How Oil Companies Saved the Electric Car

How Oil Companies Saved the Electric Car

Outrageous gas prices and worldwide concern about global warming have spurred a new wave of automakers to make the long-awaited dream of practical -- and yes, stylish -- electric vehicles a reality. These green machines will soon be coming to a showroom near you.

With gas teasing the 4 dollars per gallon price mark in some cities, many people are facing an unprecendented (in the U.S., at least) worry: they may soon be priced out of the driving market.

The long, slow climb of fuel prices is changing the economics of driving, as many drivers, especially those with long commutes, find that the cost of fuel, over just a few years, will likely add up to more than the price of the vehicle itself.

As consumers are facing the reality that they'll be spending more and more annually for gas, it's no surprise that they're busy seeking an alternative. What is surprising is that, after many years on the fringes, the best alternative for drivers is coming from the rapidly advancing electric-car industry.

Bad News at the Pump Will Drive Sales of EVs

A study performed last May found that the average family with 2 commuters in Atlanta spends about $5,700 annually on fuel. Over a five year period, then, the fuel bill for that Atlanta couple will come to around $28,500; and that's based on the unlikely assumption that gas prices stay at their 2006 average.

This number spells serious bad news for the oil companies: if this average Atlanta family is in the market to buy a new car, it makes financial sense to take that $28,500 they would have spent on gas and split it between the two commuters to buy a car that doesn't require gas at all. Shave a few thousand dollars off that just to be safe, and it makes clear and obvious economic sense for both drivers to spend as much as a $7,000-10,000 premium on a vehicle to avoid buying gasoline.

Coupled with the fact that a recent U.S. Department of Energy study [PDF] estimates the premium for a plug-in hybrid will soon drop from as high as $12,000 down to between $6,000 and $10,000, the heavens appear to be aligning for a very likely second coming of the electric vehicle.

New Leaders Emerge

While large automakers hesitate to re-enter the electric vehicle market, other savvy entrepreneurs to break into the automotive industry with an electric bang. Tesla Motors, based in Silicon Valley, has been on every auto and environmental enthusiast's radar for some time now. Primarily funded by its chairman (and PayPal founder) Elon Musk, and led by tech startup guru Martin Eberhard, the company created an electric car with a previously unheard-of combination of performance and character.

Their Tesla Roadster leaves its forebear, General Motors' EV-1 in the dust with an impressive 0-60 speed of about 4 seconds, 200 miles per charge, and styling reminiscent of Ferrari Spyder. The public has taken notice, and its $92,000 price tag hasn't hampered sales in the slightest: the first 100 were all pre-ordered within 3 weeks, and Tesla's most recent production of 480 sold out in 4 months.

As Tesla blazes a trail of success, other companies are also waking up to this opportunity. ZAP! (Zero Air Pollution), an electric auto manufacturer out of Santa Rosa, Calif., has also developed a sleek and appealing crossover 4-seat electric car called the ZAP-X. Designed and engineered in conjunction with Lotus, the vehicle will have a 0 - 60 speed of around 4.8 seconds, a top speed above 150, and will be able to travel nearly 350 miles per charge at a cost of around 1 cent per mile. Equally impressive is the advanced battery system, which ZAP claims will take a mere 10 minutes to fully charge, which is about the same amount of time it takes to fill up a large gas tank at the pump.

All this activity by the startup sector has finally been a wake up call for Detroit. While the EV-1, G.M.'s first attempt at an electric vehicle, flopped back in the early 90's, the buzz around their new concept vehicle means it may have a fighting chance at success. The hybrid-electric Chevy Volt has an appealing design and can run either completely on electricity for approximately 40 miles, or as efficiently as 150 mpg using the gas powered engine as a generator. While the Volt's all-electric range is tiny compared to the Tesla Roadster or the ZAP-X, G.M. explains that 70 percent of Americans live within 20 miles of their work, allowing most people to commute to and from work without using a drop of gasoline.

Bringing Down the Cost

Though the $92,000 dollar price tag for the Tesla Roadster will keep it out of most driveways in the U.S., manufacturers are making significant strides in reducing costs. On his blog, Tesla's Elon Musk explains that his company has a master plan of bringing the U.S. an affordable electric car. He noted that "when someone buys the Tesla Roadster sports car, they are actually helping pay for development of the low cost family car."

He also alludes to the fact that Tesla's next project, a sporty performance passenger sedan code named "White Star," has a target price of below $50,000 and will probably enter production at their recently acquired site in New Mexico in 2009.

Tesla CEO Martin Ebhard laid out the company's long term business plan at a recent Senate subcommittee hearing on Advanced Technology Vehicles [PDF]:
Tesla intends to become a major car company with a full line of highly efficient -- but also highly desirable -- electric cars. Our strategy is to enter at the high end of the market, where customers are prepared to pay a premium, and then move down-market as quickly as possible to higher production levels and lower prices with each successive model. This strategy also allows us to change radically the public perception of electric cars, opening the market for a full spectrum of electric car models.
Other EVs will also start out at a price premium, as well. Although ZAP is taking deposits for the first production line of the ZAP-X, they have yet to release the new vehicle's exact price. However, the estimated price tag for the car is approximately $60,000 dollars. While still relatively high, the ZAP-X is priced competitively compared to other small-SUV crossovers in its class, and it shows real progress in bringing a high-performance electric vehicle within the price range of the wider American public.

As for the Volt, the target price is still a mystery, but GM insiders have speculated that its price will be within Chevy's typical vehicle price range, and G.M. has said it hopes to put the car on the production line by 2010.

The Next Step: Banking on Green

Critics of electric vehicles often state that electric vehicles, while pollution-free from the tailpipe, are still polluting by consuming electricity produced far away at dirty power plants. While the numbers clearly show EV's are still much cleaner per/mile when including the power plants emissions, Ebhard is working to settle this concern once and for all.

In a white paper [PDF] released by Tesla Motors on this topic in 2006, they found that from well to wheel (meaning the emissions released along the entire energy supply chain from the oil well to the gas tank) the Tesla Roadster emitted about a third of the amount of CO2 emitted by the Toyota Prius, and about a seventh as its closest zero-sixty competitor, the Porsche Turbo.

Still, even this isn't good enough for Musk. That's why, in addition to his investments in Tesla, he is also a large investor of the solar power company Solar City. His vision is that when a buyer purchases a car, they will also consider purchasing solar for their home, allowing homeowners to power their homes and their cars at the same time, creating a truly zero-emissions, nearly zero cost-to-drive vehicle.

"Four years ago, I had no bias towards electric cars or any other technology," Ebhard told Congress. "After considerable research, I came to the conclusion that electric cars are by far the most efficient transportation technology -- even when the electricity to power them is produced from coal; much more so with cleaner sources. Electric cars have the added advantage of being the only kind of car that breaks the trade-off between performance and efficiency."

Daniel Freedman is the founder of StrategyGreen and works as a LEED-accredited green building consultant in Southern California.