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Electric Cars Find Power In Governments

By: Sebastion Moffett, Norihiko Shirouzu
Wall Street Journal
October 20, 2009

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Auto makers, trying to turn electric vehicles into a mass-market product, are still being held back by the vehicles' high cost and the difficulty of keeping them charged.

They are increasingly getting help from governments, including the Chinese, U.S. and French administrations, who believe the new cars could fix major problems, including global warming and dependence on oil. So far, governments world-wide have announced they will spend $15 billion over the next five years, according to the Boston Consulting Group.

Electric cars are expected to be one of the highlights of the Tokyo Motor Show, which opens to the public on Saturday, as resource-poor East Asian governments push electric vehicles.

"Without those incentives, the electric-battery car is not going to be accepted in the marketplace anytime soon and anywhere around the world," said Mitsuhiko Yamashita, Nissan Motor Co.'s head of technology and product development. Nissan is unveiling a new electric car resembling a scooter in Tokyo. Also, it will launch another electric car, the Leaf, in the U.S. in late 2010. But, Mr. Yamashita said, "Government help is absolutely imperative at least over the next few years."

Governments like the idea of electric vehicles, because regular gas automobiles depend on oil—often imported—and are a major cause of carbon-dioxide emissions, which they have pledged to cut. Even when electric cars run off coal-produced electricity, they will still produce much less carbon dioxide than a gasoline engine. Nuclear and wind power would mean almost no carbon dioxide produced.

What's more, governments could give their domestic manufacturers a head start in a potentially big future industry.

Past attempts to commercialize electric vehicles have always floundered: The batteries cost too much; they ran out before the cars had driven very far; and they took hours to recharge.

Recently they have become almost feasible. Concept cars aimed at the mass market claim to be able to run about 100 miles on a single charge thanks to new battery technology. The cost of batteries is still way too high, however, costing some $10,000 each. Japan's Mitsubishi Motor Corp. has put a small electric car on sale at four million yen ($44,000), but is losing money even at that price.

Part of the problem is the chicken-and-egg challenge facing many new mass-market products: Consumers will buy electric cars only when they are cheap and convenient enough to use—but that will happen only if lots of people buy the vehicles. So governments are trying to kick-start the market.

"The most important thing that governments do is to give signals to consumers for what the expectation is for adoption of EVs in the future—like an announcement to get off oil," says Shai Agassi, chief executive of Better Place PLC, which is developing recharging and battery-swapping stations in Israel and Denmark. Those two countries have said they want to become independent of oil by 2020.

The biggest money contribution on offer is consumer incentives. France has announced a Œ5,000 bonus ($7,500) for buyers of cars with very low emissions, and it slaps a penalty tax on gas-guzzlers. China is running a 20 billion yuan incentive program ($2.9 billion) for public and service-sector vehicles, such as buses, taxis and government-use vehicles. In Japan, central and local government subsidies will amount to $10,000 in some cases.

Israel taxes gasoline cars by as much as 92% of their value, but will reduce the tax to 10% for electric cars. Denmark levies a tax of more than the price of the car for some vehicles, but will reduce this to zero for electric models.

The other major government investment is in electric-vehicle technology. The U.S. government this year offered $2.4 billion in grants to develop green auto technology, some of which is going to batteries.

Since the start of the century China has been funding "new energy" vehicles, which include electric and other low-emission cars. In January it announced an additional 10 billion yuan in such funds from this year to 2011.

The immediate motivation is to combat rising energy costs, which could otherwise threaten the country's fast growth. Cities would also like to reduce pollution, and local governments have said they will start running fleets of electric buses.

In addition, China sees an opportunity to jump into the car industry despite lagging in traditional vehicles. Electric vehicles provided an opportunity for China to "catch up with and exceed developed countries" in the auto industry, technology minister Wan Gang told an industry conference this year.

Though every mass-market auto maker has an electric car prototype, there are few on the road. If the first models flop because they are still impractical, or if the recent surge in the price of oil fades, governments might lose interest.


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