Electric Car Success Depends on Free Markets

There are so many problems involved with electric cars that it would be wise to allow the market to dictate their success. Being 'being wise' is not the general phrase we can assign to any project that is dominated by government bureaucrats.


But that's not what is happening as even the mentally weakest among us can ascertain just by counting the number of electric cars that we see ever day on the road. The market would say no to any such enterprise that needs a ton of subsides to make it work, i.e. Ethanol or the electric car, both substantially supported by government subsides.


Solving the Electric Car Puzzle
Source: Ron Adner, "Solving the Electric Car Puzzle," Wall Street Journal, May 29, 2012.

For the electric car to be anything more than a plaything for rich environmentalists -- and have any impact on energy security or the environment -- it has to succeed in the mass market. Unfortunately, manufacturers are approaching the electric car as another new product when what they really need is a new business model. Two neglected factors -- battery depreciation and power-grid management -- must be addressed, or costly efforts at improving e-cars and charge spots will fail in the mass market, says Ron Adner, a professor of strategy at Dartmouth's Tuck School of Business

First, while much attention has been paid to the appeal of electric cars to new buyers, an equally important question will be their appeal to used-car buyers.

•Here the major determinant is battery technology.
•Electric car batteries are extremely expensive -- they can account for one-third of the cost of the vehicle -- and offer limited driving range.
•While some car buyers may give little thought to resale value, or plan on refurbishing their cars for many years, for mainstream buyers resale value is crucial: Lousy resale value means goodbye to the mainstream market.

Second, while intense public attention and investment have been focused on rolling out plug-in charge spots, these efforts have been decoupled from investment in the smart-grid technology needed to assure that power generation and distribution can actually support mass charging.

•As long as only a handful of drivers plug in each morning, the current grid will hold.
•But if 5 percent of cars in Los Angeles County were to plug in simultaneously, they could place a 750-megawatt load on California's already strained grid, equivalent to the generating capacity of two midsize power plants.
•Unless the power infrastructure challenge is addressed in advance, the very success of the electric car will drive its failure.

One thing is clear: The success of electric cars hinges on the successful alignment of the entire electric-car ecosystem. Uncoordinated investment by private firms and the government in the individual pieces is a recipe for failure.