Europe, US starting to rethink EV buyer incentives

Might Australia's legislators be proved right in their slowness to push an immature technology?

The Australian government has come in for criticism for its failure to foster a virtually non-existent EV sector. But the Commonwealth of Australia may yet be vindicated in its apparent tardiness.

Amid disappointing sales of EVs worldwide, Europe and the US are showing signs of rethinking incentive schemes designed to draw in buyers.

EV sales aren’t merely failing to live up to expectations – they’re tanking. As an example, sales of Nissan’s LEAF (pictured), the best selling EV in the US in 2011, have dropped 28 per cent year-on-year, to just over 5200 units.

Consumer-focused incentive schemes have failed to push buyers away from fossil fuels and towards EVs. Now, industry and governments are starting to wonder if the money might not be better channelled into R&D programs to make batteries competitive with combustion engines.

This is where local legislators might not want to feel too smug in their inaction. Because those nations have already progressed down that path. The US government has allocated about $2 billion of its total $US7.5 billion allocated to the industry between now and 2019 to R&D grants for the battery industry. And while European governments load up already punitive petrol prices with consumption taxes, they’re sending plenty money the same way. The German government, for example, has already committed around a billion euros of public money to battery development.

Australia, by contrast, shut down its Green Car Innovation Fund in 2011, despite the promise it showed in results like EV Engineering’s electric Commodore, for which the company received $3.5 million.

The Washington-based Information Technology and Innovation Foundation (ITIF) has released a report debunking any suggestion either the carrot approach of vehicle subsidies or the stick approach of tax hikes on fossil fuels are working in the US or Europe. ITIF concludes that a massive overhaul is in order, with the money better spent speeding up the development of battery packs good for a range of around 500km on a single charge at a cost of less than $US250 per kilowatt hour.

In other words, stop nagging consumers to buy until the technology matures properly.

Governments across the world have rolled out such schemes, particularly in larger markets of the US, Europe, Japan, China and India. The US offers subsidies of up to $US7500 (over $AUD7000) to offset the high purchase cost. UK buyers get up to £5000 (around $8000); in China the subsidies go up to around $8500.

Holden's Volt PHEV lists at a price of $59,990 plus ORCs. The Cruze, which shares its platform with the Volt, starts at $21,490. Buyers will get no government relief to narrow the margin. The same applies already for Mitsubishi’s i-MiEV (from $48,800) and Nissan’s LEAF (from $51,500). Whatever breaks are available come in the form of attractive finance packages and buyback guarantees.

None of it’s working, for reasons explained. No matter what its advocates say about low running costs and love of Mother Earth, there’s still a hefty convenience gap between the old and the new. Put simply, a battery takes several hundred times as long to fill up as a fuel tank and gets you half or a third as far.

EV marketing counters this with a raft of caveats and disclaimers, generally focusing on how easily EVs fulfil the workaday needs of the average commuter and how a battery might take eight hours for 100 per cent charge but it only takes four for 80 per cent and the like. It’s also much cheaper, with an electric “tankful” costing just a dollar or two at the most.

Consumers are barely budging, at least not past hybrids – and even then only conventional ones, not plug-ins. No raft of rebates and other tax breaks, transit lane privileges and exclusive access to plum parking spots, often free when everyone else pays, is getting them any further. Although GM’s Volt is beginning to gain traction in the US, 2500 sales in August falls well short of what the company and the legislature want to see. And that’s a car with a viable range, and one that can be charged from a domestic socket.

A few thousand dollars back on the sticker price is far from enough to get punters into showrooms. Especially when it’s on an artificially high early-adopter sticker price for a vehicle with little support in the way of roadside charge stations, and such a long wait once they’ve found one. In Europe, it’s hard to justify a small-medium EV when you have your choice of excellent IC cars – diesel and petrol – that run on the smell of an oily rag.

There’s also the question of how to mitigate the discomfiting uncertainty of the new. Industry, lobby groups and governments are addressing the latter issue steadily via events such as the local Green Zone Drive programs and the recent nationwide Plug-In Day in the US. Most of all, however, prices need to drop. The major issue here is the catch-22 confronting those pushing the cause. Namely, that volume is crucial in pushing prices down, but volume sales are hindered by high entry prices.

Hence the growing chorus of parties suggesting the way to get volume is to get the product to meet existing mass market standards, as expressed by ITIF’s suggested $250/500km price equation.

Germany is the latest country to publicly ponder whether buyer incentives are the way to go in achieving its target of a million EVs on the roads by 2020. To that end, it’s announced an EV subsidy scheme to come in after its next general election in late 2013.

The size and nature of the subsidies aren’t yet decided, Chancellor Angela Merkel has told media. But alongside any direct subsidies or rebates, elements within the government have mooted possible further measures including vehicle tax exemptions extending up to 10 years for those who buy non-fossil fuelled vehicles before the end of 2015. “The question of how we will tackle this during the next legislative period and whether one needs more incentives – that will be decided when the time has come," the Chancellor said.

But German media are reporting vigorous debate within the ranks of government over the value and viability of such schemes, with leaks that some ministries want to shelve or dump them altogether.

Reuters reports the UK government is going through the same self-doubt on the subsidy schemes it already has in place. Department of Transport buyer grants of up to £5000 and funding for a 1600-plus network of charge stations generated just over 1000 registrations in 2011. That’s a near tenfold increase on 2010, but with more than £11 million spent on the program to date, that’s a lot of money per buyer. Especially since the research shows much of it went to well-off progressives buying novelty second cars.

California, meanwhile, has halved its EV rebates as part of a wider cost-cutting program. It comes on the heels of a Reuters report that the Congressional Budget Office (CBO), one of the federal government’s key sources of economic data, is questioning the wisdom of rebates it calculates will consume about 25 per cent of a total $US7.5 billion to be spent between now and 2019. The CBO says schemes will have “little or no impact” on aggregate petrol consumption. It calculates a cost to the federal government of between $3 and $7 for each gallon of petrol saved by consumers persuaded over to PHEVs and full EVs.

The CBO also points out that the $7500 federal tax credit doesn’t even come near to closing the price gap, let alone mitigate the convenience gap as well.

The office also mentions another anomaly in the federal approach. The upcoming corporate average fuel economy (CAFÉ) standards impose an average 35.5mpg (6.6L/100km) on each vehicle sold by each carmaker by 2016, rising to 54.5mpg (4.3L/100km) by 2025. “Increased sales of electric vehicles allow automakers to sell more low fuel-economy vehicles and still comply with [those] standards),” it said in its report.

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Europe, US starting to rethink EV buyer incentives

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