NCPA - National Center for Policy Analysis

Revving Up Electric Cars with Government Cash

October 4, 2010

Last year, President Barack Obama set the goal of putting 1 million plug-in electric hybrid (PEHV) automobiles on American roads by 2015, says Ronald Bailey, science correspondent for Reason Magazine.

  • As part of his $787 billion stimulus package, a tax credit up to $7,500 is available to consumers as a way to encourage them to buy such cars.
  • The tax credit is needed because PEHVs cost up to $10,000 more than comparable conventional vehicles.
  • In addition, the president pledged $2.4 billion of his stimulus package to jumpstart the electric car industry, including $1.5 billion to battery manufacturers, $500 million to other PEHV component makers and $400 million to build infrastructure for charging the cars.

Indiana aims to be "the capital of the electric vehicle industry," according to Gov. Mitch Daniels.  But becoming the capital of the electric vehicle industry doesn't come cheap to taxpayers, says Bailey.

  • In January, the Department of Energy (DOE) awarded a $118.5 million matching grant to Ener1 (a lithium battery company) to build a battery factory near Indianapolis.
  • In addition, Ener1 was awarded a state incentive package of $21.3 million and a Hancock County package valued at $48.6 million.
  • Ener1 has also applied for a $300 million low interest loan from the DOE's Advanced Technology Vehicles Manufacturing Loan Program to build out additional manufacturing capacity.

Richard Stanley, chief operating officer of Ener1, believes that one of the electric battery industry's biggest opportunities will be to supply batteries to all-electric fleet vehicles such as UPS and FedEx delivery vans and city buses.  While the electric vehicles would initially cost more, they could save such companies a bundle on fuel costs.  President Obama's goal of 1 million PEHVs by 2015, however, is a bit "aggressive," says Stanley.

"Obviously we think that government support is useful.  This business would be viable with private funding, but not revving up at the current pace that it is with government support" says Stanley.  

Source: Ronald Bailey, "Revving Up Electric Cars with Government Cash," Reason Magazine, September 28, 2010.

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