Tax credits for plug-in hybrids insufficient to spur PHEV sales
Sexy, but expensiveA new study by the University of Michigan Transportation Research Institute (UMTRI) finds that the move to plug-in hybrid vehicles will not be easy. Likewise, even if the current Federal Tax Credit for plug-in vehicles - ranging from $2,500 to $7,500 based on battery pack capacity - were made permanent, even more incentives would be required to achieve any serious market penetration, such as a sales tax exemption, in addition to other subsidies.
Under the best case scenario, according to the study, market penetration could be 20 percent in 30 years. However, without a permanent federal tax credit, PLUS additional incentives, plug-in adoption will be "feeble at best."
In conclusion, the researchers suggest a 5 cent gas tax to be used to create additional plug-in incentives. Unfortunately, I'm not sure if that 5 cent gas tax funds both the current Federal Tax Credit, which is capped, and the additional incentives required, or just the additional incentives. If the gas tax covers only the additional incentives, then a larger tax should be assumed.
Unfortunately, even under this best case scenario, gas consumption would only be reduced by 20 percent, meaning that the US would still be heavily dependent upon foreign oil in 30 years.
Labels: plug-in hybrid vehicles, tax credits
posted by Dahcredyns at
8:58 AM
15 Comments:
Unfortunately, even under this best case scenario, gas consumption would only be reduced by 20 percent.
We do not know this for sure. We should count the overall fuel efficiency increase (how many hybrids by then?) and the increase in the number of vehicles. The latter can be a decrease actually.
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I've been going through the study and it isn't clear to me if they are factoring in cost reductions for Gen 2 and 3 of plugins like the Volt. It seems they give an average cost of about 28K for a PHEV-40 so that might be their way to account for economies of scale over time.
Very interesting and sobering study. Cost appears to be King in their results, and counter intuitively the higher the gas price the worse PHEVs do. Something about high gas prices leading folks to buy the cheapest to own cars they can find. Makes sense, if you think of really high gas prices as being a time of crisis for people when other factors such as carbon emissions take a back seat.
These results tend to mesh with with Lutz's point that only a small portion of the population will pay more for a hybrid or PHEV car. The rest just want the best car they can afford. What everyone here can see, and what I'm starting to understand, is that cheap hybrids WILL be the cheapest cars to own in the near future if gas prices go up.
What that seems to imply is that soon cheap hybrids will be the new battleground for those brands that specialized in small cars, and that cheap hybrids will take customers away from Civics, Corollas, and those type cars. What that also seems to imply is that since GM was never competitive in the small car market, they won't directly lose customers to cheap hybrids. Of course they are losing customers all the time, but not necessarily to Civics and Corollas.
OK, this can get pretty complicated, and I'm sure I'm missing a million factors as I start to think about the car industry.
What's interesting is how segmented the car market is and how many brands and models are supported by the market. Nothing like computers! There is no winner take all or networking effect to accelerate success once a brand/model gets traction.
Question, does anyone think that market forces will get the US off foreign oil dependency? Meaning that US customers will dynamically respond to gas prices enough to get us off foreign oil? Or maybe some other market mechanism.
Or do we all agree that this is an area that requires a forceful policy response by government?
The killer ap for the PHEVs, IMO, will be the ability to fuel your vehicle at home and on streets with public outlets. I think this will be an extremely attractive feature for consumers.
First generation cost will be high but I expected battery and vehicle cost to fall dramatically during the 2020's.
Local governments could make these vehicles even more attractive if they allowed them toll free access across toll bridges.
Local governments could also set up free parking lots for EVs and PHEVs within urban areas. Such lots could still make money by providing electric outlets where PHEVs could recharge their batteries for a fee (If they provided free parking in San Francisco, everyone would have a PHEV:-).
alcatholic-
I used this study to address your last comment to my most recent post. So, I don't want to double up.
Anyway, GM hasn't competed in the small market, but they will have to in the future if cheaper more fuel efficient vehicles become the requirement.
I guess that's why I've become so critical of the Volt. It's not so much about the Volt, it's just that I cannot separate GM from the Volt.
Still, i do believe market forces will push America off foreign oil. Unfortunately, waiting for market forces will mean that the US is unprepared and that will lead to serious problems, such as another recession, another banking and automakers bailout, etc.
Even then, however, I do believe we can still innovate our way out of the problem because the rest of the world will be in the same predicament. Americans, however, will probably feel the greatest - hopefully short term - decline in wealth however. So, regardless, we have the most to lose by not acting.
Definitely, it's the EV killer.
rearviewd-
the tax credits are insufficient?
obviously, we're talking about many tens of billions of dollars to provide the necessary tax credits, how should that be funded?
divert military expenditures? gas tax? other thoughts?
"Anyway, GM hasn't competed in the small market, but they will have to in the future if cheaper more fuel efficient vehicles become the requirement.
I guess that's why I've become so critical of the Volt. It's not so much about the Volt, it's just that I cannot separate GM from the Volt."
I think I'm starting to understand your perspective. What I'm starting to understand is that GM's biggest failure is having cynically ignored the small car market even after it was obvious how important that car segment was for the environment and national energy independence. For GM to play a legitimate role in, or claim any credit for, addressing those issues it needs to show results in the small car market and the cheap hybrid market. Even efforts like the Volt do NOT actually address those issues in a big enough scale, and using the Volt to claim credit or legitimacy with those issues is particularly reminiscent of GM's past cynicism.
You know, I actually agree with that argument. In the big picture GM really hasn't done anything yet, including the Volt, to warrant a serious reputation with people who care about energy/environment. And I even see that there is a kind of niche/hobby/engineering exercise quality to the Volt. This is an interesting perspective, I must admit.
At the same time the other perspective that I use is that market innovation from startups like Tesla or Fisker or even BYD is no different than GM's Volt efforts. They will all be small scale and expensive and have almost no impact on our issues for the first 5-10 years. And yet I want those companies to succeed, and see great potential in many of them. Same with the Volt and, to a lesser extent, even GM. I am prepared to be disappointed by GM, because I do see how hard it will be for them to compete in small cars and cheap hybrids. So maybe my opinion of GM needs to be tempered until they do actually get some results.
Still, I really do expect the Volt to succeed, but maybe only as a development platform for future mainstream cars that will have a measurable impact on energy and environmental issues. But for me the Volt is a critically important step in the development of transportation technology. Ideally, GM would use what it learns from the Volt to make a breakthrough in small car/cheap hybrids. So that's my optimists vision for the Volt!
"Still, i do believe market forces will push America off foreign oil. Unfortunately, waiting for market forces will mean that the US is unprepared and that will lead to serious problems, such as another recession, another banking and automakers bailout, etc."
I think I would argue that if market forces "solve" the foreign oil dependence problem by leaving us unprepared and exposed to the disruptions you hint at, we are not getting a meaningful solution. So, I guess my question is can market forces "foresee" and effectively mitigate the coming consequences of our foreign oil dependence? Can forceful government policy "foresee" and effectively mitigate the same?
alcatholic-
believe me. i want GM to succeed, but I do see too much of their past in their future. hopefully, they have a few wild cards up their sleeve. until then, i feel like i have to be overly critical.
still, i've sat down with bob lutz and talked about small hybrids. if he has his way, GM will not develop such vehicles. i honestly think his arrogance on this issue has skewered his objectivity. i worry that attitude is still pervasive at the top of GM.
again, I hope I'm wrong, but I'm really worried.
the study I referenced in this post really shocked me. higher gas prices might not be the push plug-ins need because they will be too expensive?
it makes sense, but i'm still having a hard time fully accepting that one. yet, if true, it seems small cheap hybrids could be the key to any major automaker's success.
nonetheless, you're right, even if the Volt doesn't succeed, it could be a good thing. if gm can perfect a unique lithium chemistry that is the best in the auto industry, for example, then the Volt effort succeeds. but that won't be easy and every automaker is spending large amounts of R & D on battery technologies.
So, I guess my question is can market forces "foresee" and effectively mitigate the coming consequences of our foreign oil dependence? Can forceful government policy "foresee" and effectively mitigate the same?
in theory, i think government policy could "foresee" and effectively mitigate the problems that could be caused by foreign oil dependency. but it seems to me no one in the government really believes that the problems are going to get that bad in the next few decades.
cap and trade has a chance, but i don't believe the final legislation will be strong enough to achieve those kinds of results. moreover, cap and trade legislation has a long time horizon for scaling up change.
maybe i'm terribly wrong and overly-dramatic about the dangers of foreign oil dependency, but it seems to me that if you just look at the history of america's oil dependency, the facts speak for themselves
a while back i had a few drinks with a GM engineer working on the Volt whom obviously didn't drink much. he told me that some GM models had predicted the potential of the gas spike of 2008. moreover, he told me the models suggested the potential of very serious gas spikes in the next decade.
yet, according to GM execs, 'no one could have predicted the gas spike of 2008'.
unfortunately, the financial costs of taking that risk seriously were just too high for GM, and it appears they are still too high.
Bob Lutz says GM won't compete in small cars, but could it be that GM CAN'T compete in small cars? What if GM believes that attempting to develop and market a small car will be fruitless, because they can't compete with Honda and Toyota. I'm not excusing them, just wondering if you think that is a possible market dynamic behind Bob Lutz's statement.
I'm sure it's hard to compete, but I heard Alan Mulally claim that small cars were not only important to Ford's future, but could be profitable.
And GM is offering up some new small cars, but none of them will be hybrids as far as I know, not even BAS hybrids.
Of course, I'm not sure that Ford will offer any new small hybrids either.
So, maybe US automakers can compete at conventional small cars, but not small hybrid cars.
A few decades ago, automakers didn't think small cars offered any reason to compete. Are US automakers making the same mistake on small hybrids, or are the profit margins just too slim?
I don't know, but it seems Honda and Toyota are seriously ramping up their efforts to meet this 'niche'.
Yeah, I think it is a question mark whether GM can compete in small cars, much less profitably. Ford "could" make a profit, and while I'm sure they will the fact that they have to qualify their product plans shows how slim their margins will be.
As for Toyota and Honda, my theory with their cheap hybrid push is that cheap hybrids will most directly take away sales from conventional small cars, so Toyota and Honda have the most to LOSE from cheap hybrids. So, for them cheap hybrids are a matter of survival, especially for Honda.
I got this notion from the results of the cash for clunkers programs and the PHEV study which showed that high gas prices drive people to small cars, which I believe really means cheap to own cars. If cheap hybrids become cheaper to own than conventional small cars those customers will flock to the hybrids. Bye-bye Civic sales, so to speak. SUV owners won't necessarily be drawn to cheap hybrids anymore than they are drawn to small cars today. Maybe a little more.
On the other hand, I also happen to think that the SUV market of recent years was just another symptom of the US housing bubble with people using home equity to buy fancy SUVs. So, just like the housing bubble has popped and isn't coming back, I think the SUV bubble has popped and isn't coming back. In fact, if GM built their profits around housing bubble SUV sales, that means GM profits themselves were a type of bubble that aren't coming back! Heh.
I wonder how Bob Lutz would respond to that line of argument.
Seriously, I do wonder what all those car buyers that relied on housing equity will buy now? Will they be forced into economical cars however much they "needed" SUV's, or whatever type of car they used to buy in the past?
EDIT:
Will they be forced into economical cars however much they "needed" SUV's, or whatever type of car they used to buy in the past that they can no longer afford?
Based on his comments, it seems Bob Lutz believes that US demand for SUVs and other large vehicles will be almost as strong as before once the economy rebounds. Ultimately, I guess GM must be forecasting some stability in gas prices over the next decade that won't cause a major change.
Of course, GM updated the Cobalt with the Cruze, etc. So, GM does understand there is change brewing, and that the small vehicle market cannot be taken for granted.
But is GM really doing enough? That isn't clear.
That SUV/housing bubble angle is interesting. In another year or two, the majority of home owners might be under water according to the last data I've seen. The recovery is supposed to be a slow one. Consumers will have to slow down, unless some other bubble emerges.
It seems to me another good gas spike could forever change the way consumers think about the auto if it happens in the next few years.
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