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Electric cars have been competing with the internal combustion engine for more than a century, and they have never won. Batteries are more expensive, have less range, and require more time to recharge than it takes to fill a gas tank. In late 2010, U.S. Energy Secretary Steven Chu himself articulated the challenge, stating that battery companies have to develop units that last 15 years, improve energy storage capacity by a factor of five to seven, and cut costs by about a factor of three in order for electric cars to be comparable to cars that run on gasoline and diesel.
U.S. energy policy has tried to address these challenges. The Energy Department and other agencies have supported the development of battery and recharging technology. In addition, the U.S. government has provided financial support to Nissan, General Motors, Tesla, and Fisker to develop and manufacture commercial electric vehicles (EVs). The government hopes such investment can spur economies of scale, thereby reducing unit costs and making new technologies viable.
So far, though, these efforts have failed to produce any game-changing breakthroughs. Battery range remains strictly limited, and electric vehicles remain disproportionately expensive, with batteries alone costing as much as $15,000. The plug-in, hybrid electric Chevy Volt retails for $40,000 before a $7,500 federal tax credit, and the all-electric Nissan Leaf starts at $27,700 after the tax credit. These vehicles are also less capable than their gasoline-powered counterparts, prompting Johan de Nysschen, president of Audi of America, to observe in 2011, "No one is going to pay a $15,000 premium for a car that competes with a [Toyota] Corolla."
He has been proved right. In 2011, the Leaf sold only 9,700 units in the United States, and Chevy sold only 7,700 Volts. There were 13 million vehicles sold in the United States last year, meaning that electric vehicles comprised a meager 0.1 percent of the market.
It is hard not to be pessimistic about the future of electric cars, especially given that government funding is unlikely to increase. Not only has austerity become an economic reality, but electric vehicle funding has become something of a political liability. With the best of intentions, the government is subsidizing second cars for the very richest members of society. Both the Tesla (which has the body of a Lotus) and the gorgeous Fisker Karma sports car (created by BMW-designer Henrik Fiskar and assembled in Finland) retail for more than $100,000. These are not products for the top 1 percent; these are products for the top 0.1 percent.
The demographics for the Volt and the Leaf are only marginally better. According to Nissan, Leaf buyers are college-educated and have household incomes of $140,000 per year. According to General Motors CEO Daniel Akerson, the average Volt purchaser earns $170,000 annually. In short, electric car policy is helping precisely those who should not be subsidized by the government, and as a result, sustaining and increasing such funding will prove challenging.
Is the electric car then history? Will the Leaf and the Volt go the way of the ill-fated EV1, General Motors' electric car from the 1990s? If the status quo persists, they very well might. There are, however, reasons to believe that electric cars might find a viable niche after all -- if we use them in the right way.
For the last several years, Google has been testing self-driving cars, primarily in California and Nevada. Its vehicles use lasers, radars, and other sensors to establish their position and identify objects around them. This data is interpreted by artificial intelligence software that enables the vehicle to drive itself. Google's vehicles have now proved themselves in hundreds of thousands of miles on the road. And Google's not the only game in town. Bosch is also developing the technology, and Cadillac has promised to have a car capable of driving autonomously on the highway by 2015. Self-driving technology is gradually moving to commercialization, and when it does, it will liberate the car from its driver, enabling a vehicle to serve more users.
According to the Transportation Department, the average U.S. vehicle is used less than one hour per day -- a utilization rate of about 5 percent. Many Americans only drive their cars to work, park, and leave them until they drive home at night, making them essentially unavailable for use by others for most of the day. But if the car could drive itself, it could return home to take the children to school, members of the family shopping, and seniors to visit friends or keep appointments. If the vehicle served even one additional passenger, its utilization rate would double, and its capital cost per user would fall by half.
This is exactly the solution needed to remedy the poor economics that currently stymie electric vehicles. Even if better or cheaper batteries are not developed, electric cars could still be economically viable if their utilization rates were double those of today's gasoline-powered vehicles.