While we are looking for places to come up with savings in the federal budget, its time that we looked at cutting the federal subsidies for electric cars. Through its loan and subsidy program, the United States is creating a market for a product where the is no demand. The problem with buying demand is that once the payments go, the demand flies away also.
Much of the electric and hybrid car business is in the US are subsidized by the US Govt.In 2010, one fourth of GM and Ford’s hybrids were purchased by the federal government. Nissan got a $1.4 billion dollar loan from the feds to develop their electric car, the Leaf. Several thousands of dollars in tax credits per car have to be shelled out to make these models attractive for sale.
The Chief Executive of Ford Motor Company, in an interview with CEO Magazine, stated “the internal combustion engine has a lot of room for improvement.” He went on to mention direct-fuel injection, turbo-charging, integrated electronic, new light weight materials, and improved air flow. J.D. Power and Associates identified other ICE improvements, such as variable valve timing, cylinder deactivation, and start-stop technology. Together these technology improvements could result in a 40% reduction in oil use, according to the NAS. The newest generation diesel engines, although more expensive than ICEs, could also increase miles-per-gallon efficiency by 30% or more.
Electric cars are turning out to be a typical example of what happens when the government picks winners in the marketplace rather than let the market pick the winners. We now have government inefficiently using tax dollars to create a market that isn’t there. There is a reduced incentive to improve battery technology as long as the government subsidizes the market. The government will have to continue to subsidize the hybrid, hybrid electric, and electric car marketplace for the foreseeable future or else it will collapse from the reduced demand.
If you would like to read the entire study it is embedded below: