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FILE - In this file photograph taken Dec. 2, 2009, the 2011 Chevrolet Volt debuts at the Los Angeles Auto Show, in Los Angeles. (AP Photo/Jae C. Hong, File) FILE - In this file photograph taken Dec. 2, 2009, the 2011 Chevrolet Volt debuts at the Los Angeles Auto Show, in Los Angeles. (AP Photo/Jae C. Hong, File)  

Electric cars run on government subsidies

The rise in the electric car industry is directly related billions of dollars in subsidies from the U.S. Department of Energy authorized by the 2009 stimulus bill, according to an investigative report by ProPublica.

Historically, the electric car industry has failed to be a profitable venture. However, it recently has experienced substantial gains thanks to legislative action, rather than market competition.

As gas prices increased in the 2000s, hybrid cars like the Toyota Prius seemed more attractive, but it wasn’t until the stimulus package in 2009 that electric cars, and their batteries, took off. With $2 billion in federal grants and another $2 billion in matching private funds, the industry began to grow.

Several U.S. firms have benefited greatly from taxpayer generosity.

ProPublica reports:

“Chemetall Foote Corp., which operates the only U.S. lithium mine, received $28 million to boost production at its plants in Nevada and North Carolina. Honeywell received $27 million to become the first domestic supplier of a conductive salt for lithium batteries. More than $1 billion was spent to open and expand battery factories, many of them in hard-luck towns across Michigan. Through a separate federal program, automakers received loans to retool their assembly lines.”

Furthermore, “Compact Power is building a $300 million factory in Holland, Mich., to produce batteries for the Chevy Volt and the electric Ford Focus. A123 now supplies the luxury electric carmaker Fisker Automotive and the manufacturers of electric delivery trucks used by FedEx and Frito-Lay.”

The purchase of an electric car comes with a $7,500 tax credit, and the stimulus package also included funding for 20,000 charging stations by 2013. Reportedly, these grants created or saved 1,800 jobs, according to project reports filed by the companies.

A Poor Track Record

Despite growth seen since the passage of the stimulus in 2009, the electric car and electric car battery industry has been under performing the Obama administration’s expectations. Demand has not kept up with supply despite the rosy predictions.

The Scientific American noted: “In the short term, the worldwide capacity for making batteries far outruns the demand for electric cars. Market analysts expect a multi-year cull, starting as early as 2012, of the factories that can’t make the grade.”

Predictions for 2012 look grim for battery manufacturers. There are currently about ten electric car battery manufacturers in the U.S., but as demand continues to be low, few manufacturers will remain in the market in the long run.

According to Kathleen Hartnett White of the Texas Public Policy Foundation, total U.S. sales for the Nissan Leaf and the Chevy Volt in 2011 reached 17,345 vehicles out of more than 12 million vehicles sold. Even hybrid sales only amounted to two to three percent of U.S. sales further, indicating weak demand relative to the amount of firms in the market.

Competition from Asian manufacturers is also a factor. Using economies of scale to slash the price of batteries on the market, U.S. firms struggle to compete. Unfortunately for U.S. battery manufacturers, South Korea and China have announced plans to invest more than five times the amount of the 2009 stimulus in electric car batteries, meaning more competition from abroad.

Government backed electric car and battery producers have seen trouble in recent months. More recently, lithium-ion battery manufacturer Ener1 announced it was filing for Chapter 11 bankruptcy. In 2009 the company received $118 million in stimulus funds, and later that year bailed out the Norwegian electric car maker THINK Global. Despite the help, THINK filed for bankruptcy last June.

More recently, Fisker Automotive, a maker of exotic electric sports cars,  announced it was laying off workers at its Delaware factory, citing “temporarily delayed work at the plant based on ongoing discussions with the DOE regarding funding for the Project Nina program.” Fisker was being aided by $529 million in federal loan guarantees from the Department of Energy. To date, the company has received approximately $193 million from the federal government.

 

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