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How the Feds Can Make Every Dollar Count for Electric Vehicles

By Kelly Vaughn

(Originally published in GreenBiz, May 3, 2010)

As reported by the Wall Street Journal last week, automakers are pressing the Obama administration for more government subsidies to spur mass-market sales of electric vehicles, including new tax breaks for consumers, utilities and car companies.

More money is needed on top of the $2.4 billion already allocated, automakers say, in order to achieve President Obama’s goal of putting one million electric or plug-in hybrid vehicles on the road by 2015.

Automakers—concerned about lack of consumer demand and availability of public charging options—are worried that the move to electrified transportation may fail unless the federal government steps in. But, a long wish list leaves room for interpretation as to what investments (if any) are the smartest, and will sustain EVs as a viable part of a larger low-carbon strategy for the US.

Project Get Ready, an initiative led by Rocky Mountain Institute to aid U.S. cities preparing for widespread adoption and use of electric vehicles in their communities, regularly connects city leaders, technical advisors and energy providers to create a plan for plug-in readiness. Cost and financing are inevitably common topics of discussion. PGR managers Matt Mattila and Tripp Hyde weigh in on what cities looking to bring EV-readiness to their communities can agree upon when it comes to spending money wisely.

Affordability is Key

What’s priority number one for EVs? “Making them cheaper,” Mattila said. “Lowering the initial purchase price for consumers should be the first step.”

Currently, buyers of plug-in hybrids and EVs benefit from a tax credit ranging from $2,500 to $7,500, depending on the size of the battery in the car (the greater the battery capacity, the bigger the credit). These credits are available through the American Recovery and Reinvestment Act, but begin to phase out after a specific automaker—Chevrolet, for example, maker of the Volt—sells 200,000 vehicles.

But let's not kid ourselves—these credits won't be available forever. Consumer cash may be a quick fix, but money spent further upstream—on better design, more efficient processes and more cost-effective materials—could result in a much lower vehicle cost which would ultimately be passed on to EV buyers.

“A vehicle designed to be lighter requires less energy to move, smaller batteries to power, and, ultimately, less money to manufacture,” Hyde said. “These savings are passed straight to the consumer by bringing down the MSRP and ideally making the vehicle a more attractive option." (See RMI's take on the multiple benefits of lightweighting for electrification.)

Benefits of good design extend past affordable vehicle electrification. With the new CAFÉ standards, improvements can have an impact industry-wide.

“Ultimately, any money invested in making the car more lightweight or aerodynamic will have implications and benefits across the industry—not just for EVs,” Mattila said. “So, when you are looking for the most bang for the taxpayer buck, you want to make the investment in overall efficiency. As the recent Lotus study shows, with a typical car you can reduce weight significantly, increase efficiency saving on fuel costs, and the car will cost less to build.”

Another option: buying in bulk. It works for socks and ketchup, why not EVs? Currently, Project Get Ready is working to enable this approach by encouraging cities, regions and even whole states to band together to create large EV procurement orders. The larger the order, the more interested an OEM is to not only manufacture the vehicles, but also provide regional technicians and support.

The Charge to Charge

The vast majority of EVs will spend 12 hours each day in one location—the home. That means at-home charging stations represent a great place to invest in infrastructure, but also another cost barrier for consumers.

"Our collaborators constantly voice the challenges around consumer acceptance. Consumers need to understand the total cost of ownership differences between an EV and a traditional vehicle," Hyde said. To that end, the PGR team developed a vehicle "total cost of ownership" calculator that allows individuals to define their own driving parameters and gas and electricity costs.

"It's worth noting that most consumers will pay a premium to purchase these vehicles, but in many instances they're cheaper to own and operate in the long run," he said. "Tools such as these can be used by all of our participating cities in their efforts to not only educate their citizens, but their municipal decision makers as well."

Until December, consumers can benefit from a 50 percent home charger installation federal tax credit (up to $2,000), and this is one particular credit that is on the list of requests for extension. But, options exist beyond a federal tax credit to drive down the average cost of a charger and its installation.

Collaboration Yields Opportunity

At home charging could prove to be a wise investment for a wide range of stakeholders—utilities, homebuilders, automakers and startups—who see opportunity in a new and competitive market.

But getting these people in a room together to make decisions that not only pay off for them, but also the consumer, seems unlikely. Fortunately, new partnerships are emerging that indicate that the right people are initiating the conversations that will lead to industry-wide innovation and savings.

GM and Ford are among the automakers that are working closely with utilities to ensure that the grid can handle the additional load that EVs will require it to bear. Utilities are happy to play since they are looking for ways to manage existing volatility, smooth load profiles and increase renewables.

“If you can start doing smarter charging, which will require some initial investment, the grid can accommodate these vehicles without strain,” Mattila said. “Smart charging offers the intelligence to charge at a certain time, using cleaner energy. It leads to a stronger grid, and in the long-term you can make money.”

To encourage collaboration, Project Get Ready continues to add to the ranks of strong and diverse partners like municipal utilities, city officials, and technical advisers, including Underwriters Laboratories and Advanced Energy.

Participants discuss safety standards, certifications, regulatory structures, financing mechanisms and emerging technologies in an effort to streamline EV preparation. Success stories can be shared, replicated and applied across several regions.

Making the Right Investments for the Long-Haul

Government aid in the right areas will help jump start this revolution, but it is by no means the answer to long-term EV viability.

A coordinated effort between Washington and key stakeholders is needed to ensure the right upstream expenditures yield the greatest downstream benefits. And the rewards are linked to broader problems that still need solutions: a more secure and localized energy infrastructure, and shaving peak demand in general, particularly as we make the necessary transition away from fossil fuels.

“Every dollar we spend wisely on vehicle electrification means a dollar that we are not spending on gasoline and sending abroad,” Mattila said. “Money spent on ‘electric fuel’ stays in North America.”

Kelly Vaughn is a public relations analyst with RMI.