Zero Emission Vehicles: Just A Tailpipe Dream?

In January of this year, California's Air Resources Board (CARB) passed a mandate that requires that, by 2025, at least 15% of cars sold in the state must be what CARB has defined as Zero Emission Vehicles (ZEVs).  By definition, a ZEV is a car that emits zero CO2 and other pollutants from its tailpipe (if it even has one).   Currently, the allowable ZEVs under CARB's definition are electric cars, plug-in hybrids, and hydrogen-powered autos.  Besides California, 10 other states, mostly Democrat controlled, are contemplating similar legislation.

What's even more interesting is CARB has further mandated that, if an auto company doesn't offer a ZEV on its showroom floors, it will no longer be able to sell automobiles in the state.  As a result, auto manufacturers are scrambling to make ZEVs part of their lineup; even if it means losing thousands of dollars on each car being produced and sold.  In fact, it is expected that the new Fiat/Chrysler Fiat 500e -- which will begin selling in California in the 2nd Quarter of next year, and will sell for $35,000 -- will carry losses of between $8000 and $10,000 per unit sold.  Some have estimated that GM is losing as much as $50,000 on each Chevy Volt; if the cost of R&D is included in the cost of each vehicle.  On top of that, GM is expected to introduce another electric car loser in 2014; the electric-only $32,000 Chevrolet Spark.

The problem with the CARB mandate is threefold.

First of all, these cars are too expensive for the average buyer.  For example the Fiat/Chrysler Fiat 500e -- selling for a minimum of $35,000 -- is more that 2 times the cost of its gasoline cousin: The $15,500 Fiat 500.   On this basis alone, its hard to believe that 15% of the car buyers in America are going to flock to buy an automobile that costs almost as much as the average American's annual income of $42,900; even with rebates of $2500 from California and $7,500 from the federal government. That's because, after rebates, your still paying at least $25,000 for a $15,500 car. 

Secondly, California can't afford to keep putting up millions of dollars to entice people into buying ZEVs.  They're already in financial trouble. By 2025, it is expected that about 15.2 million units a year will be sold throughout the United States.  California typically accounts for 9% or about 1.3 million cars.  If the state continues to cough up $2500 for each ZEV, and if ZEVS must account for 15% of sales, this means that the California taxpayers will have to payout more than a half billion dollars a year in rebates to more than 200,000 new car buyers.

Lastly, if auto makers are forced to keep selling cars at losses in order to maintain their license to sell any cars in states like California, the only recourse those manufactures will have is to raise the prices of their  non-ZEV vehicles.  In which case, we will all wind up paying for this California Tailpipe Dream.  This could easily put marginally-profitable automakers out of business.  In fact, we could very well see GM on the bankruptcy chopping block once again.

References:

--- AutoGuide.Com: Fiat 500e Unit Loses: http://www.autoguide.com/auto-news/2012/11/fiat-500e-not-heading-to-europe.html

--- AutoBlog.com: 2014 Chevy Spark Makes Debut: http://www.autoblog.com/2012/11/28/2014-chevrolet-spark-ev-la-2012/

--- U.S. News & World Report: 2012 Fiat 500 (gasoline) Review & Pricing: http://usnews.rankingsandreviews.com/cars-trucks/FIAT_500/

--- Center for Automotive Research (CAR): Project 2025 Auto Sales:  http://www.cargroup.org/assets/files/ami.pdf

--- Social Security Administration: Average American Wage: http://www.ssa.gov/oact/cola/AWI.html