Stimulus Plan Favors Electric Vehicles. We Ask … Why?

The ‘Stimulus Bill,’ officially the American Recovery and Reinvestment Act (ARRA) of 2009, is aimed at reducing the economic effects of the recession and putting people back to work. Another goal is to reduce the use of imported oil and decrease emissions of greenhouse gases. The ARRA encourages the development, and most importantly, the manufacture and sale of vehicles that run on electricity, at least most of the time.

There is a tax credit for plug-in hybrid electric vehicles (PHEVs) and plug-in electric vehicles (battery electric vehicles, or BEVs). Credits are based upon a vehicle’s on-board battery capacity. A credit of $2,500 starts at five kilowatt-hours (kWh) battery capacity and $417 is added for each additional kWh, up to a maximum of $7,500. Vehicles must meet applicable Environmental Protection Agency (EPA) and National Highway Transportation Safety Administration (NHTSA) requirements, be made by an EPA-defined manufacturer, and acquired between December 31, 2009 and December 31, 2011. The tax credit ends when a manufacturer builds 200,000 qualifying plug-in vehicles sold for use in the U.S.

There are also incentives, though less substantial, for low speed vehicles (LSVs) and neighborhood electric vehicles (NEVs). A tax credit of 10 percent of the cost of these vehicles is offered, up to a maximum of $2,500. The ARRA defines LSVs and NEVs as four-wheeled motor vehicles with a loaded weight of less than 3,000 pounds and a top speed of between 20 and 25 mph. They must meet NHTSA requirements calling for safety items like headlamps, stop and tail lamps, turn signals, parking brakes, rear view mirrors, windshields, and seat belts.

A similar credit is available for certain two- and three-wheeled plug-in electric vehicles. Here, at least 2.5 kWh batteries are required rather than 4 kWh. Another 10 percent credit, up to a maximum of $4,000, is given for converting a non-plug-in hybrid or conventionally fueled vehicle into a plug-in electric.

The Stimulus Bill provides $2.4 billion for American manufacturers to produce next generation PHEVs and their advanced battery components. In addition, the Department of Energy is offering up to $1.5 billion in grants to U.S. based manufacturers to produce highly efficient batteries. DOE is also offering up to $500 million in grants to produce other EV components such as electric motors and controllers. Up to $400 million is available to demonstrate and evaluate PHEVs and for other electric infrastructure concepts such as truck stop electrification, truck idle reduction, and training for technicians to build and repair EVs. Included are demonstration projects to test a variety of vehicles from small off-road vehicles, passenger vehicles, and over-the-road trucks in geographically and climatically diverse locations.

Another portion of the ARRA provides $300 million for General Services Administration and other federal agencies to acquire and operate vehicles with greater fuel economy and reduced emissions. This includes hybrid, electric, and plug-in hybrid vehicles to replace current vehicles in the fleet.

Additionally, $2 million is available in grants for the manufacturing of advanced batteries and components produced in the U.S., including grants for advanced lithium-ion batteries, hybrid electric systems, component manufacturers, and software. There is assistance to construct or upgrade battery manufacturing, component, and recycling plants for lithium-ion and other advanced batteries, as well as for factories producing the power electronics for electric drive vehicles. The goal is to help lower the cost of battery packs, batteries, and electric propulsion systems.

COMMENTARY: With the focus and funding of the ARRA, the federal government has decided to pick the winner in the future automobile arena rather than letting the market do it…and the winner is the electric powered vehicle with lithium-ion batteries. Fortunately, this pick includes PHEVs, so at least the range limitation of pure battery electric vehicles will not be an issue.

Will it result in vehicles that a significant number of consumers will actually buy? And specifically, will they meet the goal of putting ‘one million plug-in hybrid vehicles on the road by 2015’ as President Obama promised during his campaign? Will $2500 to $7500 in incentives bring down these vehicles’ cost enough so they’re competitive with conventional internal combustion engine vehicles? To put this in perspective, in many cases the tax credit is probably only enough to cover state and local sales taxes plus registration fees, especially in high tax states like California.

The ‘shovel ready’ focus of ARRA means that focus on hydrogen fuel cells, the darling of previous government funding, is virtually absent. Is the government conceding that fuel cell vehicles are still far in the future?

There is also little incentive for alternative fuels, especially natural gas. An incentive of $2500 to $7500 in cost could make natural gas vehicles (NGVs) very attractive and potentially as popular as they are in other parts of the world. This could easily pay for the modifications required for a vehicle to burn natural gas and possibly even offset the cost of a home natural gas refueling appliance, a logical addition since so many homes have natural gas service. Large numbers of NGVs could be built right now with minimal infrastructure investment. New manufacturing plants are not needed, as is the case with batteries and plug-in electric vehicles. Even hydrogen might be an easier path if used in internal combustion engine vehicles like those already demonstrated extensively by Ford, BMW, and Mazda.

With the ARRA, these other attractive fuels and even advanced internal combustion technologies have a diminished chance to compete. While lithium-ion powered electric cars may now be a federally-declared winner, it’s the consumer that could be the loser.