Why The Electric Vehicle House Of Cards Must Fall

Includes: F, GM, NSANF, TM, TSLA
by: John Petersen

A few days ago Alex Planes published an extraordinary article on The Motley Fool entitled "Real Costs of Alternative Energy", which summarized direct US subsidies for our principal energy sources, restated annual energy consumption from each of those sources using equivalent barrels of oil as a standard measure, and calculated the direct Federal subsidy per unit of useful energy consumed.

The following table condenses and reorders the data from the lowest to the highest direct Federal subsidy per unit of useful energy consumed.

1.8.11 US Subsidies.png

As I pondered Mr. Planes' work and methodology, the first question in my mind was "How would electric drive stack up using the same methodology?" Today I'll share my answer to that question.

Since the primary goal of electric drive is to reduce gasoline consumption, it seems reasonable to treat fuel savings as equivalent to oil production. On a thermal equivalency basis, 50.4 gallons of gasoline have the same BTU value as one barrel of crude oil. Since gasoline is a refined product while crude oil isn't, we need to adjust the equivalency factor for the energy used in refining and distribution. When we include all costs of refining and distribution, not burning 40.5 gallons of gasoline is the functional equivalent of producing one barrel of oil.

A CAFE compliant new car will offer an average fuel economy of 33.3 mpg while a CAFE compliant new light truck will offer an average fuel economy of 25.4 mpg. The combined fleet standard is 29.7 mpg. To keep things simple I'll round that figure up to 30 mpg. At 30 mpg, the owner of a new light duty vehicle will consume about 420 gallons of gas per year, or 4,200 gallons over the course of a decade. That's the equivalent of 10.4 barrels a year or 104 barrels of over the course of a decade.

Now comes the fun part!

In a recent analytical report titled "Global Autos: Don't Believe the Hype – Analyzing the Costs & Potential of Fuel-Efficient Technology," Bernstein Research and Ricardo PLC performed a bottom-up cost walk analysis that started with a $19,000 gasoline powered vehicle, deducted the costs of unnecessary internal combustion drivetrain components and then added the incremental costs of necessary electric drivetrain components. The end result of this bottom up cost walk analysis was a $38,800 electric vehicle. The following graphic summarizes the Bernstein-Ricardo cost walk.

1.8.11 Cost Walk.png

I've previously shown how an electric vehicle will save the average driver 104 barrels of oil over the course of a decade. When you turn the crank on the incremental cost of vehicle electrification, it works out to an up-front capital investment of $190 for each equivalent barrel of oil saved. It's like Milo Minderbinder's scheme to buy eggs for a dime, sell them for a nickel and make up the difference on volume.

If we forget about the immense capital costs and focus exclusively on the direct Federal subsidy per barrel of oil saved, it works out to $72.11 without including any State, local or indirect incentives.

The ultimate obscenity is that a conversion from gasoline drive to electric drive will not reduce the total amount of energy used in transportation. It merely shifts the energy burden from lightly subsidized oil and gas to more heavily subsidized energy from coal, nuclear and renewables.

Electric drive proponents are selling a house of cards based on fundamentally flawed assumptions and glittering generalities that have nothing to do with real world economics. Their elegant theories and justifications cannot withstand paper, pencil and a four function calculator.

The law of economic gravity cannot be ignored and will not be mocked. Shiny new electric vehicles from General Motors (NYSE:GM), Ford (NYSE:F), Nissan (OTCPK:NSANF), Toyota (NYSE:TM), Tesla Motors (NASDAQ:TSLA) and a host of privately held wannabe's like Fisker Motors and Koda are doomed to catastrophic failure. Their component suppliers will fare no better. There is no amount of political or wishful thinking that can change the inevitable outcome.

Disclosure: No positions.