The Excruciating Economics of Electric Cars

Ford Focus EV

The Ford Focus EV is due in 2011.

With oil prices reaching record levels for the year—and potentially heading higher—the prospects for electricity-powered cars is also on the rise. Barclays Capital said, “The groundwork for a sustainable move into higher price ranges has been laid.” Deutsche Bank said prices could surge to $100 a barrel in the next two quarters if the US dollar continues to weaken—with relatively little effect on a global economic recovery. Rising oil prices alone are not enough to ensure the future of electric cars—but there are clear signs of a massive transition to plug-in hybrids and electric cars.

“Electric transportation is still expensive. We cannot overpromise and underdeliver and hype this.”

Nancy Gioia, director of electrification

The industry to produce lithium ion batteries—they key component of electric and plug-in hybrid cars—is ready to boom. In a report released on Wednesday, Pike Research projects that lithium ion batteries will make up more than 20 percent of the global $4.1 billion energy storage sector within the next decade. The Mercedes S400 hybrid will be the first mainstream production vehicle to use a lithium battery, when it’s introduced later this year. The next generation of plug-in hybrids and electric cars will all utilize lithium ion batteries, which can provide more power and energy storage in a smaller lighter weight package. “While lithium ion was once limited to consumer electronics devices, it is quickly becoming the battery of choice for electric vehicle manufacturers,” said Pike Research analyst David Link.

Sanyo, the Japanese electronics company, announced Wednesday a major push to mass-produce lithium ion cells for plug-in hybrid vehicles starting in 2011. According to the Wall Street Journal, Sanyo plans to produce 300,000 to 400,000 batteries per month for use in vehicles that can be recharged at home. The company will also produce battery systems, including chargers, in the US, Europe and China after 2012. Sanyo is the subject of a takeover bid by electronics giant Panasonic, which jointly produces batteries with Toyota, the dominant player in today’s hybrid market. By 2015, Sanyo’s plan is to produce 10 million lithium ion batteries per month for hybrids and plug-in hybrids.

Battery production for plug-in cars currently is almost exclusively based in Asia—but US firms are trying to break that stranglehold. Mass.-based battery maker A123 Systems—which raised $380 million in an initial public offering in Sept. and received a $249.1 million grant from the Department of Energy in August—said yesterday that it’s negotiating an additional $235 million loan from the energy department to expand US operations. “It’s not done, but it’s in discussion,’’ said A123 CEO David Vieau.

Electric Transportation for the Masses

These levels of investment are predicated on rapid adoption of plug-in cars, but obstacles remain—primarily cost. Nancy Gioia, Ford’s newly appointed director of electrification, said yesterday that Ford wants its hybrids, plug-in hybrids, and electric cars to be more than a niche. “It’s about affordable transportation for the masses,” she said at a presentation of the Ford Focus EV and Ford Escape Plug-in Hybrid to media and government officials. had a chance to drive the vehicles. We were impressed by the advanced level of development of the prototypes which are two years away from production. The viability of the technology is no longer in question, but cost is another matter. “Electric transportation is still expensive,” Gioia said. “We cannot overpromise and underdeliver and hype this. Because what could happen is you damage the reputation of the technology.”

“This is the biggest shift in the car industry probably since we went from the horse to the gasoline engine.”

Henrik Fisker, CEO of Fisker Automotive

Then there’s the expense of adding recharging infrastructure. Bloomberg reported today that California’s push to lead US sales of electric cars might result in higher power rates for consumers. California’s Public Utilities Commission is reviewing the effect of electric cars this month. Power companies have to install new transformers and meters to handle greater demand and prevent blackouts when plug-in cars are charged at outlets. That will cost billions of dollars and utility rates will rise to cover the costs, according to analysts. Southern California Edison estimates that by 2020, as many as 1.6 million cars recharged by the grid may be in use in its 50,000-square-mile coverage area, about the size of Alabama.

Unstoppable Transition

The excruciating economics of plug-in cars is unlikely to stop the technology’s momentum. Industry and political leaders believe the transition from gas-powered vehicles to cars that charge up at home is a means to create new clean tech jobs, rejuvenate the auto industry, and address environmental and energy security issues. “We stand on the threshold of a real revolution in the propulsion of our vehicles,” Ford Executive Chairman Bill Ford Jr. said during a speech at The Business of Plugging In, a conference held in Detroit this week. Henrik Fisker, CEO of Fisker Automotive, which makes the Fisker Karma plug-in hybrid, said, “This is the biggest shift in the car industry probably since we went from the horse to the gasoline engine.”

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  • indigo

    It does seem that the next batch of EV cars are at least on the *verge* of being affordable. The automotive rumor-mill seems to indicate that the Focus EV and the Nissan Leaf will cost somewhat less than $30k and have a 100-mile range. That’s a step up from the prior generation of EVs that cost $40k+ and had a 40-mile range.

  • veek

    For those wondering about living with an electric car, the November ’09 Automobile magazine has an article about five days with a Tesla. The author began with a skeptical attitude and ended up wondering how he was going to live without one. He was impressed with the immediate availability of the power and reported that in its own special way, the Tesla was the fastest car you can buy.

    Unfortunately, it may not be the cheapest to run. The author figured a continuous charge at 44 cents per kilowatthour (which was the high-use rate where he lived) would be equivalent to about 19 miles per gallon, although electric companies may offer a tiered system if you charge at night (sorry, night-shift workers). It seems to me that if you live in a cold climate , in a house with weak wiring, in a high electric cost area, or in an area with a lot of brownouts, good luck.

    So — it was a lot of fun and a good car, but electricity is not free.

  • hsr0601

    With the concept of “V2H” (vehicle to home), the vehicle can supply 100V electricity stored in its on-board lithium-ion batteries to electric appliances in a house.

    It is possible to charge the batteries at night, when electricity is cheaper, and use it for home appliances during daytime, Mitsubishi Motors said.

    And the company claims that the batteries can provide almost all the electricity used in a normal household throughout the day.

    Thanks !

  • ex-EV1 driver

    That 44 cents per KWh is probably the highest gouging in the country. Southern California Edison’s rates get that high at the highest tier. They increase the price as your consumption increases. It is designed to discourage people from using a lot of electric power (note that they conveniently make a lot of money off of those who do at the same time). Even when this rate is charged for some of your electricity, the average is closer to half that price.
    The cost per KWh in most places in the US is closer to 10 cents/ KWh.
    I get between 3 and 4 miles per KWh in my normal driving with our Tesla Roadster. So at 10 cents per KWh, that’s 2.5 to 3 cents per mile in fuel costs. At the 44 cent rate, of course, that goes up to 11 to 14 cents per mile peak or the average would be 5.5 to 7 cents per mile.
    Compare that with $3/gal gasoline and my normal use (my same kind of driving) with our Honda Civic Hybrid at 30 to 43 mpg. That makes for 7 to 10 cents per mile.
    Of course, with TOU (Time Of USE) electric rates, that 10 2.5 to 3 cents per mile is closer to what you’d pay.
    Tesla Roadster TOU: 2.5 to 3 cents per mile
    Tesla Roadster SCE tiered: 5.5 to 7 cents per mile
    Honda Civic Hybrid: 7 to 10 cents per mile
    Tesla Roadster wins either way.
    I’ll also add that when the Honda Civic is driving crazy and only getting 30 mpg, its not blowing away every Ferrari and Porche on the road and convincing speed freaks to consider scrapping their 12 mpg speed metal and getting a more ecological and less embarrassing car like the Tesla >:-)

  • veek

    Good point, ex-EVI driver, you are correct that the 44 cent rate is at the high end of the scale (electric cars use enough juice to tip your overall use cost into the higher realms of power consumption), and it will surely be adjusted for electric car use, somehow. Nevertheless, that “somehow” will just as surely include the need to build more power plants to charge electric cars, and those power plants cost millions of dollars even if you build wind, geothermal, etc. Electricity is not free. If we need to build more power plants for electric cars, this has to be considered in the cost of power, and if taxpayers pay for it, then it has to be counted as a mandatory subsidy (we also indirectly subsidize gasoline with wars-for-oil, the costs of environmental cleanup, etc. although we get some of that back in gas taxes. Good luck, though, trying to come up with a defensible price analysis).

    Yes, I am sure the Tesla is vastly more fun to drive than the Civic (or nearly anything else on the road, including a Lamborghini). But I’ll bet the Civic will be far more dependable, and will get you there even if you have a power outage in the middle of the night.

  • Lost Prius to wife

    indigo, supposedly the Nissan Leaf and Ford Focus will be cars in the Honda’s Insight size and subcompact category. They will not be in the sedan category of the Prius and the slightly bigger than Prius Ford Fusion and Chevy Volt. The way the pricing seems to be playing out at present is that the subcompact hybrids / EVs will price out at ~$20K to ~$30K and the sedan hybrids / EVs will price out at ~$25K to ~$50K. What will be the final real pricing for 2011 / 2012 and what will be the competitive pricing five or more years down the road? That will be anybody’s guess.

  • Lost Prius to wife

    Veek, you and ex-EV1 driver are correct that electric mode can prove interesting when passing. Just like the November ’09 Automobile magazine author discovered with the Tesla, when starting at 50 mph, our Prius with a 50% charge or better (which is most of the time) has never been stopped from passing by cars with approximately double the horsepower. By the time these people hit the accelerator to cut us off, we are usually already by them. Electric acceleration is a “Now!” thing and really can not be matched by an ICE.

    I am still trying to figure out why these people are driving 50 mph in a 55 mph or 60 mph zone. Maybe they are trying to maximize their ICE RPMs for the best fuel economy? Maybe it would be easier to maximize their mileage if they bought a hybrid or EV? All that extra horsepower sure doesn’t seem to help when passing.

  • ex-EV1 driver

    Certainly, electricity is not free but it is a whole lot cheaper than oil and it can be obtained from a multitude of different sources (my roof included).
    The encouragement of EV charging at night actually will preclude the need to increase generating capacity for a long time (I’m too busy now to dig out the EPRI studies). In fact a lot of EVs can be run simply with the energy which is wasted at night today. As deployment increases, they’ll have to quit throttling the plants down at night and eventually, there may be a need for new plants.
    Remember also that it takes a lot of electricity to refine a gallon of gasoline although I’m still trying to dig up a definitive quantity. Estimates I’ve seen range from EVs needing the same amount of electricity to go a mile as is required to refine enough gasoline to go a mile to about 1/4 of it. Either way, just getting rid of electricity for refineries will take you a long way toward fueling electric vehicles replacements.
    I, in no way, expect (in fact, I am opposed to) the government to pay for the building new electrical generators. This can and should come out of the cost of the electricity.
    As I mentioned, in my personal case, I’m actually in the process of installing solar panels on my own roof to generate my own electricity although this is somewhat expensive without government subsidies but thanks to the fact that I’m offsetting 30 cent/KWhr electricity and $3.00/gallon gasoline, the payback time is a lot shorter, even without subsidies.

  • Lost Prius to wife

    ex-EV1 driver, although you don’t need it, I support and applaud your energy efforts. Once you are finished, could you report back your system specs, approximate overall cost, and how well it works on completely charging a Tesla?

  • ex-EV1 driver

    Lost Prius…
    Sure, I’ll try to do that. I’ll prefer to try to wait until around this time next year as we’ll have a full year of performance to look at. As you probably know, winter is generally not the optimal time for solar because of the shorter days and lower sun angle.
    Clearly, cost-wise, I’m not saving money with the Tesla and solar. I could put gasoline in my inherited ’91 Buick for a long time before I’d pay more than the cost of the Tesla and solar panels.
    It’s the future we’re thinking of.

  • Lost Prius to wife

    ex-EV1 driver, as a friendly “devil’s advocate”, I take issue with your statement, “Clearly, cost-wise, I’m not saving money with the Tesla and solar.” Not everyone is going to buy a Honda Fit. Not everyone is going to buy a Toyota Prius. Not everyone is going to buy a Ford Fusion or a Chevy Volt.

    The Tesla is capable of running with the Ferraris, the Lamborghinis, and the high powered American Mustangs, Corvettes, and Camaros. And all this with just electricity. You will save money over what you would have paid for any of those fore mentioned cars – in the short run for some and the long run for the others.

  • ex-EV1 driver

    Lost Prius …
    I agree, the Tesla Roadster dominates the real class that it fits in and is actually a bargain, even initially. The low operating costs are just icing on the cake.
    This realistic business plan is why we felt they had a chance of making it (and not losing our downpayment).
    Getting back on topic, I think its a shame that the power companies seem to be trying to hold up electric vehicles in order use the popularity of electric vehicles as an excuse to raise rates. In reality their popularity will increase revenues and profits, even with existing rates.

  • Henry Gibson

    If you have enough money to buy a Tesla, you have enough money to buy a GENERAC natural gas powered generator from Home Depot for your emergency power. A price of 44 cents is an emergency, so you can just rev up your generator to charge the car. Tesla should offer a home battery option; permanent cheap lead acid batteries that charge when power is the cheapest, but charge the car when ever you want to at a very high rate. You can also avoid household use of high cost power. Gasoline prices should be regulated too; if power prices permit gouging for high use, then Hummers would be charged $20 a gallon to fill up. ..HG..

  • Kelly

    Charged $20 a gallon is acceptable but i would like to know more about the electric car mileage & its maintenance as i have heard that this kinds of car life is not more that 5-6 years is it true. so i would like to prefer in my

  • Simi

    Electric car can be get this market in to very different segment,
    as this was the basically require by this point time for car industry hope its good on get in to long time running car. as all the car like Pre Owned Cars small car, luxury car & SUV gone electric shortly.

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