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Wednesday, September 17, 2008

EV News: Less Than Meets the Eye?

Today brought two major announcements on opposite sides of the country regarding electric cars.

This morning in Detroit, GM unveiled the real version of the Chevy Volt, promised to ship in 26 months. The announcement was timed as part of the GM centennial celebration.

Meanwhile, Tesla Motors made its own announcement here in San José. Tesla plans to employ 400 workers to build its eponymous product at a 90-acre site in Northeast San José. The site will include both the company HQ and (unless some details fall through) the factory for the Tesla Roadster now being assembled by Lotus in England.

While both are major milestones, below the surface are some details that suggest these announcements are less significant than claimed.

One report said that the Volt would save $1,500 a year in gasoline (vs. $180-$300/year in electricity) but could sell for as much as $40,000 — in other words, a 10-15 year payback period over a typical small car. Once upon a time, Americans bought small fuel-efficient cars because they were cheap, so the idea of paying a $20K premium for an electric car is going to limit the market. I think Honda’s plan for a sub-$20K hybrid is a much more important way to bring LEV/ZEV cars to the mass market.

“Mass market” and “‘Tesla” are not terms used in the same sentence, but the technologically advanced $100K sports car has certainly captured the imagination of local dot-com zillionaires (and some self-indulgent boomers who are slightly less affluent, like one of my neighbors). Although it’s a niche product, it’s a sexy product nonetheless.

Tesla was once going to build its factory in New Mexico, but when production delays hit, state and local officials began wooing it to stay here in the Bay Area. Two things about the deal were troubling.

First, the state is giving at least a $9 million subsidy and the city at least a $15 million subsidy to Tesla. Other firms that create jobs don’t get subsidies, so why are the (economically inept) government officials intervening for this particular employer?

The second problem is the justification for the subsidy, which is the claim is that this is the first of many such local employers:
While San Jose has been active in attracting solar companies to locate in the city, "this is a much bigger deal because of what it is and the technology it represents," [San José mayor Chuck Reed said. "It's not just another solar company. It's an electric car, which has tremendous upside for us, and a whole new area of job potential."
Reed is the most pro-business mayor we’ve had in decades, but he still seems (to put it charitably) misinformed.

The idea that the Bay Area will become a hub of manufacturing high-tech cars is just laughable. Because of labor, land, taxes and all the other costs, by the end of the year Intel won’t even have make semiconductors here — and they have a much higher technology content and value per pound.

Most of the parts for an electric car are shared in common with fossil fuel cars, and so if EVs catch on, nearly all of the electric cars in North America will be made in factories owned by the major world automakers (in Michigan, Ohio, Kentucky or wherever). Perhaps the Prius will someday be made at NUMMI in Fremont — and even the 2010 plug-in version — but today NUMMI is the only remaining auto plant in North America west of Texas.

There’s also the strong possibility that one car company will become zero, i.e. how long Tesla Motors will survive. It might last longer than the seven years of DeLorean Motor Company, since I assume JB Straubel has a more normal personal life than did John Delorean. Even so, I would bet $500 that Tesla will be gone by 2020 — whether dead or gobbled up won’t matter to the San José employees they leave behind. I suppose the best case is that its production moves over to NUMMI, but I think Ford or Chrysler seems a more likely buyer than GM (with its Volt) or Toyota (the world leader in hybrids and soon plug-in hybrids).

So in 5 years, the best case is that we will have dozens of solar photovoltaic firms in the Bay Area, and one electric car company. Perhaps the car company will be employing more people, but the PV companies will be providing higher-wage jobs that are more likely to stay here in the long run.

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