Posts Tagged ‘ electric ’

Fair Price Comparisons for Electric Cars

Journalists unfortunately are not serving us well when covering the development of electric cars. Rather than taking a clear look at the issue, reporters–who are, after all, like the rest of us–too easily fall into fallacies that serve the automotive and energy status quo. A recent Washington Post article is a textbook example. The article begins talking about the promise of the Chevrolet Volt, but quickly gets to a criticism:

The problem is GM will likely have to price the vehicle far higher than a comparable family car with a gas-powered engine, putting it out of reach for many consumers, particularly if oil prices remain low.

This is a false comparison because it assumes that retail gas prices reflect the actual cost of using that fuel. In fact, while retail gas prices are kept artificially low in the United States, the hidden costs of gasoline–from the military forces required to secure oil supplies to environmental and health effects–could well make the true price of a gas-driven car much closer to the cost of owning and operating a plug-in electric vehicle. There may be good metrics for a proper comparison out there, but damning the Volt because it retails at $10,000 more than “comparable” gas cars is crappy analysis. How about considering the differences in maintenance for a car that requires no oil changes, spark plugs, fuel injectors, air filters, transmission fluid, or timing belts?

The article then goes on to talk about competing strategies, such as more efficient hybrids from other companies and the luxury-first approach that Tesla took. Tesla’s model is based on the idea of having the first generation of these cars start as luxury models for early adopters. The argument holds that those early adopters will make the technology cheaper over time, paving the way for mass adoption as was the case with DVD players and flat screen TVs. As the Tesla CEO said, “We didn’t start with a Honda Civic because it would be a $70,000 to $80,000 Honda Civic.”

Fair enough. But we have a lot more at stake in the mass production of electric cars than we did in the development of the DVD. Moreover, the Volt’s critics are missing the fact that the Volt is coming in at just $10,000 over other family cars. By doing so, Chevy is showing Tesla that GM can leapfrog the luxury step and deliver the true game changer–a mass-production EV developed and built in this country. For the value of moving our country that much faster toward the day when we abandon the internal combustion engine, that much faster toward the day we no longer need to send our troops to secure Middle Eastern oil, a $10,000 tax credit or other incentive would be money well spent.


Don’t give up on cars.

David Yermack, a professor of finance at NYU’s Stern School of Business, argues in today’s Wall Street Journal that American automakers have run their businesses into the ground by wasting enough money that they could have used that cash to buy the major Japanese carmakers instead. He champions former GM CEO Roger Smith, the Roger of Michael Moore’s “Roger and Me,” as brilliant because he shifted GM money away from cars and into the bargain purchases of Ross Perot’s EDS and the Hughes company that would later become DirecTV. Smith later sold the companies at a tremendous profit, while the bad management of GM’s automotive line has wasted about $1.5 billion a month for the last nine years. Yermack argues that this mismanagement is all the more damnable because so much of the cost of the failure is borne by society. By this logic, it’s foolish to give more money to automakers–we would do better to cut a $10,000 check to each employee and let the companies go bust.

That Yermack is a finance professor is telling. Why should we focus on the value of losing a major manufacturer? After all, Roger Smith was wise because he looked at what would make GM more money, and buying and selling companies will always use less employees than making cars. Efficiency! But such logic is behind the increasingly oxymoronic term “financial services industry.” What does the kind of finance we’ve been practicing really produce in the way of services? In the end, this “industry” got out of the business of providing services on sound commercial terms to keep the economy growing, and merely amassed capital for its own sake and redistributed it on terms completely divorced from reality. And, as Yermack fails to note, his preferred approach has now wasted far more money than the automakers have. To follow Yermack’s argument to its logical conclusion, the US should get out of the finance business because our financial titans have proven over the last 20 years that they cannot succeed without greater and greater injections of taxpayer capital.

As for the idea that we could invest in our automotive sector to build the next generation of automobile, to help us lead the way into the post-internal combustion engine world, Yermack dismisses the notion with one of 13 paragraphs, near the end of the piece. Because GM and the other US automakers fought environmental and fuel efficiency standards for so long, they don’t deserve a break now. This puts Yermack at odds with many environmentalists, including the filmmaker who exposed the industry’s offenses in “Who Killed the Electric Car?“, who are impressed with the Chevy Volt and the promise of an electric future.

The answer may not be to give GM everything it’s asking for, but if we are to bail out the Masters of the Universe who made–and cling to–their obscene compensation for making money off “crumbs,” the least we can do is find a way to buy time for the newly creative forces at GM to survive and, hopefully, help the US lead the world again in research and innovation. Our country is made up of drivers, and China is building highways the way we did beginning with Eisenhower. We should want the Chinese people, who increasingly are adopting the materialistic American dream, to drive American cars, and if they steal the technology to make their own cars, it is in our interest that they steal electric car technology. We simply can’t afford to have the Chinese population pollute the way we have over the past 50 years.

Professor Yermack, get your own house in order first, then tell us to abandon manufacturing.

Sorry, Joe. No free lunch.

Joe “the Plumber” Wurzelbacher, or “Wurzelburger” if you’re John McCain, is quickly becoming the Clara Peller of this election. Before his 15, or maybe five minutes are up, I thought I’d jump on the bandwagon. Instead of Clara’s “Where’s the Beef?” tagline, Joe said that Barack Obama wants to “redistribute wealth” and that this was a scary prospect. Joe added,

“[…]I’m not trying to make statements here, but, I mean, that’s kind of a socialist viewpoint. You know, I work for that. You know, it’s my discretion who I want to give my money to; it’s not for the government decide that I make a little too much and so I need to share it with other people. That’s not the American Dream.”

The Republicans and Senator McCain in particular have made similar arguments in this campaign and for decades. The problem is that, by the definition Joe offers, both parties redistribute wealth, and thus embrace “socialism.” Or did Joe not notice the $700 billion recently redistributed from taxpayers to lenders? The redistribution argument today wears almost as thin as “ownership society” privatization of Social Security does following the collapse of the market. The one thing Joe and the rest of us can be thankful for is that our Social Security accounts are not in the same shape as our 401(k)s.

If Joe’s not convinced, we can look at the original socialism bogeyman, healthcare. Anyone who proposes providing for 100% health insurance coverage is branded a socialist, usually accompanied by the argument that government involvement would mean a bureaucrat will decide what doctor you see and what care you get. This ignores the fact that we already have a socialized healthcare system, but an extremely inefficient and costly one. It’s socialized because a) medical facilities cannot legally deny care, and b) the costs of the uninsured are passed on to businesses and employees in the form of higher premiums. So Joe is already having money taken away from him against his will, except the money is being taken by an insurance company instead of by the government. And which is more responsive to Joe? A company that sees paying his claim as a loss rather than the service he paid for, or a government agency accountable to him through his elected representatives in Congress?

The latent “socialism” extends further. So McCain says Obama will raise taxes. But to avoid ever being accused of raising taxes, the only place for McCain and “conservatives” to go is to foreign governments to borrow the money. Or did Joe think the Iraq War was free? And cutting pork only gets you less than $20 billion in savings, less than one percent of the federal budget. So would Joe rather pay taxes to fight our wars today, or would he like to finance it with credit from People’s Republic of China and Saudi Arabia? That way, Joe’s taxes never go up, but his and my kids will be paying foreigners for decades to pay today’s bills.

And if Joe likes flat taxes, how about we ask all candidates why they don’t push to extend FICA witholding to wages above $102,000 a year?

We need to get past this, all of us. This republic costs money, and there’s no getting around it. You can’t wish it away, though decades of ideological imperatives have put a premium on hiding this fact from us. The costs are hidden through truly redistributive shell games like hiring illegal immigrants to keep prices and Americans’ wages low. The costs are hidden by comparing costs of electric cars to gas powered cars based only on the retail price of gas at the pump, rather than including the huge associated costs of keeping the oil economy running. Promoting the general welfare costs money. Patriots understand that we are all in it together, and that we all have to pay our share. Believing that doesn’t make you a socialist. It makes you a realist and a good steward, something I always associated with conservative ideals.

No Way to Avoid Petroleum. Imagine That.

All Roads Lead to Petroleumland

All Roads Lead to Petroleumland

I was sucked in to playing Energyville by impressive ads in the Economist and the Wall Street Journal. I expected a complex, sophisticated game that would show me, as promised, the tradeoffs involved in providing energy for a fictional city 20 plus years into the future. Silly me. As I knew, Energyville is sponsored by Chevron, but I didn’t think, apparently naively, that Chevron would so obviously skew the game in its favor. What happened to subtlety? The game is laughably simplistic, and all gambits played result in a future full of oil. Specifically, no matter how much you opt to conserve in your future world, no matter how much solar, wind, and nuclear power you employ, the game insists that cars, planes, and other modes of transport will need to burn things. Now airplanes, OK, I get it. But cars? And when you get 20 years down the road, those cars still have to use internal combustion engine, using new energy sources like hydrogen and shale oil. There we see Chevron’s tell. There can’t be a world without internal combustion engine-driven cars, because that would mean the end of Chevron and other oil companies’ lifeblood. That would mean no more gas stations, no more oil (or hydrogen) distribution network, no more refineries, no more exploration–no more reason for Chevron to exist.