The November 8th, 2010 edition of the USA Today discusses the potential success of electric cars in the marketplace. Chris Woodyard highlights One aspect of the U.S. bailout of both GM and Chrysler involved a commitment to introducing electric cars into the marketplace. In particular, Democratic leadership and Obama urged U.S. automakers to start developing new environmentally-friendly cars in return for taxpayer funds. In order to spur more sales, the U.S. government is offering significant incentives for both consumers and producers.
In order to alleviate the concerns over sticker shock, the U.S. government are using market-based schemes to increase sales. Right now, electric cars are expensive ranging from $32,750 to around $50,000. That can be burdensome for many middle class families, so qualifying individuals can be eligible to receive tax credits that can reduce the price by around $7,500. There have been some success with Nissan hitting their sales target with their Leaf brand.
One potential concern involves getting the vehicles charged on a regular basis. With very few public charging stations, people are concerned about running out of power while traveling on the road. The U.S. government is offering grant money to suppliers, but so far only two firms have taken advantage of it and these stations are limited to large metro areas in a few select states. It is possible to charge these cars at home, but they can take up to 20 hours to be fully charged on a regular 110 or 120-volt home wall socket. Alternatively, one can choose a 220- or 240-volt charger, but those items are pricey at $1,200 or more. Even if one can afford that, there's a problem if one lives without a garage.
Electric cars are still in their nascent stage, so that might cause consumers to be wary. With very few public charging stations, there's the concern of being stranded. Certainly, it is not a vehicle that is conducive to long range driving. Then there's the issue of performance issues over time and their adaptability to different climates. These are issues that can only be resolved over time.
Returning to economics, there is one politically unpopular method that can be used that would be sure to boost electric car sales. Economists realize that individuals respond to incentives and that the price system can be used to deal with scarce resources. When looking at the current consumption levels of crude oil by Americans and combine that with growing demand in China, our environmental costs are rising. If our concern is with global warming and reducing our use of carbon dioxide, then applying a corrective tax would be an efficient strategy. This corrective tax would take the form of a federal gasoline tax that would raise the price of gasoline. Higher gas prices would make electric cars more attractive and lead to more of them being on the road. Of course, the downside is that this policy would be more burdensome to the more vulnerable segments of U.S. society, including the working poor, middle class, and people living in rural areas.
In summary, I do believe that electric cars might be the wave of the future, but it looks like our response will be reactive, rather than proactive. Market-based strategies, such as providing subsides to both consumers and businesses alike, will quicken the transformation, but that alone will not cut it. It will take another ‘crisis’ such as an economic recovery that suddenly raises the demand for gasoline. Skyrocketing gas prices that are sustained over a long period of time will be the reason why electric cars will catch on.
What do you think?
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