuantely, DOE (in the hydrogen R&D years) speficially looked at fuel cells instead of a broader range of technologies.  Are states like California looking into this?

Matthew Stepp's picture
Matthew Stepp on October 15, 2012

Yes, you're correct that if we built out an EV transporation system we would still be sourcing its electricity at least partially from fossil fuels (depending on the state), which limits its climate change impacts.  

But numerous assessments have shown that the amount of fossil fuels burned to charge an EV is less than the amount of fossil fuels burned to fuel a gas car.  Depending on the state, I've seen estimates of emission cuts ranging from 20-50% if we switched to EVs without any change in electricity generation.  So there are benefits, often times significant.

With that said, we still need to transform the US electricity generation system to clean energy as well to get as close to zero emissions as possible.  But that point holds for any and all transportation options, clean energy or otherwise, not just EVs.

Matthew Stepp's picture
Matthew Stepp on October 15, 2012

I agree, that costs are the most important barrier to adoption. Consumers often decide first among price, but performance characteristics do play a role.  Consumers aren't just picking the cheapest gasoline car - many are picking mid-range priced vehicles to gain some performance advantages as well.

But your point is well taken - cost of ownership is significant.  In fact, this is a major area of discussion in the report.  But we may get the performance benefits as costs go down.  To get batteries down will take some significant tech advancements that require different chemistries other than lithium.  Take Envia, for example, which is offering a roughly $300-$350/kWh battery (estimated if it scales), that is lighter, offers more range, etc. etc. So the battery breakthroughs often offer both because cost reductions to the levels you and I are talking about won't come just from tinkering with existing technologies.

David Croxton's picture
David Croxton on October 15, 2012

Apart from EVs there are other technologies that should be included in our thinking such as NH3. NH3 would give more power per litre than a litre of gasoline, and costa around 50c a litre. Not only that, nearly every farmer could produce it or would have the ability to produce it for his local community. Truly local fuel and local empowerment , with zero carbon emissions. NH3 is widely used in agriculture and industry.and this knowledge of it as an efficient fuel has been known for ages, so where is the political will and the investor?

Nathan Wilson's picture
Nathan Wilson on October 16, 2012

Alas, neither the DOE nor the states are seriously considering ammonia fuel (as far as I know).  There is a large amount of interest from the research community, and an annual conference is organized by the Iowa Energy Center and Ammonia Fuel Association ( ).

Hydrogen cars, with their sex appeal, have so far been promoted more aggressively than their much more practical ammonia cousins.  And of course battery cars have the advantage that they have very low critical mass, requiring no public infrastructure (for select users).  As a result, these competing technologies can be used for public relations demonstrations that make it appear that they are nearly ready to take over for gasoline for most vehicles, when of course they are not.

Lewis Perelman's picture
Lewis Perelman on October 16, 2012

Population density in the US far less than it is in Europe. There are practical and social reasons why highways so largely displaced rail travel in this country. California's HSR project is widely viewed as a costly boondoggle.

The most feasible way to significantly reduce fuel consumption in the transportation sector is to capture the potential of telework, which is so far greatly under-utilized. No exotic new technologies or drastic infrastructure changes are needed, only a change in managerial behavior which has the virtuous benefit of increasing productivity.

Lewis Perelman's picture
Lewis Perelman on October 16, 2012
Lewis Perelman's picture
Lewis Perelman on October 16, 2012

I am sympathetic with Nathan Wilson's skepticism about the feasibility of electric vehicles altogether. I'm not sure whether ammonia is a practical answer for the foreseeable future, but in general liquid fuels have great advantages that electricity cannot match.

EV advocates underestimate the power represented by a gasoline pump. A US gallon of gasoline contains c. 132 mm joules of energy. A typical gas pump delivers 10 gallons per minute. That translates to about 22 mm joules per sec = 22 megawatts.

Now, according to the EIA, there are about 5,800 power plants in the US, representing some 18,000 electric generators of at least one megawatt. So the power produced by that total population of electric generators is equivalent to that of about 800 gasoline pumps.

There are some 160,000 gas stations in the US, each with from half a dozen to a couple of dozen gas pumps.

So there is simply no way that electricity can match the power density of liquid-fueled transportation technology. To replace even half of the liquid-fueled fleet with EVs would require increasing the number of power generators and the capacity of the electric distribution grid many times over. And the voltage required to match the speed with which energy is delivered by a liquid fuel pump would be an even more difficult hurdle.

Power density aside, even just considering gross energy demand, EVs are unlikely to make a significant dent on energy consumption. As of 2009, electric generators delivered about 12 quads of energy to US consumers, mainly for residential, commercial, and industrial uses. At the same time, the transportation sector consumed about 25 quads of energy, mostly from petroleum fuels. So again, replacing only half of transportation energy requirements with electricity would require doubling electric generation and distribution capacity.

In addition, electric vehicles pose a potential security hazard that is often overlooked.

In the event of a severe emergency, such as Hurricane Katrina or the disaster in Fukushima last year, mass evacuation may be necessary. Such large scale relocations of people are difficult even with conventional transportation systems. Adding substantial numbers of electric vehicles to the transportation fleet could impair evacuation even more.

Vehicles that run out of fuel in the midst of an evacuation impair traffic flow. But emergency supplies of liquid fuels can be prepositioned and/or delivered by truck, rail, or even air if need be. Stalled vehicles can be quickly refueld and gotten moving again.

Electric vehicles have much less range. Delivering electrons to recharge them in transit during an emergency would be far more difficult if not outright impossible. This hazard is compounded when the electric grid fails, as it often does in major emergencies.

It should be evident that the hazard posed to evacuation by having a significant number of electric vehicles in the transportation fleet applies equally to rescue. Impaired transportation arteries not only prevent people from escaping harm, they also prevent rescuers from delivering water, food, medicine, and other aid.

Overall, even if the cost of electric vehicles could be reduced by the sort of iinnovation initiative ITIF describes, the problems I have noted raise the question -- as Nathan suggests -- whether that objective is even worth pursuing in any case.

carlos spiros's picture
carlos spiros on October 16, 2012

The key to cost reduction of any tech is to get the number of units sold annually to a  huge number. If producing 100 million units p.a., then it pays to invest a million dollars to reduce cost per unit by just one cent. The cost is recoevered in year one, then is rewarded with a million the following year.

After many such investments and refinements by many players, the cost ratchets downwards.

This is why nuclear power or concords or space shuttles will never be cheap, but car batteries, LCD monitors, USB memory sticks, solar panels etc. will inevitably get cheaper - the market demands an awful lot of units.

Lewis Perelman's picture
Lewis Perelman on October 17, 2012

Carlos, you are right as a general rule. But if the costs are very high, and the potential volume of sales is too low, the result is a losing proposition.

It has been estimated that GM loses $49,000 on each Chevy Volt it sells. Cutting the price in the hope of increasing sales, as GM recently did, also increases the loss.

Were the US government not a major shareholder of GM, an independent management might well have concluded that the company would be better off abandoning the Volt and cutting its losses.

Per the point of Matt's posting here, the technology of the Volt is inherently too costly. Not only is the amortized development cost very high, but the production cost of the vehicle makes it too expensive to be appealing to a mass market.

Nathan Wilson's picture
Nathan Wilson on October 18, 2012

Lewis, I do believe that electric vehicles will become more practicle in the future, but I think they will end up costing about $5-10k more than an ICE car (I've heard the prediction of $160/kWh for future batteries).  This will limit their market share to something in the 3-30% range.  This leaves plenty of room in the market for piston engines and liquid fuel (e.g. ammonia).

I had not considered the evacuation argument.  I suppose that is an additional strike against electrics, especially those with under 200 mile range and lacking the 30 minute fast charge.

Regarding electrical system capacity, I don't consider that an impediment.  Initially because cars will mostly charge at night (when electrical demand is low), and ultimately because electricity is so useful that we'll surely build the required grid.

Lewis Perelman's picture
Lewis Perelman on October 19, 2012

Nathan, you seem more optimistic about electric infrastructure development than I or many others. The ASCE reports a more than $2 trillion 'deficit' in US infrastructure investment -- just for repairs and renovation of existing bridges, tunnels, dams, water facilities, power lines, ports, etc. Obama's proposal for a mere $10 billion for an 'infrastructure bank' went nowhere in Congress.

It takes only 1 minute to put 200-300 miles worth of fuel into a gas-powered car. The 30-minute fast charge is still way too slow. And there really is no feasible way to supply electrons by truck or air in an emergency. So electric vehicles still pose a significant security hazard.

BTW, one of the arguments for plug-in electric/hybrid vehicles is that plugging them in during the day (e.g., while parked at the office) can help stabilize the grid by providing backup power for peaking loads. That means draining vehicle batteries during the day, reducing their range.

Note that I focused my objections on all-electric vehicles. Hybrids with sufficient fuel capacity pose far less of a security hazard. But they still raise the cost problem. A much cheaper electric storage solution -- maybe not batteries but supercapitors, or some other technology -- could make hybrid vehicles much more attractive. The 'milder' form of hybrid design, which saves fuel by providing an acceleration boost and recuperating energy from braking, needs less storage capacity and thus tends to be more cost-competitive.

Lewis Perelman's picture
Lewis Perelman on October 19, 2012

Kent, European governments are finding it increasingly difficult to afford the substantial subsidies traditionally provided to rail transport. The EC has proposed making users pay the full, real cost of rail travel:

And as I pointed out earlier, the lower population densities in the US make it even harder to economically justify rail transport.

Robert McCullough's picture
Robert McCullough on October 24, 2012

Even the best planner can can have a bad day.  Dr. Perelman's calculation is pretty far off.

Taking the EIA 2010 data, the U.S. used 8,992,000 barrels a day.  This is equivalent to 103,385,520,000 gallons or 471,437,971,200,000 BTU.

The U.S. consumed 3,886.4 billion kWh in 2010  or 442,013,567,866,667 BTU.  The 3,412 BTU/kWh conversion is questionable since it doesn't reflect actual generation technology which is quite a bit larger.

A kWh provides about 3 milles of driving -- about 1,137 BTU/mile.  This is considerably more efficient than gasoline which at 25 milles to the gallon requires 4,560 BTU/mile.  So the bottom line is that 800 filling stations may be a bit off.

The actual situation is more complex, of course.  Since wind tends to generate off-peak, we are developing a surplus during off-peak periods in many places.  The wholesale price at Mid-Columbia was negative for substantial periods this year -- representing an inability to efficiently dispatch the system off-peak.  EVs can profide a very cost effective solution to this problem.

Lewis Perelman's picture
Lewis Perelman on October 25, 2012

Robert, one can estimate several ways. I compared delivered energy to delivered energy. I did not account for the large amount of energy lost in electric transmission.

Any way you slice it, electricity is far inferior to liquid fuel for powering vehicles.

Robert McCullough's picture
Robert McCullough on October 25, 2012

Dr. Perelman:

I am clearly not in favor of BTU comparisons since they involve far too many assumptions.  The test in the market is dollars.  At $4/gallon a 25 MPH automobile is $.16/mile.  At 3 miles per kWh, an EV is a fraction of that -- even in non-competitive areas like New York.

In Oregon where we have very competitive wholesale markets and relatively non-competitive gasoline markets, the ratio is even higher.  When the off-peak price falls below zero, as it has frequently done in 2012, we would literaaly pay drivers to charge their cars off-peak.

The bottom line is that we are already curtailing off-peak generation and desperately need somewhere to place off-peak kWh.

Lewis Perelman's picture
Lewis Perelman on October 25, 2012

First, Kent provides some interesting if exhaustive ideas about advanced motor vehicle potential. Note that by 'vehicles' I meant highway not rail transport.

Robert, I was comparing power density and other attributes, not just BTUs. In any case you are not considering Total Cost of Ownership in your vehicle comparison. The point of this posting is that existing electric vehicle technology is far too costly.

Here is a study I found that accounts for the TCO of alternative power trains:

That study shows that all-electric vehicles are less economical than hybrid or ICE powertrains. Driving mileage per year must cross a high threshold before electric vehicles get an advantage. But given their limited range, they are unlikely to be used in a way that would realize such high mileage.

Overall, you really have not countered the list of reasons I gave that make electric vehicles undesirable.

Note that I mentioned that my critique did not apply as extensively to hybrid vehicles, which can preserve the benefits of liquid fuels.

In your digression into wind power, you seem to be suggesting that an undesirable vehicle technology that costs too much can help justify a power source that is unreliable and costs too much.

Robert McCullough's picture
Robert McCullough on October 26, 2012

Dr. Perelman:

Several points:

1.  Electric vehicles and rechargeable hybrids are cost effective across a broad range of battery sizes.  Since the principle cost is the battery, the buyer can choose the range/cost mix that fits his needs the best.  For most of us in the west, a 70 mile range isn't very attractive.  A 300 mile range with current technology is very attractive to those of us with longer daily drives.  I have an upcoming article that walks through the economics in some detail.

2.  Your comment on wind makes me suspect that you don't view prices as a useful guide to the industry.  Wind tends to generate most during off-pek.  This is reducing the off-peak prices in a number of regions.  Policy directives implementing more wind is going to continue this trend.  The question then becomes what are we going to do with a very low priced off-peak surplus.  If you review the off-peak prices at Mid-Columbia this year you can get a sense of the size of the problem.  From April through July this year off-peak prices were negative for 64 days.  This is even more significant when you consider that this is a vast open market -- prices set by supply and demand -- as opposed to the administered markets.

Lewis Perelman's picture
Lewis Perelman on October 26, 2012

Robert, I confess I'm a bit puzzled how wind can reduce off-peak prices. Baseload generators, as I understand it, usually have surplus capacity during off-peak hours. Since intermittent wind generation relies on baseload generation for backup, and most of those generators cannot be turned down, there is no saving of capital or operating cost. The analyses I have seen indicate that the kWh cost from wind generation is at best on a par with generation from conventional fuels. The expansion of natural gas supplies seems to offer the prospect of making reliable baseload and peaking power generation even more economical.

And again, my criticism was not of hybrids but of all-electric vehicles. Besides being uneconomical, the latter present a security hazard that deserves to be taken seriously.

Robert McCullough's picture
Robert McCullough on October 26, 2012

Dr. Perelman:

Wind generation is non-dispatchable so when off-peak generation is high, our only choice is to back down existing baseload.  The frequent negative prices represent periods when available baseload has been backed down and special measures are required.  BPA has been ordering wind off-line in response -- a controversial policy.  The best policy would be to add new reservoirs and enhance generation flexibility.  Unfortunately, the U.S. side of the system is constrained by environmental regulations which makes this difficult.

Robert McCullough


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