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David Nelson: Are Electric Vehicles Really Green Machines?

Monday, 12 Aug 2013 10:23 AM

By David Nelson

David Nelson is chief strategist of Belpointe Asset Management and a Moneynews contributor.

Over the weekend, I was asked to appear on Fox News with anchor Arthel Neville to discuss the electric car industry. Sales of hybrids like the Chevy Volt and the all-electric Nissan Leaf have risen dramatically and the question of the day is, why?

I admit I don't follow the industry as much as I should, so I dived right in preparing for the segment. As I clawed my way through the mountain of research, I soon found with every question I answered, another two would surface. The biggest and perhaps most controversial is, "Are electric vehicles as green as the industry says?"

First, let's go through the easy stuff. The recent spurt in sales of the Chevy Volt and Nissan Leaf are the result of a price war. The automakers are falling over themselves to cut prices and its working. With sticker prices on the 2014 Chevy Volt being cut by $5,000, dealers are having trouble meeting the demand.

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Recently, Honda issued an apology regarding its Fit EV saying, "We recognize that some customers have experienced frustration as they attempt to locate dealers with available Fit EVs." Dealers are rejoicing because of the sudden surge. In a Time Magazine interview, a sales manager at Honda of Santa Monica said, "It's incredible, especially since we haven't had any foot traffic or interest in the car in six months."

A lot of questions remain unanswered. Are they making money? What are the margins and are the promotions we see sustainable? Are these programs designed to just stir up interest and what will happen to demand as these promotions are eliminated?

According to Auto Week, Chrysler CEO Sergio Marchionne is on record saying they will lose more than $10,000 on every battery-powered Fiat 500 it sells. Hardly a sustainable business model.


Current incentives to purchase these vehicles are very attractive. The Federal tax credit can be as much as $7,500, and if you live in California maybe another $1,500.

Hybrid vs. Electric

In the near term, I believe hybrid vehicles will continue to lead the market. For most all-electric vehicles, the range simply isn't enough. The darling of the industry, Tesla (TSLA), advertises a model with a 300-mile range, but most are significantly below that.

Once you’ve arrived at your destination you have to charge the vehicle. In today's fast-paced, I-need-to-be-there-yesterday world, waiting around hours for your car to charge simply won't be an option for many. The hybrid's gas/electric drive train lets you continue on your journey long after the battery is out of juice.

I think for now, all-electric vehicles are more suited to fleets like taxi's or delivery trucks that come back to a central location at the end of the day.

Green Machines?

That's really the question, isn't it? Are these vehicles as green as advertised? The selling point behind using all-electric vehicles is they are green, with most advertising zero emissions. However, with everything considered, is that really true?

Think about it. Your electric car is sitting in your garage charging. Your home is attached to the electric grid and in turn to your local electric utility, which is more than likely burning fossil fuel. Perhaps, even a dirty fuel like coal?

Ozzie Zehner

Ozzie Zehner, a scholar at the University of California, Berkeley who worked at General Motors on electric vehicles, is one of the industry's leading critics. In a recent article, Unclean at Any Speed, he points out many misconceptions of the electric car industry.

When considering emissions, he believes it is important to look beyond the fact that the electric vehicle doesn't have a tailpipe. There are other environmental costs, as well. He points readers to a study conducted by the National Academy of Sciences, which reveals that the lifetime health and environmental damages from electric vehicles are actually greater than those of gasoline-powered cars. "Indeed, the study found that an electric car is likely worse than a car fueled exclusively by gasoline derived from Canadian tar sands!"

He goes on to say that much of the research available is funded by the automakers that dominate the electric vehicle industry and stand to make a profit.

Energy Independence

A major headwind for the industry can be found right in our own backyard. If we put the right policies in place, our nation has a chance at becoming energy independent in the next decade. I'm not certain gasoline prices will remain as high as they are right now. If traditional energy sources fall in price as we develop these resources, plugging in may prove less attractive than filling the tank.

Here is where I come out on the subject: I think the industry is exciting and electric vehicles are certainly part of the solution, but given the fuel options we have available right now, it shouldn’t be jammed down our throats. I think energy independence for our country is the key to our future and electric vehicles are just one piece of the puzzle. It would be criminal to waste this opportunity to free ourselves from Mid-East oil and those who control it.

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