Hydrogen fuel-cell vehicles might be the cars of the future. In fact, to recycle an old joke (because here at Fuel Freedom we’re big on recycling), FCVs might forever be the cars of the future.
Earlier this month the nation celebrated National Drive Electric Week, with events in 195 cities. Read more
Americans love their freedom to choose. Someone invents something, and competitors rush in with their own similar products to fight for a market that didn’t exist before.
This is what Tesla has done with the electric vehicle: The Model S is making cold-eyed journalists swoon, and the next few months are huge: The company will soon release its eagerly awaited crossover SUV, the Model X, followed by its more-eagerly awaited “affordable” sedan, the Model 3.
But Tesla shouldn’t get too comfortable, because the established auto-makers want to steal some of its quiet, zero-emission thunder with EVs of their own: In the past week, Toyota unveiled the new Prius, trying to assure everyone it can be cool as well as get 10 percent more miles out of a battery charge; Edmunds gave its blessing for the 2016 Chevy Volt; there was a possible sighting of the 2016 Nissan Leaf, the best-selling EV in the U.S.; and there were rumors that Mercedes-Benz is working on an electric car than has a range of 311 miles.
It’s a basic rule of economics: Competitive markets are good for consumers. Which is why drivers should be demanding fuel choice as well.
Gasoline is cheap now, but it doesn’t take much to cause a price spike: The threat of a supply constriction overseas; a refinery going down (and staying down, in California’s case); output quotas in OPEC nations. Anything can cause volatility in the global market. Businesses don’t like uncertainty, and it’s bad for consumers as well.
The only way to reduce the cost structure of fuels over the long term is to create fuel choice, something the United States has never known. To quote former Shell Oil president John Hofmeister: “We will never get past the volatility of oil until we get to alternatives to oil.”
We’re not advocating an end to fossil fuels. We just want fuel choice: Ethanol, methanol, CNG, LNG, biodiesel, hydrogen and, yes, electric batteries. Anything that reduces our dependence on oil is good for America.
If gasoline, the same fuel we’ve been stuck with for more than a century, is the superior fuel for vehicles, let it compete with other choices at the pump. If oil companies don’t want competition, what are they afraid of?
- Pearson’s CA growth proves there’s demand for E85
- Tesla approaches a moment of truth
- Oil is cheap, so why is gas sky-high in some places?
- Hofmeister: Oil companies actually hate high prices
The month of September will mark a turning point as to whether Tesla Motors will be just another overhyped technology stock or whether it is truly about to lead a revolution in the auto industry.
The month will mark the introduction of Tesla’s Model X, a $90,000 crossover SUV that will test the company’s ability to compete against the other automobile giants. If it passes this test, Tesla will be in a great position to mass-market the $35,000 Model 3 sedan when it goes on sale in late 2017. If the Model X turns out to be a dud, however, Tesla will face a much tougher climb in trying to break into the mainstream with the Model 3 two years from now. At stake will be Tesla’s market capitalization of $31 billion – higher than Chrysler’s – plus that $1 billion “gigafactory” the company is building in the Nevada desert to supply batteries for the anticipated sales of the mid-range Model 3. Plus the home -energy storage market.
The possible success of Models X and 3 is so unprecedented that it has caused economists to revise one of the most cherished theories of economic change, the idea of “disruptive technology.”
The idea of disruptive technology comes from the 1997 book by Harvard Business School economist Clayton Christensen and has made the phrase one of the most popular buzzwords in the field of economic progress. The title of Christensen’s book, “The Innovator’s Dilemma,” described how well-established companies often miss important transitions when newcomers break into the market with simplified products targeted at the bottom end. Christensen used the success of personal computers and steel mini-mills to illustrate how newcomers entered the field with cheaper and more convenient products targeted well below those segments claimed by leaders such as IBM or U.S. Steel. Eventually the upstarts toppled the giant.
There’s just one problem in positing Tesla as a disruptive technology: It has been overwhelmingly aimed at the richest auto customers, rather than the poorest. This prompted another Harvard B-School professor, Thomas Bartman, to write an article in the May issue of the Harvard Business Review arguing that Tesla is not disruptive but just another high-priced item aimed at biting off a luxury end of the market. Bartman argued that Tesla is too expensive to be disruptive, but that golf carts and those minimalist electric vehicles being produced in China were the true disrupters of automobile technology. They would catch on as courtesy vehicles for motoring around senior citizens’ centers and eventually upgrade to an urban vehicle convenient for making short shopping trips and finding a place to park.
This challenge has prompted other economists to revise the theory of disruptive technology and to create a new category into which Tesla easily fits. This is known as “high-end disruptors.” Jeff Dyer and Hal Gregersen make the elaborate case, in Forbes, that Tesla is only one of many new high-end disruptors whose chances for success are just as likely as those disruptors coming in from the low end of the market:
Unlike classic disruptive innovations such as steel mini-mills, personal computers and, in the car business, cheap Japanese imports, Tesla never pursued the classic route of going after low-end, price-sensitive customers first with cheaper, inferior technology. It doesn’t pursue nonconsumption, or customers who don’t currently drive cars. Tesla automobiles look and drive much like other cars, use established infrastructure like roads and confine much of their product innovation to only one aspect: the power system.
… Tesla has instead proved to be a different kind of disruptor, a high-end version that can be just as troublesome for the incumbents …
High-end disruptors produce innovations that are leapfrog in nature, making them difficult to imitate rapidly. They outperform existing products on critical attributes on their debut; they sell for a premium price rather than a discount; and they target incumbents’ most profitable customers, going after the most discriminating and least price-sensitive buyers before spreading to the mainstream. If you look within some large companies, you can flesh out previous examples: Apple’s iPod outplayed the Sony Walkman; Starbucks’ high-end coffee drinks and atmosphere drowned out local coffee shops; Dyson’s vacuum cleaners now have solid market share; Garmin’s GPS golf watches have taken much of the business from range finders. The incumbents didn’t react fast enough, and the high-end disruptors took over their market.
So it may be with Tesla. The company may not just disrupt the auto market but may force a revision of one of the most cherished new economic theories — that disruptions must always come from the bottom. Once again, Elon Musk may have outfoxed the experts. But it will all depend on how automobile consumers start responding to the new models targeting the mainstream.
By next month we should start to find out.
- Tesla continues to walk the tightrope
- Is this golf cart more disruptive than Teslas?
- Is Elon Musk a welfare king?
- Tesla hits some speed bumps
- Tesla going at full speed, but it has competition
Without much fanfare, the number of fueling stations offering an alternative to gasoline has passed the 20,000 mark, according to the federal government’s Clean Cities program. The number of gasoline fueling stations, according to the American Petroleum Institute, is 153,000.
The figure shows that alternative infrastructure is gaining ground even as the number of alternative vehicles sold in the U.S. has slowed of late, an obvious result of falling oil prices. On the other hand, the sale of alternative vehicles has actually accelerated in Europe. China is also giving indications of a big push that will attempt to make it the leading market of alternative vehicles in the world.
Clean Cities is a 1993 initiative of the Department of Energy that has picked up steam in recent years. Its efforts to reduce gasoline consumption include 1) replacing petroleum with alternative and renewable fuels; 2) reducing petroleum consumption through smarter driving practices and fuel economy improvements; and 3) eliminating petroleum use through idle reduction and other fuel-saving technologies and practices. The goal is to reduce gasoline consumption by 2.5 billion gallons every year through 2020. The program claims to have already reduced consumption by 6 billion gallons since its inaugural.
In order to carry out its mission, Clean Cities has formed coalitions with nearly 100 major cities covering 82 percent of the population of the United States. Coalitions are comprised of local businesses, fuel providers, vehicle fleets, state and local government agencies, and community organizations. These stakeholders come together to share information and resources, educate the public, help craft public policy, and collaborate on projects that reduce petroleum use. There are networking opportunities with fleets and industry partners, technical training workshops and webinars, plus information on alternative fuels, advanced vehicles, idle reduction, and other technologies that reduce petroleum use. There are also funding opportunities from the Department of Energy.
Probably Clean Cities’ biggest initiative, however, has been a map of alternative fueling stations across the country. The Station Locator has now grown to a list of 20,000. These include: 12,334 electric recharging stations, 3292 propane stations, 2,956 gas stations that offer E85 (up to 85 percent ethanol), 1,549 compressed natural gas (CNG) outlets, 729 biodiesel pumps, 115 liquid natural gas (LNG) outlets and 41 hydrogen stations.
Dennis Smith, director of the Clean Cities program, says that both plug-in electrics and propane vehicles are becoming increasingly popular. “Plug-in electric vehicle sales for consumers have passed more than 300,000 since they were introduced in 2010, and an increasing number of fleets are using propane,” he told AgriMarketing.com. The growth of these stations is most likely in response to a need from these drivers. In addition, both propane and EV stations are less expensive to purchase and install than those for many other fuels.” Smith also said that the number of CNG and LNG stations understates their impact, since they tend to service heavy-duty trucks along interstate highway routes.
While the sale of alternative vehicles may have leveled off of late in the United States, they are burgeoning in Europe, despite the drop in world oil prices. Alternative fuel vehicle registrations rose 17.4 percent across Europe in the second quarter of 2015, and 24.6 percent over the first half of the year. There are now nearly 300,000 registered vehicles, according to the European Automobile Manufacturers’ Association. The United Kingdom led the pack in major markets with an increase of 62.4 percent registrations in the second quarter. Norway led the entire continent, however, with 77 percent of all 11,614 newly registered vehicles being electrically powered. The country has offered huge incentives to alternative fuel owners as its oil production from the North Sea begins to taper off.
Meanwhile, in China, the Beijing city government is considering investing tens of billions in a plan to make the Middle Kingdom the world’s largest manufacturer of alternative vehicles. China now has 18,000 EVs on the road, 10,133 public passenger vehicles and 8,360 owned by individuals and organizations.
To cut down on traffic, Beijing has a unique system in which cars with certain license plate numbers are forbidden from being within the city’s fifth-ring road from 7 a.m. to 8 p.m. from Monday through Friday. And it’s not automatic that a new car can receive a license plate. But electric vehicles are much easier to register and will be allowed to drive within the city at any hour, giving them a distinct advantage. BAIC, the principal maker of EVs, has become China’s largest automobile manufacturer, controlling 22.5 percent of the market.
So the initiative to cut down on imported oil is universal. In Europe, it comes from heavy-handed government subsidies and regulations. In China, it comes from government favoritism and outright prohibition. In the U.S., however, volunteer organizations, led by government initiative, seem to be achieving similar results.
So, is everybody out there waiting for the spiffy new editions of the Nissan Leaf and Chevy Volt? If EV-makers and proponents are waiting for those holdouts to show up, it could be a very long few months.
The website Inside EVs, which keeps track of monthly sales for all-electrics and plug-in hybrids in the U.S. and globally, has published its July numbers, and they’re abysmal: Only 7,102 were sold during the month, compared with 11,242 in July 2014. There are still six models for which numbers are not available — Ford’s Fusion Energi, C-Max Energi and Focus Electric; Porsche Cayenne S-E and Panamera S-E; and the Kia Soul EV — but even if those cars come in at the same level as this June, the overall sales tally will still be well under last year’s pace.
For the first six months of 2015, a total of 61,449 EVs have been sold domestically, compared with 123,049 during the same period last year. Meantime, the rest of the world continues to outsell the U.S., thanks in part to generous subsidies in many European countries.
This marks the third straight month that U.S. EV sales have lagged the same month in 2014, and there’s a running debate about why. The dominant argument is that consumers are waiting to push their hard-earned money toward the next-generation Leaf and Volt, both of which are due out in 2017.
According to Inside EVs, the 2016 model year of the Leaf will have a 30 kilowatt-hour (kWh) battery, compared with the 24 kWh currently out there, giving the 2016 version an estimated range of 105-110 miles, up from the current 84. The range for the redesigned (and much more stylish) 2017 Leaf should be even better, and Nissan is testing battery technology it hopes will allow a future version of the Leaf to get 250 miles on a full charge.
The current iteration of the Volt can travel only 38 miles without recharging, but the 2016 model of the hybrid will be able to go 53 miles before the gasoline-engine kicks in, The Los Angeles Times reported Tuesday. On a full charge and full tank of gas, the range is 420 miles. Details about the redesigned 2017 Volt are sketchy.
The Times notes that the all-electric Tesla Model S has a range of 265 miles, but it costs $100,000. The cheaper EVs are, the generally shorter their battery ranges are. The 2016 Volt’s MSRP is $33,170 (without incentives), and the last iteration of the Leaf, the 2014, starts at $28,980.
Tesla’s upcoming Model 3, which is supposed to retail at $35,000 and is slated to be released in early 2016, is expected to have a battery range of about 200 miles. Tesla expects big things from its first “mainstream” EV. The Model S already is the hottest-selling EV in the nation so far this year, with 13,200 units sold, although only 1,600 were sold in July, compared with 2,800 in June and 2,400 in May.
The other splashy new release is the $30,000 Chevy Bolt, an all-electric that’s supposed to go on sale in 2017 and also has a range of about 200 miles.
So there’s a bounty of high-tech, much-improved EVs and hybrids hitting the market in the next year or so. But if sales remain flat even then, the depressive effect of low gasoline prices could emerge as the true motivator.
With the 2014 gas-price spike long in the distance (a gallon of regular was $2.64 Tuesday, compared with $3.50 a year ago), there’s little incentive for consumers to buy or lease a new electric car now, especially if they’re not sure they’ll have a battery strong enough to get them to work and back.
Sales of conventional vehicles are going in the opposite direction as EVs: The big automakers are on track for their first year of 17 million units sold since before the Great Recession. SUVs, crossovers and pickups led a strong sales month in July. “That segment of vehicles continues to be smoking hot,” Mark LaNeve, Ford’s vice president of sales and marketing, told the Detroit Free Press.
For perspective, more Chevy Silverados were sold in July (56,380) than the eight top-selling EVs combined that were sold from January through July (55,365).
If you’re shopping for a new or used car and want the benefits of cleaner-burning, cheaper, American-made fuels, consider buying a flex-fuel vehicle that can use E85. Check out E85Vehicles.com to see which models are FFVs.
As oil prices have tumbled, one thing has become clear: Electric vehicles are making much greater headway in the rest of the world than they are in the United States.
U.S. sales have remained flat over the past year after increasing steadily over the last decade. But sales have actually accelerated in some European countries, and several now have a larger percentage of their fleet in EVs than America does.
The website InsideEVs estimated that 160,670 EVs were sold around the world through the month of May, 34 percent ahead of last year during the same period. But U.S. global market share is declining: Domestic sales totaled 43,973 through May, a fraction ahead of last year’s pace. But when the June numbers came out, the U.S. had sold only 10,365, off 16.2 percent from the same month in 2014.
Norway is emerging as the world leader in making the transition from gasoline to electric vehicles. An incredible 33 percent of new-car registrations in the first quarter of 2015 were for EVs. Volkswagen’s e-Golf, the electric model, now sells 71 percent of its cars worldwide in Norway, giving it 40 percent of the Norwegian market. Tesla is not far behind with 16 percent of the market. Oddly, the Toyota Prius, the pioneer in the hybrid field, is seeing almost no sales now. People are beginning to opt for all-electric rather than the halfway point of gas-electric hybrids.
The Norwegian government has given EVs a raft of advantages over traditional gasoline-powered engines. Here’s a brief list:
• EVs get access to bus lanes
• The government has provided free charging stations
• EVs get free access to all toll roads
• EVs get free rides on ferries
• EVs get free parking in municipal parking spaces
• EVs carry a low annual road fee
• EV buyers pay no tax on purchase
Some of these advantages will eventually have to be cut back as the number of EVs on the road grows. But for now the incentives are huge and are not costing the government a great deal of money.
Other European countries have also been successful in promoting the purchase of electric vehicles. EVs now make up 5.7 percent of new car registrations in the Netherlands and 1.2 percent in the United Kingdom. The U.S. counts only 0.8 percent of new registrants as EVs, a figure that is matched by France. Germany and Japan counted only 0.6 percent of new registrations during the first quarter.
The reason EVs are doing so well in Europe is easy to identify: Europe imports nearly all its oil, and gasoline prices are much higher, mainly because of the imposition of heavy taxes. Gasoline sells for $8 a gallon in much of Europe, while prices are generally below $3 per gallon in this country. But air pollution is also playing a role. Pollution in some European cities has gotten as bad as it is in China and other parts of Asia. Paris shut down all auto traffic for three days last year when air pollution reached the same levels of Beijing and Shanghai. Sales of the Nissan Leaf – now the best-selling electric vehicle in the world – skyrocketed during this period. It’s expected that if emergencies like the one in Paris become commonplace, electric vehicles will be exempted from the ban.
Meanwhile, it appears that electric vehicles are finally taking off in China, which is now the world’s largest auto market. Back in the early 2000s, the Chinese government promised it would have 500,000 EVs on the road by 2011. Officials publicly announced they would be challenging the American industry by then. But as late as 2014, China was selling only 600 EVs a month, at the same time the U.S. was selling 6,000.
All that has reversed over the past year. In December, China sold 27,000 electric vehicles, almost 30 times the number as the previous January, and surpassed the U.S. in monthly sales for the first time. In 2015 China will probably become the world’s largest buyer of EVs.
All this has happened while Tesla was failing in its attempt to break into the Chinese market. The reason is plain: Tesla is marketing a luxury vehicle, something that few Chinese can afford. Meanwhile, the Chinese manufacturers, BYD, Kandi, Chery Zotye and BAIC, are selling no-frills vehicles that can only reach about 35 miles per hour. But such utilitarian vehicles are perfect for Chinese families to buzz around their cities for shopping and short commutes. There is even speculation that the Chinese manufacturers may start marketing their vehicles in the United States, where they would compete with entries such as the Chevy Volt and the Ford Focus. There is even talk that such vehicles may be able to feed off the rise of Uber for short-term ride-sharing in an urban setting.
Tesla’s moment of truth will come with the expected 2017 release of its Model 3, the $35,000 version of its EV, aimed at the average car-buyer. Then we will see if Tesla can really meet its deadlines, and if it can sell its highly stylized car on the mid-market. If it can, Tesla will probably have oodles of customers in both Europe and America, giving it a shot at the 500,000 sales Elon Musk has declared as his 2020 goal.
One simple slide in a PowerPoint presentation by a Tesla official at an auto convention in Washington this month did almost as much damage as Elon Musk’s rocket blowing up soon after liftoff.
JB Straubel, chief technological officer and co-founder of Tesla Motors, put up a slide on June 15 indicating that Tesla’s Model 3 would not “begin production until 2018.” This apparent delay set the new vehicle back from the previously announced deadline of 2017 and almost knocked the company for a loop. The website Inside EVs broke the story, as it were, and word of the PPT slide was repeated in countless news stories. The interpretation was clear: Once again, Tesla had been forced to postpone key product rollout.
Within hours, Tesla had assured investors and analysts that it was not changing its schedule. The $35,000 Model 3 will be available in 2017, as previously planned. “Contrary to speculative blogger reports, we still plan to show Model 3 in 2016 and begin production in 2017,” Ricardo Reyes, vice president of communications, tweeted. The statement about production in 2018 was said to refer to “full production,” an attempt at back-filling that many analysts viewed with a grain of salt.
Whether the reference to 2018 was just a typographical error or an inadvertent peek under the kimono, the controversy showed how delicately balanced Tesla’s position is, both in terms of meeting customer expectations and in raising money to continue its projects.
Missing deadlines would certainly be nothing new for Tesla. In February 2012 the company said its crossover Model X would be available by the end of 2013. In February 2013, it said it would be late 2014. In November 2013 the company announced that a small number would be available by the end of 2014, but actual deliveries would not begin until the third quarter of 2015. Everyone is waiting to see if this deadline will be kept. Meanwhile, speculation has increased that any delay in the debut of the Model 3 may be due to the resources that have been spent trying to get the Model X out the door.
The Model 3 is Tesla’s bid for the big time. The car is projected to have a range of 500 miles and would be priced at the aforementioned $35K, less than half of the $79,570 MSRP of the 2015 Tesla Model S. The Model 3 is intended to be a mass-market sedan that’s well within the reach of the average car buyer. Musk, Tesla’s flamboyant co-founder and CEO, hopes to sell 500,000 versions of the Model 3 by 2020, a feat that could put Tesla on a firm financial footing.
But there are pending obstacles. One is the Chevrolet Bolt, a plug-in all-electric that is the successor to the Volt, a plug-in hybrid. GM demonstrated the Bolt in a sample model this month and will also be priced in the $35,000 range. GM promised to have the Bolt on the market by early 2017, which would beat Tesla’s Model 3 out of the gate.
Whether electric-car buyers will be attracted to the Bolt – or whether they will wait for what will almost certainly be a superior product from Tesla – is a hotly debated question. “GM is ramping up to make 20,000 Bolts. Tesla is ramping up to make 500,000,” said one commenter to a Wall Street Journal story. “When a company names its new car the ‘Bolt,’ Tesla has little to worry about,” said another. But other readers cited GM’s superior service network, and the company’s long history of making money, while Tesla has only lost money.
One thing is certain: Tesla is building brand loyalty. A survey of 145 Tesla owners by automotive analyst Dan Dolev of Jeffries found that 85 percent said their next car would also be a Tesla, and 25 percent wouldn’t even consider another brand. Eighty-three percent said they would recommend Tesla to their friends, and a remarkable 89 percent said they would still buy a Tesla without the $7,500 federal government tax break. The owners also turned out to be not nearly as rich as expected. Almost 70 percent had previously owned cars that cost less than $60,000, including ones as modest as a $15,000 Toyota Highlander. They paid an average premium of 80 percent over their previous car when they bought a Tesla. As a result of the survey, Jeffries raised its target price for Tesla stock to $350 from its current $265.
The battery-producing Gigafactory outside Reno is moving ahead on schedule, with the first phase of the structure near completion and machinery is about to be moved in. The current phase represents only 14 percent of the planned layout. Once completed, the Gigafactory will be the largest building in the world, with a footprint of 5.8 million square feet and two stories of manufacturing totaling 10 million square feet. Panasonic, Tesla’s battery partner, is expected to send hundreds of workers to the site this fall to prepare for full-scale production. The factory will also employ hundreds of local workers.
Wall Street Journal columnist Charley Grant threw a wrench into the works recently when he wrote that Tesla is still burning through cash and probably will run out of money if the Model X does not sell as expected. He says the company should sell another issue of stock while the price is still high. He suggested that a price of $200, 25 percent below the current market rate, could raise $750 million and carry the company over to the introduction of the Model 3.
Whether the company will dilute ownership or take a chance that Model X sales will reverse its cash flow is just one of the many decisions Musk will be facing in the near future. One thing is certain: He will be balancing atop that high wire for several years to come.
Elon Musk is a darling of libertarians and free-market advocates because he is proposing to change the way Americans drive their cars through purely private effort. But he is now coming under fire for accepting gobs of government assistance in the process.
Critics charge that he has already accepted $4.9 billion in federal and state assistance and is angling for more. One article even asks if Musk has not become a “welfare king.”
Well, let’s take a look at the charges and see how they stack up:
The original article appeared in Mother Jones and was not entirely unfavorable. Staff reporter Josh Harkinson thinks the Tesla is a marvelous car and quotes all the accolades from Consumer Reports and Motor Trend. He even thinks Musk may be the next Steve Jobs and quotes New York Times blogger Jim Motavalli to that effect: “Individuals come along very rarely that are both as creative and driven as that. Musk is not going to settle for a product that is good enough for the marketplace. He wants something that is insanely great.”
What Harkinson objects to is simply that Musk hasn’t given the government enough credit for helping him on his way. He quotes Fred Turner, a Stanford professor and author of From Counterculture to Cyberculture, as saying: “It is not quite self-delusion, but there is a habit of thinking of oneself as a free-standing, independent agent, and of not acknowledging the subsidies that one received. And this goes on all the time in the Valley (i.e., Silicon Valley).”
It’s important to note that Harkinson is not just talking about Tesla. Musk’s other enterprise, SolarCity, which is installing rooftop panels on private homes, actually gets more federal and state subsidies than Tesla. And SpaceX, Musk’s venture into space travel, has a $4.2 billion contract with NASA to build a launching pad in Texas, which does not count as a subsidy but still comes from the government.
As far as Tesla is concerned, here’s what Harkinson counts as government assistance:
• Everyone who buys a Tesla gets a $7,500 tax credit from the federal government. Buyers in California get an additional $2,500 tax credit. Tesla buyers have an average income of $320,000. The federal tax credit will go to the first 200,000 customers. So far, Tesla has sold only one-quarter of that.
• The state of Nevada gave Tesla $1.2 billion in tax benefits to build its Gigafactory outside Reno. The offer came as Nevada was in competition with seven other states for the siting. The factory is expected to produce 6,000 jobs.
• Tesla’s principal source of income in recent years has come from selling Zero Emission Vehicles credits to other manufacturers in a program particular to the state of California. All auto manufacturers are required to produce ZEVs. When they can’t meet their quota, they can buy credits from other manufacturers. Tesla has pocketed $517 million in recent years. Harkinson counts this as a government subsidy, although Musk points out that the money comes from other car companies, not the government.
Musk has been quick to fire back: “If I cared about subsidies, I would have entered the oil and gas industry,” he told the media after The Los Angeles Times ran a story repeating the Mother Jones charges.
He points out that the$1.2 billion from Nevada will be spaced out over a period of two decades. It will also be contingent on the factory having an output of $5 billion every year for the 20-year period. He notes that hiring and other aspects of the Gigafactory will make it a profitable venture for the state of Nevada. And of course he notes that the fossil-fuel industry has received huge subsidies over the decades.
It really isn’t fair to say that Musk is “living off welfare.” His original entrepreneurial success, PayPal, rose to a valuation of $1.5 billion without the slightest assistance from the government. Tesla did receive a $465 million loan guarantee from the Department of Energy under the same program that funded the ill-fated Solyndra. But Musk made a grand gesture by paying back the loan ahead of time.
The fact is, it’s almost impossible to start a business these days without becoming involved at some level with the government. If Nevada hadn’t offered tax abatements, some other state would have – and did in fact. Many other factors were involved in the selection of Nevada, and states obviously benefit from such facilities.
Musk is a unique visionary whose reach extends far beyond making money. His ambition is to completely remake America’s automobile system and end the dominance of fossil fuels. He also wants to see America succeed at space travel. He plans to build a colony on Mars and has said he hopes to die on the Red Planet.
“Just not on impact, he added.
(Photo credit: J.D. Lasica, posted to Flickr)
You and I want to be called rational. We want to believe that with solid analysis, most things are predictable by smart people in this complex world of ours. Are they? I thought about this after reading a recent interview with a noted futurist at Mercedes-Benz, Eric Larsen.
My conclusion, based on his view of the future of cars and transportation fuels, is that his thinking — while provocative — is too tidy, often too rational and many times likely wrong. His comments brought back the words of Matthew Arnold, “We do not do what we ought; what we ought not, we do; and lean upon the thought; that chance will bring us through” – a variation on chaos theory.
Let’s together go through some of Larsen’s views, which, at times, I have taken the liberty to paraphrase or summarize (fairly, I hope).
Larsen: Continued suburban growth, wealth and American family needs will support and create demand for large vehicles.
In making an argument for large cars, Larsen indicates that the suburbs will be around for a long time and that young people will want children and home-based lives, with lots of space around them. They will fill up a car with kids, dogs and stuff from big-box supply stores. That means people will still want big cars. Conversely, rich people want luxury, based on their income and their desire to show off. He indicates, In our new AMG model we have an idea of, one man, one engine. Although he doesn’t use the term, according to Larsen, wealthy people are somewhat schizoid. They want to show they care about the world, and to do this many often buy the more-expensive Prius or provide a niche market for Tesla. But they go back and forth between doing good and doing what their wealth permits and their status seems to generate, a desire for big, technologically contemporary cars. Wealth is so tough to manage! No wonder psychiatrists charge big bucks.
Kaplan: While America’s love for the big car remains a legacy of the good ‘old days when gasoline prices were low for long periods of time and incomes were growing – contrary to Larsen – habits, income and demography seem to be changing slowly, but nevertheless changing, and the result may lead to less suburban growth, more atypical families and less income for gasoline, particularly among low and moderate income families. In this context, smaller cars that behave more parsimonious with gas will likely show a visible uptick in sales, over time. Ladies and gentleman, place your bets on where prices will be in one, two, three or more years out. Make a fair guesstimate on trends concerning vehicle popularity and fuel use (your guesses will be no worse than what the experts predict). The odds are that gas prices will return to their “normal” highs and smaller cars that use alternative fuels will take a larger share of the market.
Larsen: Fracking has been a strong influence, keeping gas prices low.
Kaplan: Sure, fracking has led to higher levels of oil production in the U.S. and softened the market for gasoline, but lower prices (already on the rise again) relate to much more than fracking. They include: lower consumer demand, increased global supply of oil, the changing value of the dollar, the decision of the Saudis to avoid lowering production and to keep prices low to secure increased market penetration, etc. Most frackers did not anticipate the recent significant drop in the cost to consumers at the pump. Quite the contrary!
Larsen: Internal combustion engines are getting better mileage.
Kaplan: Yes, they are getting better mileage, thanks in part to CAFE standards and thanks in part to technology. New cars also emit less pollutants and GHG emissions. So what’s the rub?
Internal combustion engines using gasoline are likely to always generate more pollutants, and more GHG emissions than the alternative fuels now on the market. Dependence on gasoline because of reliance on non-flex-fuel internal combustion engines will also continue to lead the United States into military conflict to safeguard our own and our allies need for oil. Big cars pushed by Larsen, for the most part, continue to be gas guzzlers. Larsen is right to suggest that use of alternative fuels, including natural gas and electricity, instead of gasoline in bigger and newer luxury cars will help mitigate their present negative environmental, economic and security impacts. I am sorry he didn’t extend his comments to converting older big cars to flex-fuel status so they could use other alternative fuels that he seems to favor.
Larsen: [In context of his support of larger cars] natural gas is a cleaner fuel and easier to install from a technical point of view.
Kaplan: Larsen’s comment is basically correct for new cars and cars aimed at a luxury market. The fuel is cleaner than gasoline and installation of CNG equipment, when building a new car from the ground up, is not difficult. However, CNG, at the present time, adds about $8,000 or more to the price of a vehicle – whether new or converted – which prices them out of the market for most low- and moderate-income families.
Thanks to the leadership of the governors of Colorado and Oklahoma, a bipartisan demonstration is going on in 22 states. It focuses on replacing older state cars in fleets with Detroit-produced CNG vehicles. One of the key objectives of the effort is to see if building demand among states can get Detroit to develop a CNG fueled car that fits the budgets of more than just a relatively few Americans.
An equally promising initiative that would convert natural gas to ethanol is now being considered by both business, political, and foundation leaders across the nation. Ethanol, while not perfect, is a better, cheaper and more environmentally friendly fuel than gasoline. Its use requires a flex-fuel vehicle. Together, both will meet Mr. Larsen’s priorities. They will clearly reach the pocketbooks of the rich and famous. Happily, although not apparently Larsen’s major concern, both together will also reach the budgets of many low- and moderate-income households.
Larsen: Refueling with gasoline takes five minutes, once a week. People have anxiety about running out of fuel with electric cars. Tesla, cities and garages are building charging stations. But will they be sufficient?
Kaplan: Electric cars will become more popular as the price comes down, batteries provide fuel for longer driving distances, more infrastructure is developed by the private sector. Larsen’s question, if electric cars become popular, are they really going to put a charger in every space in the garage, is a bit specious. Not every corner has a gas station and not every space in a garage needs to include a charging station. Greater mileage from batteries on a single charge will generate (excuse the play on words) the ultimate distribution of charging stations in garages and, indeed, on roads and freeways.
Larsen: Hybrids can do well in the suburbs, where everyone could have a charging station in the garage, with rooftop solar panels to produce electricity.
Kaplan: Clearly, Larsen would not be a good candidate for a coming-back-to-the-city initiative. Indeed, his apparent views do not fit the movement back to cities at the present time on the part of many diverse households in America. Irrespective, someday soon, solar panels will charge stations in different locations to fuel hybrids and electric vehicles. If panels succeed in the suburbs, they can also succeed in cities (please try singing to the tune of “New York, New York” … if you can do it here, you can do anywhere). The sun has not been appropriated by suburbanites.
Larsen works as research director at Mercedes, which probably colors his views of urban America, the demand for luxury cars and fuel options. His perceptions of where we are as a nation regarding alternative fuels is narrow and seemingly limited. But he has raised some interesting observations related to the roles of demography, place of residence, and income to car buying and consumer choices regarding fuels. I wish he was less dogmatic, more expansive and less riveted intellectually by his experience at Mercedes. We need to introduce him to chaos theory and more alternative fuels.
Our Mission: Fuel Freedom Foundation is working to reduce the cost of driving your existing car or truck by opening the market to cheaper fuel choices at the pump.