Are Electric Vehicles the next bubble?

The 1841 book, Extraordinary Popular Delusions and the Madness of Crowds by Charles MacKay, describes a variety manias and bubbles throughout history and is still considered by many to be important in the study of social psychology and psychopathology.  Will a future edition include a chapter on electric cars? Will Telsa’s peak market capitalization of over $37 billion (as of 9/12/2014) be compared to the peak of the Dutch tulip mania, where a single tulip bulb sold for more than 10 times the annual income of a skilled carpenter

“We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first.” – Charles Mackay

 

In a recent speech at the North American International Auto Show, Tesla CEO Elon Musk defended electric cars, saying, “electric motors were ‘fundamentally’ better than gasoline engines in terms of efficiency.” I am not sure what Mr. Musk meant, but let’s look at some figures.

Do electric motors have less loss converting electricity to mechanical power?

Perhaps Mr. Musk means that electric motors have less loss converting electricity to mechanical power than gasoline engines have converting gasoline into mechanical power?  Surely Mr. Musk knows that is a facile argument – electricity is a way to store energy, but it’s not the source of energy. The electricity has to be generated first. To calculate the total impact of a vehicle, one must consider both the source of the energy and the impact of manufacturing (and later disposing of) the vehicle. When one considers the total life cycle impact of a vehicle, the picture is murkier.

 

Are EVs more economically efficient?

Maybe Mr. Musk means an EV is more economically efficient? Tesla’s website offers a calculator that is supposed to help determine this. Their base case uses a cost of electricity of $0.12 per kWh and a cost of gasoline of $3.90 per gallon, with the gasoline vehicle getting 22 mpg. Using these figures, the Tesla is indeed more cost effective to operate than a gasoline vehicle. But, the price of gasoline has plummeted since their August 12, 2014 benchmark – the national average is now $2.14 per gallon. And, according to the U.S. Department of Transportation, the average fuel economy of cars in the U.S. is 36 miles per gallon.  Using these figures, the Telsa Model S is still more economically efficient to operate than a gasoline car, $.035 per mile vs. $0.059 per mile.

But we also have to look at the source of the electricity. Across the U.S., 39% of electricity comes from coal. Perhaps the case Mr. Musk is making is that a coal-power car is more economically efficient than a gasoline powered car?  That is not something to brag about, is it?

A coal-powered car?

Coal-powered cars are worse for the planet than gasoline powered cars, according to a recent study published by the National Academy of Science.  When one considers both air quality and carbon dioxide emissions, the authors actually conclude:
 “EVs powered by grid-average electricity … have greater negative impacts than do vehicles powered by gasoline.” 

Wait, what? A Tesla Model S usually sells for more than $100,000 or more than three times the average price of a new car in the U.S. and are subsidized by federal and state governments up to $10,000 and they are worse for the planet than a gasoline car? (Related question:  Why we are subsidizing expensive cars for rich individuals that save them operating expense while causing more environmental damage?)

Changing the Grid

Well, one might argue, it will all make sense once we change the grid. What if the electricity comes from less carbon-intense sources? California’s electricity comes from 60% natural gas, 12% hydroelectric, 9% nuclear, 7% wind, 7% geothermal, 3% biomass and 2% solar. According to the National Academy study, a EV powered from a grid that has 60% of its electricity from natural gas and 40% from “WWS” (wind, water, and solar) has about 61% less harmful impact to the planet than a gasoline car.  That’s good, right?

Yes, but there is a major problem. It is very expensive to move to a less carbon intense electrical grid. I live in California, so I know. Our electricity at home has a marginal cost of $0.36 per kWh (not the $0.12 Tesla uses in their calculator base case). The Tesla Model S can go 265 miles on 85 kWh, according to Tesla, or $0.115 per mile. A $50,000 BMW 5 series gets 34 miles per gallon, according to BMW. Premium gasoline at my local gas station this morning was $2.49 per gallon so the BMW costs $0.073 per mile to operate. A California Tesla S owner paid twice as much for his car, and pays 58% more to operate it. (In case you are wondering, at $3.92 per gallon, the Tesla S owner breaks even on fuel cost). And the BMW has a range of 629 miles vs. the Tesla’s 265 miles and can be refueled in 5 minutes at any of the 168,000 gas stations in the U.S.

The Facts

The fact is that in most places in the U.S., EVs cause more harm to the planet than gasoline cars. If we invest enormous amounts to move to a less carbon intense electric grid (as California has done) AND spend 2x to 3x as much for our vehicles AND spend 58% more to operate those vehicles, than we can significantly reduce the harmful impact of automobile use (for the few that can afford to buy and use them).

Fortunately, there is a better way to reduce the harmful impact of automobiles while maintaining affordability and utility. In a paper we published at the SAE World Congress in April 2014, we reported test results that show we can already meet the fully phased-in 2025 LEV III / Tier 3 emissions standard while improving efficiency vs. a gasoline engine by 86%. Using the data from the National Academy study, this engine will reduce harmful impact of emissions and carbon dioxide by 42% – at about the same costs as today’s engines and vehicles, using the same gasoline, and now in a vehicle with a range of over 1000 miles (San Diego to Boston with just two stops!)

If we put this new and better engine into a hybrid vehicle, we can reduce harmful impact of the car by 60% compared to today’s gasoline car – virtually the same benefit as the expensive low carbon grid with an expensive EV with expensive electricity. But because of its much greater affordability and utility, this is a vehicle customers will want to buy and drive, without subsidy.

The Future

Petroleum based fuels are a finite resource.  At least EVs prepare for a post-petroleum future, don’t they? Not so fast.

In a paper recently published by IEEE, Dr. Sebastian Verhelst makes the argument that the ultimate solution for transportation is using solar power to formulate methanol or DME[1] from H20 and CO2 for use in an efficient, clean internal combustion engine. Because methanol and DME have no carbon-carbon bonds, it does not generate particulate matter – the main contributor to health impacts cited by the National Academy in their recent study. Because the fuels are formed from carbon dioxide in the atmosphere, their net carbon contribution is zero. In other words, rather than electricity carrying energy from where it is produced to where it is used in our vehicles, methanol is better suited to be the energy carrier because of the better cost and utility of creating, carrying, and using the energy.

Mass Impact Requires Mass Adoption

So maybe the hundreds of billions of dollars being invested in electric vehicles and infrastructure are misdirected and ill-fated. If an Achates Power engine, running on gasoline initially and methanol eventually, can deliver the same or better benefits at much lower cost and much higher utility…well economic gravity takes over. A better solution that costs about the same as today’s engines and vehicles, delivers much better efficiency and much lower environmental impact is a solution that consumers will want to buy and use. To have mass impact, we have to have mass adoption. To have mass adoption, a solution has to be both environmentally sustainable and economically sustainable. It has to be cost effective for consumers on its own because it is impossible to subsidize at scale. Despite massive subsidies and despite historically high fuel prices until just recently, EVs have had virtually zero impact because they have had virtually zero adoption – according to the Wall Street Journal, just 0.3% of new vehicles registered in the U.S. since the start of 2012 are fully electric powered.

We must do better.  And we can – with the right solution. Achates Power is that solution.

Update:  After this blog entry was posted, Bjorn Lomborg expressed a similar point of view in USA Today.


[1] Dr. Verhelst prefers methanol but a strong case can be made for the related DME

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2 thoughts on “Are Electric Vehicles the next bubble?

  1. Hi Larry: to call the arrival of electric vehicles a bubble inflated by popular delusion and madness of crowds is extremely audacious.
    I am keeping this text and I will get back to you in five years, January 2020.
    See you then!
    Paulo A Franke

    • Paulo –
      Thank you for the feedback. I look forward to our discussion in 2020.
       
      I did not make a forecast in the blog post – I don’t have the data, experience, or time to do so. (Note, though, that those at the U.S. Department of Energy who do have the data, experience, and time to make forecasts say, in their most recent Technology Review (hyperlink: http://energy.gov/sites/prod/files/ReportOnTheFirstQTR.pdf _) “The performance, low cost, and fuel flexibility of ICEs [Internal Combustion Engines] makes it likely that they will continue to dominate the vehicle fleet for at least the next several decades.” So…even if EVs are not a bubble and grow substantially from their 0.3% market share there is a still a huge benefit in introducing more efficient engines).
       
      Rather, I tried to encourage those of us seeking less harmful transportation solutions:
       
      – be clear-eyed and account for the all the costs and all the benefits of any technology. In the case of EVs, it is disingenuous to claim they simultaneously reduce vehicle operating expense and harmful emissions (if the National Academy study I cited is accurate). In many states, EVs reduce operating expense for their owners but increase harmful emissions, compared to gasoline cars. In California, at least, EVs decrease harmful emissions but increase operating expense.
       
      – to be technology-agnostic in considering solutions so we can find the best one. I suggest that a superior short-term solution might be our engine in hybrid configuration – based on the analysis and testing we’ve done, it will deliver benefits similar to an EV in California but at substantially lower capital and operating costs. The same engine running renewable liquid or gaseous hydrocarbons maybe a superior long-term solution. Maybe there will be a breakthrough in battery technology that will make batteries less expensive, more sustainable, smaller and lighter. As such, battery technology is certainly an area worthy of significant further research. But in addition to the hundreds of millions of dollars being invested in battery research, federal and state governments are investing billions in EV commercialization (counting loan guarantees, vehicle subsidies, and regulations that drive EV purchase). Perhaps some portion of that funding stream should be diverted to promising alternative solutions that are far more economic and therefore scalable. As an example, for about $10M we could design, test, and build a very efficient, very clean engine for automobiles to confirm our analysis and experiments that we can deliver similar benefits as an EV at substantially lower cost. To date, our company has raised and invested around $100M from private investors. We have received a total of about $3M from the federal government in the 10 years of our existence. All of that came from the Department of Defense. To the extent the focus on EVs crowds out funding for other legitimate research areas, it may actually be harming our ability to reach a better transportation solution faster.

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