Low Voltage Policy

One of Barack Obama's achievements is the Chevy Volt, GM's entry into the hybrid market. The Administration pushed the development of the vehicle and why should it not? There's global warming and the fact that the US government now owns a car company.

There is a bit of a problem, however. From Reuters:

Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds, according to estimates provided to Reuters by industry analysts and manufacturing experts. GM on Monday issued a statement disputing the estimates.

Cheap Volt lease offers meant to drive more customers to Chevy showrooms this summer may have pushed that loss even higher. There are some Americans paying just $5,050 to drive around for two years in a vehicle that cost as much as $89,000 to produce.

Hybrid vehicles are great for car buyers who are want to publically display their environmental bone fides. They are not actually good for the environment. Heavy government subsidies are necessary to make them affordable enough for an Ivy League Dean. That means that wealth produced elsewhere, and not by wind power, has to be shifted over to the production of these eco-friendly lemons. Eighty-nine grand will buy you a really nice house in Aberdeen. Of course you still have to plug it in.

The Washington Post published a scathing editorial on the President's electric car policy.

AS A CANDIDATE for president in 2008, Barack Obama set a goal of getting 1 million all-electric and plug-in hybrid vehicles on the road by 2015. In February 2011, the Obama administration's Energy Department issued an analysis purporting to show that, with the help of subsidies and tax credits, "the goal is achievable." This was a paltry claim in the first place, since 1 million cars amount to less than 1 percent of the total U.S. fleet. Yet it is increasingly clear that, despite the commitment of many millions of taxpayer dollars, the United States will not hit Mr. Obama's target by 2015. A recent CBS News analysis suggested that we'll be lucky to get a third of the way there.

The Energy Department study assumed that General Motors would produce 120,000 plug-in hybrid Volts in 2012. GM never came close to that and recently suspended Volt production at its Hamtramck, Mich., plant, scene of a presidential photo-op. So far, GM has sold a little more than 21,000 Volts, even with the help of a $7,500 tax credit, recent dealer discounting and U.S. government purchases. When you factor in the $1.2 billion cost of developing the Volt, GM loses tens of thousands of dollars on each model.

Some such losses are normal in the early phases of a product's life cycle. Perhaps the knowledge and technological advances GM has reaped from developing the Volt will help the company over the long term. But this is cold comfort for the taxpayers who still own more than a quarter of the firm…

No matter how you slice it, the American taxpayer has gotten precious little for the administration's investment in battery-powered vehicles, in terms of permanent jobs or lower carbon dioxide emissions. There is no market, or not much of one, for vehicles that are less convenient and cost thousands of dollars more than similar-sized gas-powered alternatives — but do not save enough fuel to compensate. The basic theory of the Obama push for electric vehicles — if you build them, customers will come — was a myth. And an expensive one, at that.

Ouch. The WaPo points out that, as the plug-in car lines sputter,

they are taking the much-ballyhooed U.S. advanced-battery industry down with them. A Chinese company had to buy out distressed A123, to which the Energy Department has committed $263 million in production aid and research money. Ener1, which ran through $55 million of a $118 million federal grant before going bankrupt, sold out to a Russian tycoon.

Reality is mocking the President's promises. Ron Bailey offers us a bit from the President's State of the Union:

In three years, our partnership with the private sector has already positioned America to be the world's leading manufacturer of high-tech batteries. Because of federal investments, renewable energy use has nearly doubled....

I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here.

Well he was a quarter right about the batteries. He is ceding the industry to China and Russia. At least the Germans didn't get it. This is dreadfully bad policy. It is failing on all its aims and costs a bundle to boot. Energy and environmental policy have to be based on clear thinking, not wishful thinking. Government is really bad at venture capital.

Comments

[Stan Gibilisco]

With all those electric cars coming online, and with the massive additional demand that they'll impose on the power grid, we will have to build a lot of new power plants.

What fuel will we use? Natural gas? Nuclear? Geothermal? Hydroelectric? Wind? Solar? Or ... will we have to fall back on coal for awhile? We have to figure all that out, and figure out how to make it work without impoverishing ourselves in the process.

For my part, I'd love to go off-grid, have a 10-kilowatt Bergey wind turbine and solar panels to boot, charge an electric vehicle with that system, burn wood (most likely) to stay warm, and hunt and fish and grow my own veggies and forage for berries and ... I even have my sights on a specific property outside of Helena, Montana where I could pull it off. But for the money ...

So, President Obama, write me a check for $100,000 today, and by golly I'll go out and do all that stuff tomorrow. And I'd write a book explaining to the world how I did it, and how they can do it too, if they've the will and the money.

Hmmm ... Maybe grants do in fact exist for this sort of venture, and maybe I could get one. Anybody know about that?

Meanwhile, old No. 7 (2003 Chevy S-10) burns premium gas from the local Exxon station on Main Street in Lead. Gets 15 miles a gallon on a good day, by Jove.

[larry kurtz]

The GOP is in full panic: witness KB's diversionary post. Sequestration today, sequestration tomorrow, sequestration forever.

http://www.washingtonpost.com/world/national-security/the-b61-bomb-a-case-study-in-needs-and-costs/2012/09/16/494aff00-f831-11e1-8253-3f495ae70650_story.html

[larry kurtz]

There is a solar plug-in station on Cerrillos around the corner from Trader Joe's and Whole Foods in Santa Fe.

http://www.abqjournal.com/main/2012/06/24/north/car-charging-station-unveiled.html

[Donald Pay]

I find the hype about electric automobiles an offshoot of a bigger problem: the technological bamboozlers. There are religious bamboozlers, too, who go about their business preaching a lot of overblown nonsense. But technological bamboozlers put their faith in a silver bullet or two of some savior technology that's going to provide wealth, virgins and cars or nuclear power plants or some such technology that will solve all problems.

The basic problem is that people don't want to confront reality, so they look for some answer in some promised, but not likely to come true, future. Such people are either fools, if the technology doesn't pan out, or the 1% if some entrepreneur hits on the right technology at the right time. Mostly, new technology falls somewhere in the middle, like the Volt. It's hardly a total bust, but it's not a success, either. As a society, electric cars might be a solution to some of our problems, and probably should get some government backing, but overselling this as a solution is not wise, because the likelihood that any new technology, not just the Volt, is going to hit it big is very small.

Just as foolish are the technological nincompoops, who write over-hyped and ignorant posts like KB's. Governments ought to be in the business of providing seed money to basic and applied research, as well as to efforts to scale up technology. Government has to be smart about it, of course, and too often these projects just go to the politically connected (both parties are at fault). Still, if we want to continue to be a leader in new technology, government has to be involved.

[3 days of darkness]

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[AC Points]

The article starts:

"One of Barack Obama's achievements is the Chevy Volt, GM's entry into the hybrid market. The Administration pushed the development of the vehicle and why should it not? "

The decision to go ahead with the program was made in 2006. The production design was finalized in 2008. Most of the significant development of the vehicle itself was done before the Obama administration. A large part of the production development (assembly line design, etc.) did occur during the Obama administration.

[unicorn4711]

How are Kristi Noem and Michelle Bachmann's ag subsidies doing? How much do we redistribute to ag from more profitable sectors? 15 billion a year? Or John Thune's favorite, big military spending? How much is that, 800 billion a year? Those couldn't be boondoggles because Republicans support them, right? At least the Chevy Volt could do something to reduce needs for foreign oil.

[medyum siteleri]

Thanks for the information about Iodine, I've had goiter for a while now and I needed this. Thanks!..

[Bill Fleming]

Okay, I've seen some kooky spam before, but this "goiter" one takes the cake.
I hope you leave it up, KB. It's kind of a little gem in it's own random way. LOL

[Mike Quinlivan]

The editorial misses the point completely on the sunk costs of developing a new car line. Even if these cars were not electric, but made from pop bottles and a hamster turning a wheel for an engine, there would be a break even point for the company. This editorial is akin to complaining that the first pencil to roll off a brand new pencil assembly line cost $150,000 dollars to produce. When you add up R&D, new parts, new suppliers, yeah, the sunk costs are more than what one makes per car. Once they reach the break even point, then Chevy will see a profit. Business 101, now not availible at NSU!
PS Thanks Dr. Blanchard, for the tips about iodine... ;)

[duggersd]

Mike, just how many Volts have to be sold in order to break even? Considering they are not selling very many and the major purchaser is either the government or people who want government business and that is not very many going to end users, I doubt Chevrolet will ever sell enough to break even. They cannot even sell them with a sizable gift from the government. BTW, if you remember that Econ 101 class, you should know that if a company cannot turn a profit, it will eventually go bankrupt. GM is going this way as we speak.

[Mike Quinlivan]

Duggersd

If a company can't turn a profit, it asks congress for a bailout (AIG, Bank of America, etc.) Barf....

How many need to be sold? I don't know the sunk costs of R&D on the battery technology. However, you act as the Volt is the only car Chevy makes. Last I checked it has many models. Models that it can also use the technology developed for the Volt as the manufacturing process is refined. This will lead to a competitive edge as the technology trickles down the line.

Here is a link http://money.cnn.com/2012/08/30/autos/volt-sales/index.html

Right now the Volt is not liked because of the bailout. Fair enough; just a little intellectual honesty on the part of Dr. Blanchard, and an acknowledgement of the fact that any, I repeat, any new line of "something", will lose money until it reaches it break-even point would be nice. But it doesn't fit the anti-obama theme, so its either not mentioned, or Dr. Blanchard doesn't know this fact, which is a scarier thought.

[Spectre]

http://jalopnik.com/5942352/gm-isnt-really-loosing-all-that-cash-with-each-volt

Essentially, it boils down to this: GM did spend a metric crapload of money developing the Volt— somewhere between $1 and $1.2 billion dollars. So, if you divide that big fat number by the 21,500 Volts GM has sold so far, then you get an R&D cost per car of about $55,000. Since the car sells for $39,000, that's an issue, and that's not even factoring in the costs to actually build it (estimated at between $20 grand and $32 grand.) So, that's where they got their ~$40,000 per car figure.

The problem is, all this assumes that 21,500 is all the Volts that will ever sell, and, think whatever you want about the car, that's not the case. The Volt R&D isn't just for one solitary model— it's for several generations of cars that will share and develop the basic Volt underpinnings. GM knows this, and is even quoted in the Reuters article, saying

"It's true, we're not making money yet…[the Volt] eventually will make money. As the volume comes up and we get into the Gen 2 car, we're going to turn (the losses) around."

An article on International Business Times lays the case out very well, and points out that the Reuters numbers also don't include the Volt's Holden and Opel twins in Australia and Europe.