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Perry: Industry shifts to hybrid, all-electric vehicles

Mark J. Perry

Given groundbreaking research efforts in the race to develop affordable electric vehicles, assumptions about the need for additional power production in the years ahead may be widely off the mark. If additional power plants aren’t built soon, there might not be enough base-load electricity to usher in a fundamentally new era in motor vehicle technology.

From all indications, we are now on the cusp of a major shift to hybrid and all-electric vehicles. The next five years could see the electric vehicle (EV) dominating U.S. automobile sales as the cost of purchasing an EV becomes competitive with gasoline-burning cars. That could happen by 2017 or sooner. Even now, the sticker price of many EV models is at or nearing the price of comparable conventional cars.

If you figure in fuel-savings over a five-year period, EVs currently cost one-fifth to one-third as much per mile as even the more efficient gasoline-burning cars. EVs like the Nissan Leaf, Chevrolet Bolt, the Fiat 500e and the Ford Electric already have a large base of owners.

Moreover, recharging an EV costs significantly less than filling up a tank with gasoline or diesel. And the time required to recharge an EV — which a few years ago was several hours — has been reduced sharply. Some EV models can now be recharged up to 80 percent of full capacity in 15 minutes.

Just a few years ago, EVs were seen as uncompetitive. But the sale of EVs grew at a blistering pace last year, adding 23 percent more sales of plug-in vehicles from 2013 and a 128 percent jump from 2012. Despite this year’s drop in gasoline prices, the sale of EVs has continued to grow. We now have an EV sport-utility vehicle, Tesla Motors’ Model X, which has an astounding acceleration to reach 0-60 mph in just 3.8 seconds. On a full-battery charge, the seven-seat SUV can run for 240 miles. Like the Tesla, Porsche says its Mission E reaches 60 mph in under 3.5 seconds. Top speed is 155 mph. And the Mission E has a range well over 300 miles.

By 2017, GM and Tesla plan to launch EVs with a 200-mile range costing between $30,000 and $40,000, and three other companies — Nissan, BMW and Volkswagen — seem likely to do the same. By comparison, the average selling price of a gasoline-burning car last year was $32,618, according to the National Automobile Traders Association.

What’s driving these improvements in EV technology is the rising cost of making gasoline and diesel vehicles comply with stringent tailpipe emission standards. California’s standards are especially tough, requiring a large percentage of the vehicles sold in the state to be either hybrid or all-electric.

For one thing, the cost of batteries — which account for one-third of an EV’s price tag — has dropped significantly in recent years. Just the other day, a Wall Street energy analyst predicted that Tesla Motors’ Nevada-based battery factory — known as the Gigafactory, because of its huge size — could drive down the cost of lithium-ion batteries by more than 50 percent. Greater manufacturing efficiencies lower the batteries’ price.

There are two reasons to believe that the transfer to EVs will, on balance, be positive for the U.S. economy. First, steady growth in the number of EVs could enable the United States to reduce its dependence on imported oil and involvement in the Middle East. Second, if nuclear power is used to supply the electricity for recharging EVs, enormous geopolitical, economic, and environmental gains could be realized. Nuclear plants like Fermi 2 provide a large amount of electricity dependably without polluting the air or emitting greenhouse gases. And growth in nuclear power would strengthen America’s standing as the world’s leading supplier of nuclear technology and know-how.

Currently, federal tax incentives of up to $7,500, depending on the battery size, are helping to temporarily bring down EV costs. And some states offer additional incentives for EVs. But given the steady path of progress and cost-cutting that car companies have been following in the production of EVs, taxpayer support for EVs will likely no longer be needed in the future to make the vehicles competitive. Market forces and technological advances are working together to make EVs economically viable as companies continue to ramp up production. As long as we pursue sensible energy policies to provide the necessary power infrastructure, EVs have a very bright future, and a future that will generate positive economic benefits for the U.S. auto industry and the state of Michigan.

Mark J. Perry is a professor of economics at the Flint campus of the University of Michigan and a scholar at The American Enterprise Institute.