Energy Musings - March 8, 2024

Electric vehicles remain a topic of increasing debate over their benefits for the climate and their popularity with the public. We found an article about charging them that raises cost issues.

EVs Are Good For Us.  Right?

Electric vehicles (EV) have been in the news for months, often with conflicting storylines.  The major storyline last year was the slowing growth of EV sales and the resulting buildup of EV inventories on dealer lots.  The pro and con debate settled over whether the issue was EV sales were falling or merely growing at a rate below what had been expected.  Both proved to be true. 

Year-over-year EV sales increased, but they increased at a smaller rate than in the prior year.  However, in California, the center of the American EV experiment, sales declined in the third quarter and fourth quarter from the prior year and sequentially.  So again, both storylines were true, depending on which data points you chose. 

For us, it was always about the sales rate falling below what was expected by car manufacturers because they are the ones putting up the capital for new assembly and battery plants, and if they do not see sales growth, investing prematurely is guaranteed to sap financial returns.  Especially when car companies are losing money on the units they build and sell now.  This trend has long-term implications for the transition of the U.S. vehicle fleet which is being forced by fuel efficiency rules promulgated by the Environmental Protection Agency.  According to the agency, 67% of new vehicle sales need to be EVs by 2032.  Reports are that the Biden administration will plan to ease back from the rapid pace, probably reflecting the reality of market demand. 

That debate seemed to be settled when Ford and other vehicle manufacturers announced delays in new EV plants and model introductions.  These manufacturers were also licking their wounds after posting significant losses per EV sold last year and suggesting that achieving profitability would be further in the future than previously predicted. 

Aggressive price cuts on aging EV inventories were enacted to move them off dealer lots, cleaning out marketing channels.  It was a tacit admission by car builders of having missed the boat on their forecasts for EV sales.  However, it called into question forecasts for EV sales this year and for years in the future. 

It appears that the mass of Americans is not in love with EVs and can wait to get them – at least until they are forced by governments.  When Hertz, the car rental giant, announced it was going to dump its 20,000 North American EV fleet because renters didn’t want them and nasty Elon Musk kept cutting Tesla prices to boost sales, EV proponents were shocked.  Every time the price of a Tesla model was cut, the value of those in the Hertz fleet fell, hurting the company’s earnings.  

Because Hertz, like all other rental car companies, makes much of its profit from selling used vehicles, having their value reduced by some supplier executive’s decision to cut his prices to boost his sales was unacceptable.  But at the heart of the problem was that customers didn’t want to rent Teslas to the degree Hertz management expected.  To add further challenges, every repair needed for a Tesla took a long time (lack of trained mechanics) which reduced the time they were available to generate rental income, and the repairs cost a lot more than for gasoline vehicles.  This was a financially lethal combination.  Out with EVs was the solution. 

We have seen numerous recent articles about EVs that caught our eye for various reasons, but we will only comment on three here.  Yesterday, the Wall Street Journal carried an article by the Personal Technology columnist Joanna Stern.  The column dealt with the agreement by Tesla that allows other EV manufacturers to provide adaptors for their vehicles letting the owners charge them at Tesla’s network of charging stations.  Ms. Stern experimented with the adaptor and charged her Ford Mustang Mach-E EV at various Tesla charging stations. 

We found one paragraph in the article of interest. 

“Charging my extended-range Mach-E from 20% to 80% at a Tesla Supercharger took about 36 minutes.  The cost?  $25.20.  The same charge at an EVgo down the street took just over 43 minutes, and cost $39.27.  I charged at the same off-peak time of day.  Tesla’s rates were just lower.” 

We were intrigued by the cost figures.  Checking the Edmunds.com website, we learned that the Mach-E has an EPA estimated range of 250 miles.  Using the 20% and 80% figures, Ms. Stern increased her charge from 50 miles to 200 miles, or 150 miles.  Based on the cost figures, it cost either $0.168 per mile or $0.262 per mile and she needed at least 36 minutes to power up her Mach-E.  She noted that she had received favorable charging rates because she was plugged in during off-peak hours.  We wonder what her costs would have been with normal rates. 

We had just filled up our wife’s internal combustion engine vehicle with 13.687 gallons of regular gasoline at $2.739/gallon, or a total of $37.98.  According to the range estimate of her vehicle, it increased from 80 to 361 miles for a gain of 281 miles.  That translated into a per-mile cost of $0.135.  Filling up the vehicle required no more than 10 minutes versus the 36 or 43 minutes for charging the Mach-E EV.  The comparison demonstrates that EVs need to be charged at home to be cheaper than an ICE vehicle, at least in Houston, Texas.  It may be different in other states.  In addition, Ms. Stern’s charging experience was in New Jersey where in 2023 residential electricity cost 24% more than in Texas ($0.1779 versus $$0.1429). 

A new issue about the cost of charging was introduced in a Wall Street Journal article in today’s paper.  It framed the discussion as a Red-Blue state difference which is over EV taxes.  Because EVs do not purchase gasoline during their lifetimes, they contribute nothing to the state and federal coffers for highway construction and maintenance.  As EVs are considerably heavier than ICE vehicles, their wear on roads is greater, just like heavy-duty trucks that pay substantial highway taxes. 

Some states charge annual fees for EVs.  The article said 33 states have enacted annual registration fees for EVs and hybrid vehicles.  According to the National Conference of State Legislatures, the annual fees range from $50 in Colorado to $225 in Washington.  That is an interesting range as EVs are popular in both Colorado and Washington.  In Texas, the annual EV fee is $200. 

The new issue is states imposing fees on the electricity used to charge EVs at public charging stations to raise funds for highways.  Seven states have enacted such fees including Georgia with a three cents per kilowatt-hour of power consumed at public EV charging stations.  While the Wall Street Journal writer highlighted that the seven states are predominantly led by Republican governors, the fee may also reflect that their state residential electricity is much cheaper than states led by Democrat governors. Even after the fee, they are still cheaper.  It is unknown whether such electricity consumption fees will become more widespread.  Increased acceptance may be because it is a better way to get EV owners to pay their “fair share” of highway expenditures. 

The second article we noted was about the annual report from GreenerCars.org which assesses “every new model in the U.S. light-duty vehicle market.  It is based on a lifecycle assessment of the greenhouse gas and criteria pollutant emissions from the production, use, and disposal of each vehicle.”  The assessment requires studying the fuel burned, as well as the upstream emissions from the electricity used to charge vehicles, and the emissions produced from the mining and processing of the minerals required for batteries and the manufacturing of the vehicles and their components. 

The report produced three lists: Greenest; Greener; and Meanist.  There was no surprise that the Meanist list was composed of large, gas-powered, luxury vehicles with one EV, the GMC Hummer EV SUV.  

We were interested in the top vehicles in the Greenest and Greener lists.  Heading the Greenest List was the Toyota Prius Prime SE, a plug-in hybrid.  At the top of the Greener List was the Honda Accord, a gasoline hybrid.  Interestingly, there were numerous PHEVs and gasoline hybrids on the lists.  Five of the 12 vehicles on the Greenest List and nine of the 14 Greener List vehicles were PHEVs and gasoline hybrids which explains why Ford and Toyota are experiencing outstanding hybrid vehicle sales. 

An article in The Washington Post commenting on the report offered several interesting points.  It noted that the Toyota Prius Prime SE can go 44 miles on electricity before switching to hybrid.  We are often told that the average driver goes less than 50 miles per day.  That means the Prius could meet nearly 90% of the average driver’s daily needs on battery power.  The reason for the vehicle’s performance, according to Peter Huether, senior research associate for transportation at the American Council for an Energy Efficient Economy quoted in the article was “It’s the shape of the body, the technology within it, and the overall weight.”  The article further noted that the Prius model also topped the GreenerCars list in 2020, and 2022, along with this year.  Toyota must be doing something right. However, its management has been attacked by EV activists for pushing hybrid technology as a better climate option and a less expensive vehicle for buyers. 

The battle over EVs versus ICE and hybrid vehicles will not end anytime soon.  If the Biden administration does back off its push to electrify the U.S. vehicle fleet by 2032, domestic vehicle manufacturers will breathe a sigh of relief.  Such a move will give them more time to assess what the true demand for EVs is and better plan their EV investments.  However, lurking in the background of the EV battle is China, which we will cover in another article.  The automobile industry will remain chaotic until some of these issues become clearer.