Why Plug-In Vehicles Are a Luxury No Nation and No Investor Can Afford

Includes: NSANY, TM, TSLA
by: John Petersen

Over the last couple years I've frequently argued that plug-in vehicles are inherently wasteful on a micro-economic and a macro-economic level. Unfortunately, complex economic proofs are hard to grasp at a glance and my biggest challenge has been finding a simple proof for a patently obvious truth that can't be distorted by flimsy assumptions or misconstrued with rosy forecasts. I hope today's article will drive a stake through the undead heart of plug-in vehicle efficiency claims.

To keep it simple, I'll use the Camry Hybrid from Toyota Motors (NYSE:TM), the Leaf from Nissan Motors (OTCPK:NSANY) and the Roadster from Tesla Motors (NASDAQ:TSLA) as examples.

The Camry Hybrid has an EPA fuel economy rating of 31 mpg city and 35 mpg highway, while its conventional sister has an EPA fuel economy rating of 22 mpg city and 33 mpg highway. The Leaf and the Roadster both have EPA fuel economy ratings of 99 mpge. To achieve their fuel economy ratings, the Camry uses a 1.3 kWh NiMH battery pack, the Leaf uses a 24 kWh lithium-ion battery pack and the Roadster uses a 56 kWh lithium-ion battery pack.

If we assume that all three vehicles will have a 10-year life and be driven an average of 12,500 miles per year, the following table summarizes the electric drive miles achieved per kWh of battery capacity.

Camry Leaf Roadster
10-year mileage 125,000 125,000 125,000
Gasoline miles 88,710 0 0
Efficiency miles 36,290
Electric utility miles 125,000 125,000
Battery Pack kWh 1.3 24 56
Electric miles per kWh 27,916 5,208 2,232
Fuel saved per kWh 931 174 74

The first point that merits attention is that electric miles in a Camry come from using gasoline more efficiently. In contrast, electric miles in a Leaf or a Roadster come from an electric power plant that consumes coal, natural gas or uranium to make the juice that drives the wheels. Electric drive is more efficient than internal combustion if you start your analysis at a full gas tank or battery, but most of that advantage evaporates when you carry the analysis back through the supply chain and factor in all emissions and inefficiencies starting with the oil well or coal mine.

The second point that merits attention is that for every kWh of battery capacity, the Camry is 5.4 times more efficient than a Leaf and 12.5 times more efficient than a Roadster. Batteries are most valuable when they're worked hard and cycled often. From the perspective of a battery, going to work in a Camry is full-time employment on an assembly line, going to work in a Leaf is a part-time job in a donut shop, and going to work in a Roadster is retirement on a beach in Belize.

The reason is simple. HEVs are an efficiency technology that uses a small battery to save 40% on fuel consumption. Plug-in vehicles, in comparison, are fuel substitution schemes that use batteries to substitute electric power for gasoline and replace the fuel tank at a capital cost of $3,750 to $7,500 per equivalent gallon of capacity.

Regardless of chemistry, advanced batteries are terrible things to waste because they require prodigious inputs of scarce mineral resources and are difficult, if not impossible, to recycle economically. They perform wonderfully when they're used to improve fuel efficiency in an HEV, but they perform poorly when they're used as fuel tank substitutes for a plug-in vehicle.

Future gas prices and battery costs will not change the fundamental truth that batteries are five times more efficient in HEVs than they are in plug-in vehicles. Batteries in HEVs eliminate the use of fuel while batteries in plug-ins can only add long tail pipes that substitute a mix of coal, natural gas and nuclear power for gasoline.

In the final analysis, plug-in vehicles are a luxury no nation and no investor can afford.

Disclosure: No positions