Electric Vehicles Are Coming
by clifford winston
cliff winston is a senior fellow at the Brookings Institution. This article is adapted from his forthcoming book, Gaining Ground: Competition and Innovation in the U.S. Transportation System.
Published April 21, 2023
Unless you just fell off the back of a turnip truck, you already have a good idea why people say petroleum-based fuels like gasoline must be phased out. They are a major source of air pollution, which leads to respiratory diseases and is costly to control. More importantly, the internal combustion engines (ICEs) that are burning petroleum account for nearly 25 percent of U.S. carbon emissions that are contributing to climate change.
By the same token, you probably know that electric vehicles have long been promoted as a big part of the solution because electricity can be produced with renewable energy sources that add little CO2 to the at-mosphere. And with EVs’ share of new car sales expected to exceed 10 percent in 2023, their adoption at long last appears to be a credible approach to displacing ICEs.
So, where do we go from here? Speaking as a one-handed economist, pollution externalities appear to justify active government efforts to spur EV adoption. But as a two-handed economist, I recognize that government intervention may do more harm than good. In what follows, I offer a capsule history of electric vehicles’ development and the current state of competition. Then I identify what I believe is the appropriate mix of market forces and government policy to accomplish an efficient transition to EVs.
Spoiler alert: Instead of force-feeding EVs into the market by using billions of taxpayer dollars to subsidize buyers and automakers and to construct networks of fast-charging stations, policymakers should encourage the transition by setting an emissions tax equal to the damage that internal combustion engine emissions cause. Then they should take a back seat to markets and let competition guide the switch to electrons.
A Blast from the Past
As with many other innovations, hindsight points to a series of breakthroughs — in this case, in batteries and electric motors — that mark the development of electric vehicles since their appearance in France and England late in the 19th century. The first commercially viable electric car, with a top speed of 14 miles per hour, made its debut in the United States around 1890. And by 1900, electric cars accounted for roughly one-third of all machine-powered vehicles on the road, continuing to sell well for the next decade.
But the limits of their utility emerged rapidly. For starters, EVs were suitable only for short trips around town. More decisively, they were overwhelmed by competition from ICEs: Henry Ford’s mass-produced Model T took the market by storm in 1908. The Model T (available in any color you wanted as long as you wanted black) made gasoline-powered cars widely available and affordable, selling for less than half the $1,750 price of an electric roadster. That same year, Charles Kettering dramatically broadened the market for ICE vehicles by adding an electric starter, eliminating the need for a frustrating (and occasionally dangerous) manual crank.
By the 1920s, the U.S. had the beginnings of an intercity road network, inviting Americans to see the USA in their Chevrolets (not to mention Fords, Packards and Dodges). With the discovery of massive reserves of easily extracted oil in Texas, gasoline became cheap and readily available even for rural Americans, and gas stations began popping up across the country. For purposes of comparison, consider that very few Americans outside of cities had electricity in their homes at that time. By 1935, electric vehicles were all but forgotten.
Almost forgotten, but still possible. Soaring oil prices and gasoline shortages during the 1973 Arab oil embargo revived interest in EVs. Congress started the ball rolling again, providing money to the newly created Department of Energy to support R&D on alternatives to ICE-powered vehicles.
At the time, the need for decisive action seemed plain. But with hindsight, it is not clear that government intervention was justified to spur the adoption of electric vehicles that might reduce the nation’s dependence on foreign oil. Markets did, in fact, respond to fuel woes pretty much on their own. For example, Honda and Toyota were able to obtain a strong toehold in the U.S. market in the 1970s by selling ICE cars that were far more fuel-efficient and reliable than American offerings.
In my view, Congress should have allowed the market to determine whether automakers could profitably produce an electric ve`hicle that would attract consumers. If Congress wanted to incentivize consumer demand for electric vehicles in an efficient way, it should have “internalized” the external costs of burning petroleum with a tax raising the operating costs of ICE vehicles.
Automakers did in fact explore options for alternative fuel vehicles, including electric cars, during the 1970s. General Motors, for its part, developed a prototype for an urban electric car that it displayed at the EPA’s First Symposium on Low Pollution Power Systems Development in 1973, while the soon-todisappear American Motors Corporation produced electric delivery Jeeps that the U.S. Postal Service used in a 1975 test program.
However, this generation of EVs compared highly unfavorably with gasoline-powered cars in terms of performance and range. Their speeds rarely exceeded 45 miles per hour, and their typical range before recharging topped out at about 40 miles. Given their low scale of production, electric vehicles also suffered from an inherent cost disadvantage, which was masked by subsidies. Indeed, subsidies to consumers and automakers have continued to be a mainstay of electric vehicles to the present day.
Yet it is far from clear that government cash and R&D played a constructive role in promoting consumer adoption of EVs in the years following. To wit: Toyota and Honda introduced the first modern commercially viable hybrid gas-and-electric vehicles during the 1990s without government support.
A major change in the EV market did occur when startup Tesla announced in 2006 that it would produce a luxury electric sports car. Tesla received a $465 million loan from the Department of Energy — a loan that Tesla repaid a full nine years early — to establish a manufacturing facility in California. But in light of Tesla’s prompt repayment, it is likely that Tesla could have turned to Wall Street for a loan instead of getting it from the government. In any event, Tesla’s quick success spurred the large automakers to accelerate work on their own EVs. In late 2010, the Chevy Volt and the Nissan Leaf went on sale in the United States. The Volt, the first plug-in hybrid, could be charged at home. But it featured a gasoline engine that supplemented its electric drive once the battery was depleted, allowing consumers to make short trips on electric power and on gasoline to extend the vehicle’s range.
The first Leaf, for its part, operated only on electricity and was hampered by a very limited driving range. Other automakers subsequently began rolling out EVs, flooding the market with dozens of plug-in models of varying size, cost and amenities.
The State of Play
Although Tesla currently dominates EVs with roughly 75 percent of new vehicle sales, the U.S. market is showing signs of becoming much more competitive. Tesla will be challenged in the U.S. by the Chinese giant BYD, which plans to sell its e6 model in the United States in 2023. Meanwhile Musk and Co. face increasingly serious competition from the players already in the market.
Because policymakers don’t believe that vehicle markets will produce the result they want as fast as they want, the federal government (and some states) have doubled down on EV subsidies.
GM is planning to go all-electric by 2035 and is investing nearly $7 billion in Michigan to build a new battery plant and to overhaul an existing factory to make electric trucks. Ford has already made a splash with its all electric F-150 Lightning, a pricey high-end pickup truck for the suburban crowd. The gasoline-powered Ford F-150 is the best-selling vehicle in the U.S., so it is not surprising that more than 200,000 people have joined the waitlist for the electric version. And don’t forget the many startups in the EV market, including Rivian, Lucid and Fisker. Some will no doubt end up as roadkill, but at least a few are likely to survive the shakeout.
Of course, EVs still face a formidable obstacle in the market: the challenge of becoming cost-competitive with ICEs. EVs have cost advantages in fuel and routine maintenance, but to promote efficient adoption, their full costs (without subsidies) must come down to match those of ICEs.
Because policymakers don’t believe that vehicle markets will produce the result they want as fast as they want, the federal government (and some states) have doubled down on EV subsidies. The Inflation Reduction Act of 2022 extends the current $7,500 tax credit for new vehicles and provides a $4,000 tax credit for the purchase of used EVs. It also eliminates the current cap that cuts off automakers’ tax credits after they have sold 200,000 EVs. Moreover, the IRA is written so buyers can get the immediate gratification of a discount at the dealership instead of waiting weeks or months for their tax credits to come through. Additionally, Washington is subsidizing the construction of EV charging stations that will extend the practical range of EV use.
Is Washington’s Intervention Paying Off?
Despite decades of taxpayer-funded subsidies to jump-start adoption, EV sales are still too small to materially affect the level of emissions. Accordingly, President Biden set a goal of 50 percent market share by 2030. But careful analysis suggests that, although the subsidies in the IRA will move the needle in the right direction, it won’t go very far.
The irony here is that market forces pushing automakers to accelerate the transition to EVs have been rapidly gaining traction — as evidenced by the massive investments all the car companies are making in EV manufacture and battery technology — even as the Biden White House doubled down on subsidies. But it’s not too late to ease off the throttle, giving markets (and rapid technological change) time to complete the job.
The government is also jumping the gun because it is not yet even a sure bet that EVs will, on balance, improve the environment. In some parts of the country, they will probably generate more emissions than ICE vehicles both because the production of their batteries is energy-intensive and, alarmingly, because the bulk of the electricity they require will come from fossil-fuel power plants.
Then there’s the issue of the EV charging stations. The 2021 trillion-dollar infrastructure law included $7.5 billion in subsidies to fund a nationwide network of some 500,000 charging stations by 2030, up from 50,000 such stations on the ground today. The stations will be built in “alternative fuel corridors” designated in all 50 states, as well as Washington, DC, and Puerto Rico. The risk — no, the certainty — is that the subsidies will land where the politicians want them, not where more charging capacity can be justified in terms of demand.
Policymakers and some economists have argued that government subsidies for charging stations are justified because a “chicken and egg” problem exists between electric vehicles and charging stations. That is, consumers will not buy EVs until charging stations are plentiful and investors will not sink cash into charging stations until EVs are using them sufficiently to turn a profit. However, this argument ignores the reality that several portions of the private sector have their own incentives to provide charging stations, which will be available in more convenient locations to spur EV adoption than will governmentsubsidized charging stations.
Charging stations that are located in response to traffic patterns can help attract consumers to EVs by raising EVs’ convenience and utility almost to the level of ICE vehicles. Thus, EV makers have a very strong interest in building out charging networks because making it easy to find a charger on the road and offering high-voltage chargers that can add enough electrons in a few minutes to go another 100 miles is a key part of the EV adoption equation.
It’s worth remembering, too, that the major oil companies created and expanded the U.S. network of gasoline stations very rapidly without government subsidies. The oil giants are cognizant of the challenge to their business today as households transition from gasoline power to electric vehicles. And they are taking steps to leverage their existing networks of filling stations to meet the demands of a post-ICE future.
Currently, most of the fast chargers in the U.S. are ones deployed by Tesla to fill out its proprietary Supercharger network. And presumably because they think the initiative will be profitable, it has begun to open the net-work to EVs made by others.
For example, BP claims that its pulse electric vehicle chargers are “on the cusp” of being more profitable for the company than pumping gas, and it seems committed to expanding its fast-charging business. Royal Dutch Shell entered the EV charging industry by purchasing Greenlots, an American company that operates fast EV chargers, and plans to rebrand it as Shell Recharge Solutions and to operate some 500,000 charge points by 2025.
Currently, most of the fast chargers in the U.S. are ones deployed by Tesla to fill out its proprietary Supercharger network. And presumably because they think the initiative will be profitable, it has begun to open the network to EVs made by others. Meanwhile, signaling its all-in commitment to EVs, General Motors is scrambling to add some 40,000 fast chargers in rural communities and other areas underserved by charging infrastructure. Other major developments include:
- EVgo is partnering with GM and plans to deploy some 3,250 ChargePoint stations across the country by 2025.
- Pilot Flying J, a chain of highway rest stops, is partnering with GM and plans to develop a national network of 2,000 charging stalls at its travel centers.
- Electrify America is investing $2 billion in charging stations in the U.S. as part of Volkswagen’s Dieselgate legal settlement.
- Startups, including Gravity Mobility, Revel and Beam Global, are focusing investments in chargers in urban areas.
- TeraWatt Infrastructure has raised $1 billion to build charging stations for commercial fleets of cars, trucks and delivery vans.
Some retail businesses, moreover, see an opportunity to provide charging facilities as a lure to sell other products and services. For example, Starbucks is partnering with Volvo and ChargePoint, which operates a network of independently owned EV charging stations in 14 countries, to install chargers in Starbucks parking lots along the route from Denver to Seattle. If it pays off for Starbucks, other retailers dependent on car traffic are likely to follow suit.
Like gas stations, inequality in charging access should decline as companies find it profitable to install new stations catering to a broader spectrum of drivers — notably drivers for rideshare companies including Lyft and Uber. Consider, too, that auto-makers are offering to obtain the required permits and to install home chargers for its Bolt EVs at no cost to owners.
Interstate highway rest areas would be a promising venue for EV charging stations. However, the law prohibits placement there as part of a deliberate effort to protect offinterstate truck stop owners — a prohibition, by the way, that also is causing some states to close rest areas. Repealing the law could allow states to partner with private concessionaires to build modern travel plazas (as seen on toll roads that were grandfathered into the interstate system) along with charging stations.
As expected, EV charging stations are currently concentrated in areas with high rates of EV adoption, which typically means wealthier neighborhoods. However, like gas stations, inequality in charging access should decline as companies find it profitable to install new stations catering to a broader spectrum of drivers — notably drivers for rideshare companies including Lyft and Uber that have promised to make the shift to all-electric fleets over the coming decades. Consider, too, that automakers, among them, the Chevrolet division of General Motors, are offering to obtain the required permits and to install home chargers for its Bolt EVs at no cost to owners.
All that explains my sanguinity that private incentives are sufficient to build out the national network of fast charging stations. And then there’s the other side of the coin: the lack of reality to the claim that Washington can finance the expansion of the network efficiently, which overlooks government’s sorry record of public expenditures to improve, for example, the highway network and air traffic control systems.
Government spending on charging stations, moreover, could backfire, creating disincentives for the private sector to invest in the charging network. For example, as part of the Biden administration’s subsidies for EV charging stations, private businesses like hotels and roadside attractions can submit bids for grants to help pay for charging stations. Although it is possible that access may be limited to their customers, those federal grants may discourage private businesses, such as Starbucks, which are already planning to install unsubsidized EV public charging stations.
Lest you doubt the likely inefficiency of a public buildout, consider that the Biden administration plans to make fast EV charging stations available every 50 miles along major highways, including those in the rural Western and Midwestern states where demand is likely to be minimal for decades. Consider, too, that states may undermine private investment where it’s really needed by enabling regulated utilities to own charging stations that have competitive advantages because they are indirectly subsidized by ratepayers.
In the final analysis, I believe that a vehicle- miles-traveled tax on ICE-powered cars and trucks would be a more efficient way to induce consumers to adopt EVs while the private sector has sufficient incentives to develop the complementary network of charging stations on its own. At best, the societal return on EV-related subsidies will be low; at worst, it could be negative.
What Washington Could (And Should) Do
A strong case clearly exists for taxing the tailpipe emissions of ICE-powered vehicles to “internalize” the cost of emissions and to make EVs a more attractive option for motorists. In response to objections that EVs are getting a free ride since they, too, create emissions linked to both manufacturing and powerplant production of electricity, I would counsel imposing a targeted emissions tax that covers EVs’ environmental costs. Regulations to phase out ICE vehicles by barring their sales at a future date as some have proposed (and California has adopted for 2035) would be highly inefficient compared with giving motorists the choice of paying the true societal cost of whichever source of fuel they chose.
Government also has a critical responsibility to smooth the way in procuring materials needed to build and operate EVs, along with ensuring that there will be enough clean electricity produced and delivered to charging stations. EV batteries can’t be made (at least now) without lithium. And currently, most of the world’s lithium is mined outside of the United States. Indeed, while the U.S. is among the top-five countries in terms of lithium reserves, it has only one lithium mine in operation (Albemarle’s Silver Peak in Nevada).
Recently, the richest known hard-rock lithium deposit in the world was discovered just north of Plumbago Mountain in Newry, Maine. Other large potential domestic sources of lithium include extraction from the Salton Sea (the brine lake created by runoff from farming in California’s Imperial Valley) or processing it from spodumene ore from the Piedmont region of North Carolina. However, the permitting process needed to mine lithium and process the raw material has delayed Piedmont Lithium from even breaking ground in North Carolina. Moreover, long after a permit had been granted to reopen a conventional lithium mine in Nevada, environmental groups have managed to delay operations.
Responding to the potential bottleneck, President Biden invoked the Defense Production Act in 2022 to accelerate the creation of a domestic supply chain for electric vehicle manufacturing. However, Biden’s action will have little effect on domestic battery production unless permitting for mining and extracting lithium is streamlined. Similarly, the president’s Bipartisan Infrastructure Law signed in November 2021 includes more than $7 billion to help build out the battery supply chain, but it is not clear if those funds can be used effectively unless regulatory bottlenecks are eliminated.
Then there’s the matter of electricity production and distribution. If 60 percent of all U.S. cars were electric by 2050 — less than many envision — the nation’selectricity production capacity would need to double. But to get from here to there, the government must overcome myriad interests eager to block power plant and electricity grid expansion. Wind energy, for example, is probably the most cost-effective, environmentally friendly source of power, but it faces sometimes bitter opposition.
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The prospects for EVs on American roads are steadily improving. That said, the necessity to get them there quickly has stirred the government’s impulse to force the process with scattershot subsidies that are at best wasteful and at worst counterproductive. Importantly, they may carry over to the next phase of technological advance for motor vehicles when automakers and technology firms combine electric drive trains with autonomous vehicles to offer autonomous EVs to the public. Government has a critical role to play in coordinating the transition to an electrondriven world — but not at the peril of ignoring the indispensable role that markets play in transforming those collective goals into economic reality.
related topics: Climate Change