The Plug In Vehicle Scam

David Hannum was right! There's a sucker born every minute and they're all waiting with bated breath for the low-cost plug-in electric vehicles that are coming soon to a dealership near you; if they're not quietly cancelled first.

It's the most insidiously appealing idea of our age: replace those nasty gasoline burning engines with cheap batteries that recharge in minutes and save a fortune on fuel while you "See the USA in Your [electric] Chevrolet." It's so appealing in fact that it ranks right up there with free lunch.

P.T. Barnum would have been proud.

Listen up America – It's a scam! The emperor has no clothes! There is no such thing as a cost-effective electric vehicle that will carry a family of four at highway speeds. But the cautionary if not downright conservative analysis from sources as diverse and credible as the Department of Energy, the White House and Carnegie Mellon University somehow manages to get lost in a media sideshow that focuses on scientific breakthroughs that promise a 5-minute recharge time for batteries nobody can afford to buy.

I hate to be a buzz-kill and point out the brown object floating in the punch bowl but this graph comes from the DOE's brand new Annual Energy Outlook 2009 and shows their best estimate of the market penetration rates for various classes of hybrid electric vehicles over the next 20 years. In this chart, the PHEV-10 and PHEV-40 categories are the only cars with plugs. Everything else is either a full hybrid (HEV) or a mild hybrid (MHEV).



So while your future car is very likely to have modest hybrid capabilities, there is almost no chance it will have a plug or need a charging station. For people like me who think numbers tell a more compelling story, the following table presents some detailed forecast data that I've gleaned from the Supplemental Tables to the Annual Energy Outlook 2009.

New Car Sales (Thousands)	2010	2015	2020	2025	2030
Gasoline ICE Vehicles	5,554	7,567	7,999	7,878	7,678
TDI Diesel ICE	53	152	359	596	802
Electric-Diesel Hybrid	0	3	8	7	5
Electric-Gasoline Hybrid	195	546	985	1,471	2,034
Plug-in 10 Gasoline Hybrid	0	101	138	198	250
Plug-in 40 Gasoline Hybrid	0	49	57	81	113
Other alternative power systems	312	823	1,176	1,150	1,155
Total New Car Sales	6,114	9,241	10,722	11,381	12,035
Percentage of New Cars With Plugs	0.0%	1.6%	1.8%	2.5%	3.0%
New Light Truck Sales (Thousands)	2010	2015	2020	2025	2030
Gasoline ICE Vehicles	5,152	4,701	3,664	3,332	3,033
TDI Diesel ICE	195	381	637	921	1,174
Electric-Diesel Hybrid	0	1	1	1	1
Electric-Gasoline Hybrid	92	336	620	951	1,223
Plug-in 10 Gasoline Hybrid	0	32	22	43	65
Plug-in 40 Gasoline Hybrid	0	0	0	0	0
Other alternative power systems	950	1,884	1,613	1,394	1,269
Total New Light Truck Sales	6,389	7,334	6,557	6,641	6,765
Percentage of New Trucks With Plugs	0.0%	0.4%	0.3%	0.6%	1.0%

With due respect for emotionally committed carbon activists who sincerely believe plug-ins are the only way to save our beloved planet, the DOE estimates that cars with plugs will be 0.0% of the new car fleet in 2010, 1.1% of the new car fleet in 2015, 1.3% of the new car fleet in 2020, 1.8% of the new car fleet in 2025 and 2.3% of the new car fleet in 2030. In simpler terms, plug-in vehicles are not the Greatest Show on Earth and the three ring circus we fondly refer to as the auto industry would close the sideshow if it wasn't such a big draw for children of all ages (including government) that bring fat wallets.

We've all been buried in press releases and reports about carmaker plans to introduce plug-in hybrids over the next few years. These are PR stunts, not business decisions. They remind me of a controversy that erupted in the mid-1800s when an entrepreneur named George Hull had the Cardiff Giant carved from a block of gypsum, aged and buried in a field. He then found the treasure while digging a well and promptly sold a two-thirds interest to a credulous investor syndicate managed by a banker named David Hannum. After the sale, Hannum's syndicate moved the Cardiff Giant to Syracuse and increased the entry fee to $1, which was serious money in the 1860s. Things really got rolling when P.T. Barnum tried to lease or buy the Cardiff Giant and was unable to do so. At that point Barnum had a plaster of paris copy made and promptly began denouncing the original as a fake. In newspaper stories about the dispute, Hannum was quoted as saying, "There's a sucker born every minute" in reference to the people who were paying to see Barnum's fake giant instead of the original giant that his syndicate had bought from Hull, which was also a fake. While it's not entirely clear whether Hannum was a sucker or a huckster, they all ended up in court where Hull confessed that the Cardiff Giant was a hoax and the judge ruled that truth was an absolute defense to the syndicate's lawsuit against Barnum.

There is an immense difference between announcing plans to manufacture a product and actually hitting the start button on an assembly line. I am certain we will see a huge variety of one-off prototypes, concept cars and limited production test vehicles over the next couple of years; but unless the DOE's analysts are as clueless as some vocal critics believe them to be, substantially all of the PHEV programs that are being announced today with great fanfare will be quietly axed before too much money is wasted on politically popular ideas that don't make a bit of economic sense.

The headline news out of China is that BYD is introducing a cheap PHEV-62. The truly impressive story is that China built and sold an estimated 23 million electric two-wheeled vehicles (E2W) last year. Collectively, these E2Ws used enough battery power for a million American style PHEVs; all of which leads to a couple of interesting questions for the PHEV crusaders. First, what do you think the chances are that 23 Chinese will give up a little battery power so that one American can squander a lot of battery power? Second, who do you think will have the greater buying power if it comes down to price competition in a resource constrained world, 23 thrifty Chinese or one profligate American?

Li-ion battery developers have access to the same reports I do and they know the PHEV frenzy is a scam. But its a scam where they can let somebody else wildly exaggerate the economic potential of PHEVs and then use baseless auto industry PR to justify building government subsidized factories that do not make sense under any reasonably foreseeable future conditions.

With a simple Google search anybody can learn that Ener1 (HEV) is seeking $480 million in Federal loans to build battery plants with capacity for 600,000 HEVs by 2011 and 1.2 million additional HEVs by 2015. A123 Systems is seeking $1.8 billion in Federal loans to build battery plants with capacity for 5 million HEVs per year.

The National Alliance for Advanced Transportation Battery Cell Manufacture is seeking another $2 billion in Federal funding to build one or more manufacturing and prototype development centers that will be shared by the fourteen NAATB members. While I actually believe the NAATB proposal has considerable merit because it includes giants like 3M (MMM), Enersys (ENS) and FMC (FMC) along with emerging companies like Altair Technologies (ALTI), the nagging question that simply will not go away is "Who is going to buy batteries for over 6.8 million HEVs a year when the DOE's demand forecast is less than half of that number?"

Will we ultimately see those same manufacturers back before Congress demanding HEV and PHEV mandates like we saw with ethanol?

I've written a series of articles on how Li-ion technologies stack up against the competition once you move away from the idea of a PHEV-40 that needs an immense amount of stored energy to move a family of four at highway speeds. The entire archive is available on my Seeking Alpha author's page.

Li-ion is a wonderful technology for portable electronics, E2Ws and personal transportation applications where the vehicle weight to passenger weight ratio is less than about five. It is nonsensical when the goal is to move four passengers and a couple thousand pounds of steel and composites at highway speeds. To date the only rational PHEV proposal I've seen is a gas-guzzler to dual-mode EV conversion initiative that's being developed by Axion Power International (AXPW.OB). The raw end user economics are not as attractive as I would like them to be, but the existing fleet of gas-guzzlers is a far larger problem than the new car fleet will ever be.

Since my parents always taught me to focus on the big problems first and leave the petty stuff for later, I have a hard time arguing with a proposal to slash gasoline consumption by almost a billion gallons a year for every 1% of the existing gas-guzzler fleet that's converted into gas sipping EV-50s. Everything else is just a sideshow.

Mark Twain once said, "history doesn't repeat itself but it does rhyme." Like the Cardiff Giant, PHEVs are an appealing bit of fiction that everybody wants to believe. Like the Cardiff Giant there are hucksters prowling the land claiming they have the real deal. In the final analysis, the losers will be the investment syndicate members and the suckers who pay their dollar to see the fake giant.

The DOE's Annual Energy Outlook 2009 makes it perfectly clear that PHEVs are irrelevant for normal people who worry about things like budgets, monthly payments and retirement plans. Fortunately, there are many real energy storage solutions from real companies that actually deserve our attention. I may revisit the PHEV loony bin from time to time to poke a little fun at the true believers, but I'm basically done with this topic.

Disclosure: Author is a former director and executive officer of Axion Power International (AXPW.OB) and holds a large long position in its stock. He also holds small long positions in Exide (XIDE) and Enersys (ENS).

Comments

[User 395761]

+1

We have to go for really fuel efficient cars with less than 5 liters per km first. This should be then bioethanol or other renewable fuel.

Use batteries first stationary where weigth doesn´t matter but cost.

2009 Apr 28 03:26 AM

[Michael Fitzsimmons]

spot on john. i continue to believe the most logical automobile for the US (and the world) is the electric/nat gas vehicle toyota announced yet refuses to build:

www.autoblog.com/2008/...

if obama wasn't focused on the "clean coal" myth, and if energy secretary chu wasn't "agnostic" about natural gas transportation, perhaps they would have the time to sit down with toyota and find out what US policies would have to change in order for toyota to supply these electric/nat gas camry hybrids by the *millions* to US consumers. it is the best transportation solution today to address the economic, environmental, and national security problems posed by US foreign oil addiction. but alas, i suppose that would just make too much sense, and how can the gov subjugate and master its citizens if they had the mobility such a car would enable.

2009 Apr 28 07:32 AM

[John Petersen]

Michael, this was already published when I got John Mauldin's Outside the Box which reprinted a Peter Huber essay called Bound to Burn that makes a compelling case that the carbon fight is lost no matter what the industrialized world does and the mitigation effort will only ruin industrialized economies while building developing economies. It's a sobering piece that can be read at:

www.city-journal.org/2...

2009 Apr 28 08:01 AM

[Ricknplano]

John,

Well written and nice mix of metaphor with the reference to the Cardiff Giant and allusion to the famous phrase "sucker born every minute".

I hope you are wrong but believe you are right about the enduring carbon based fuels economy. Even though the market can stay irrational longer than you can stay solvent, the facts will eventually prevail.

2009 Apr 28 08:38 AM

[Futurist]

John. Thanks for writing your final essay on the li-ion plug in car. The most telling part of the article is the fact that China sold 23 million 2-wheel electric vehicles. Considering that 70% or more commuters ride alone in America it says all one needs to know about Americas oil import problem.

My point is that Americans need to change their buying habits, traveling habits, driving habits and other habits that got us into this mix. We all would love a car that is cheap and uses no gas. We always want the easy tech fix. Can't happen this time. Maybe we should borrow a couple of ideas from the Chineese. Save a little money, don't waste anything, work hard, and be very smart.
( Sounds like my parents talking). Can you imagine a middle class American saving 10% of their income in cash in a bank. Thats China. And a middle class Chineese makes $3,400 -$9,000.

If we are going to compete and lead the world we need to start by changing our habits. Use less oil. Conserve everything else. Save ,Save, save. Nothing else will work.

2009 Apr 28 08:38 AM

[Ricknplano]

John,

John Kennedy once said, "some people enjoy the comfort of an opinion without the discomfort of thought".

Thank you for your excellent thought used to support your opinions on energy storage issues.

2009 Apr 28 08:41 AM

[John Petersen]

Ricknplano, I included a link in my response to Michael Fitzsimmons that everybody who is interested in alternative energy investing (as opposed to alternative energy politics) should read. It's a wonderfully clear and thought provoking piece.

Futurist, I'm not done blogging, I'm just fatigued with conversations about an inconsequential application like PHEVs. I agree that our brave new world will require people to change themselves before changing the world. The months I spent in Asia a couple years back were the shock of a lifetime and without some huge changes in people's attitudes there may be a monstrous role reversal. It doesn't have to be that way, but it could be.

2009 Apr 28 08:52 AM

[Futurist]

John,
Thanks for the link to this sobering article.

city-journal.org/2009/...


If anyone is interested in the future of carbon based fuel they should read this

2009 Apr 28 09:03 AM

[musik199]

GM's Volt is a scam, they keep telling people they are testing the vehicles, but they will NEVER tell you the battery degradation. I personally think HEV is the choice for near and mid-term future. Toyota's PHEV may work, because it is less harsh on the battery, despite its 10mile pure EV range is a little low. The Japanese will beat Americans on this once again!

Check GM's promised lauch of Chevy Volt in 2010.

2009 Apr 28 09:47 AM

[Paul Killinger]

Michael Fitz,

I believe you've hit on the REAL car of the future. Now or later, it's eventually inevitable.

2009 Apr 28 10:08 AM

[whisperonthewind]

For the people who live within big city limits where mass transit is an option, or people who only live a few miles from where they work, shop, or find entertainment, electric vehicles will perhaps be an option. For those who choose to live "in the country" for whatever reason, mass transit and fast drives to work are not an option. Admittedly, they chose those places, and knew that travel time to work or to town might be longer. Clearly their reasoning for moving outweighed that expanded travel time. And, with that in mind, just as clearly it will outweigh the choice for power.

If an electric or battery-operated vehicle can't make that distance, the purchase will not be made. Why buy something you can't use?

Cities are not the only place to live, and by the choice of many, also not the best place. I have spent the last 30 years moving farther and farther from the big city, and with each mile I've met more people who are doing the same. We have more lakes than restaurants, more rivers than barbershops, and more wildlife wandering across our roads than most areas have traffic lights or children crossing those roads. We brake for ducks and turtles, and we like it. So the electric vehicles won't be used here because they can't get us to work and back home to the areas we love, and there are no buses out here.

Now excuse me, I have to go out and watch the birds.

2009 Apr 28 10:17 AM

[zapman59]

the crash tests for small and mid sized plug in vehicles needs to be relaxed or suspended so as to import more plug-in EV's that currently are accepted in most countries except the USA.. that would really be a boost to the plug in EV industry and get more fossil fuelers off the road, which is the way the plan is suppose to work. but do the higher powers of the fosssil fuel interests want to block this plan? sure they do

2009 Apr 28 10:23 AM

[Ferdinand E. Banks]

Sorry Mr Petersen, but too many smart people have told me that there is a future for plug in vehicles. They didn't tell me however how many of these items will be on the road in e.g. 2030, and in what countries. In any event, although 'scam' is one of my favorite words, I don't think that it belongs here.

2009 Apr 28 10:28 AM

[Jack Lifton]

John,

Finis Lithium

Note that when the red glare from the lithium investment bonfire dies down it will still be true that China is currently closing the gap between its domestic production of rare earth metals (used, among other things, to make NiMH batteries, and brushless DC motors) and its domestic demand for those metals. One of the reasons is, in fact, the increasing production of those two-wheelers for which lithium ion batteries seem to be too expensive. Another is the increasing production of rare earth based permanent magnets, and the computer hard drives and other electric motors that use them, in general, as the Chinese economy attempts to fill its domestic consumer demand. One day soon, if not already, (lanthanum) nickel metal-hydride batteries will only be able to be made in China due to China's position as the producer of 97% of the world's new rare earths.

Thus the hybrid vehicles in the DOE chart may well be imported from China beginning very soon.

2009 Apr 28 10:36 AM

[John Petersen]

Mr. Banks, my original title for this piece was "Plug-in Vehicle Hucksters are Doing P.T. Barnum Proud." The more alarmist title came from the Seeking Alpha authors who are always looking for a search engine edge. The biggest problem with smart people is that they frequently have aspirations that are out of synch with economics because everybody wants a better world. The only advice I can offer is do your homework.

Jack, the thing that keeps me up at night is what happens when China's domestic consumption exceeds readily available supply? We saw immense import competition in the lead acid market in the '90s that forced the closure of many U.S. plants. Over the last couple years the import stream has dried up and now the industry is having to rebuild capacity. Given a choice between providing batteries for 23 of their citizens or one of ours, who do you think will win the economic shoving match?

2009 Apr 28 10:48 AM

[john s. gordon]

we keep forgetting that the electrons flowing thru your plug have to be generated somewhere, probably by burning coal.
> jack

2009 Apr 28 10:50 AM

[Wisdom vs. Information]

Thanks for another excellent article John

here are the facts according to the geologists: global warming is natural since we are still in a relatively cool period, carbon in the atmosphere has often been MUCH higher, and the rate of change we are experiencing is, in fact, unremarkable; unfortunately, people keep listening to dopey climatologists with models that do not even work, pathetic-- not to mention politicians, administrators and scientists who are working to socialize our industrial capital; if you trust them you will get what you deserve, just like in the 70s.

any of you remember when we were warned about the coming man-made ice age in the early 70s? some people never learn

legislating a switch to NG transportation is stupid because consumption is consumption. long term, it will increase pollution by increasing consumption through subsidies, inefficient technology (yes, as a matter of fact, NG is less efficient than gasoline for transportation) and worst of all, tremendous economic dislocation. replacing infrastructure causes more consumption than NG will ever save, terrible idea

use saudi arabia's cheap oil now and our expensive oil later is good policy

2009 Apr 28 10:50 AM

[Fred W]

Thank you for the article. However, I am concerned about your reliance on DOE to predict market penetration of PHEV in the auto industry. In the past 8 months, too much has changed too fast to use DOE material--lagging information due to now defunct assumptions--inaccurate assumptions produce unreliable conclusions.
Would you agree that "small" PHEVs is a real market in the near term? (under 2000lbs)
Have you ever been in one room with over 2000 lead acid batteries charging simultaneously? I have been in many. I have also discharged more EVs than you can imagine over the past 30 years.

2009 Apr 28 11:01 AM

[Zenfar]

Not crazy about the Volt but what about the Fisker or Tesla?

2009 Apr 28 11:13 AM

[TechNeutral]

Interesting, amusing, sometimes worth pondering. However, the article would be so much more worth serious consideration if you didn't flip-flop back and forth between HEVs and PHEVs. They are entirely different concepts, with quite different technical requirements. Li-Ion gasoline HEVs are a winner, and whether cap-and-trade or carbon tax wins out, fully costing carbon in the purchase price of ICE vehicles is going to drive HEV purchases faster than DOE predicts. As a note, DOE has never been very good at predicting energy supply growth and demand more than a decade out.

2009 Apr 28 11:16 AM