Electric Lemons

For years, the Obama administration has pumped billions into the development and subsidy of electric vehicles, but e-cars show little sign of catching on.  Currently, just one in a thousand Americans own a plug-in electric car, and most of those reside in California, the epicenter of green energy boondoggles.

Now comes proof that many electric cars lose 70% of their value after just three years of ownership.  According to a recent report, the resale value of the 2012 Nissan Leaf and Chevy Volt, the most popular plug-in electric cars, has fallen by 72% and 69%, respectively.  Conventional vehicles do better.  The resale value of the Chevy Cruze and Nissan Versa, similar sized, gasoline-powered cars, fall by an average of 54% and 50% after three years.  Larger gasoline-powered cars hold even more of their value.  After three years, the full-size 268-HP Toyota Avalon in good condition goes for $19,471, a loss of just 35%.

Worse yet, it’s possible that electric car values will fall even faster as they approach the point when they need a replacement battery.  How much will that battery cost?  According to a GM spokesman, the Volt’s 8-year/100,000-mile warranty covers battery repair or replacement, but after that, “it’s hard for us to tell you exactly what that cost would be.”  For the Leaf, the battery is warranted against capacity loss for 6 years or 60,000 miles.  Nissan has announced that the Leaf’s replacement battery cost will be $5,500, plus installation and tax.

The resale value of the three-year-old Leaf and Volt are now around $10,000 and $13,000, respectively.  After six to eight years, when their battery warranties expire, the potential need of a replacement battery will probably detract further from their resale value.  It is possible that a six- to eight-year-old electric vehicle will have relatively little resale value.

At least for the gasoline-powered Cruze and Versa, the resale value is a known quantity.  The value of the 2011 Cruze LS in good condition, with standard features, now over four and a half years old, is $9,545.  For a similar 2011 Versa, the resale value is $7,006.  At six to eight years, those values will be less, but the cars should still be drivable.  Without a costly battery replacement or repair, the Leaf and Volt may not.

The calculation of resale values is not rocket science.  It was known from the beginning that plug-in electrics would require battery replacement or repair.  It was known that the cost of this replacement or repair would significantly impact resale values.  To date, Obama has spent an estimated $6.5 billion to $10 billion funding “advanced vehicles.”  So why did the administration spend so much taxpayer money to subsidize the development and sale of cars that lose so much of their value after just a few years?  

More important, what have the rest of us, the approximately 99.9% (245,754,000 of the 246 million Americans over 18) who have not purchased an electric car, gotten out of our “investment” in green vehicles?

Green advocates argue that plug-in electrics help cut carbon emissions and thereby reduce global warming.  The Chevy Volt came on the market in late 2010, followed by the Nissan Leaf and the costly Tesla Model S (from $69,900).  Since then, approximately 260,000 plug-in electrics have been sold in the U.S.  There has been no measurable impact on global warming.  If anything, global temperatures have fallen since 2010.

The lesson of the green car debacle is that government intrusion in markets never works.  The free market always does a better job of deciding what works and what doesn’t.  That is because the free market embodies the combined judgment of hundreds of millions of consumers, each with skin in the game, all motivated by their true interests and choosing freely among available alternatives.  Government, once it has attained the size and power of Washington as it is, has no direct interest in acting in the best interests of its citizens. It always acts in its own interest. 

It is ironic that Obama just last week announced a proposal that would extend the “fiduciary” standard to financial advisors of retirement assets when his own oversight of taxpayer money has been so lax.  If the administration’s electric vehicle “investment” had been held to the fiduciary standard, requiring that taxpayer money be spent in the best interest of each individual taxpayer, nothing would have been spent on the subsidy of electric vehicles, and that would have been the appropriate action.

Underlying the sheer waste of taxpayer money is an even greater problem.  There is nothing in the United States Constitution granting the federal government the right to seize taxpayer funds and use them to subsidize purchases by private citizens at the expense of others.  The federal subsidy of $7,500 for each plug-in electric sold makes a mockery of the Constitution, since funds are seized from taxpayers and redistributed to others for a purely private purchase.  Had anything of the sort been proposed at the Constitutional Convention in Philadelphia, the Framers would have snorted “theft” and shouted the proposal down.

It is becoming painfully obvious that Obama’s “investment” in green cars is a ghastly failure that has cost American taxpayers billions of dollars and, at the same time, encouraged others to purchase cars that lose most of their value after three years.  It’s too late to expect a reversal or even a slight change of policy.

Maybe the next president can start afresh, admit that electric vehicles need to compete in the marketplace, restore constitutional governance, and remove the hands of government from the car industry.  For now, we’re stuck with electric lemons on the road – along with the one we have in the White House.

Jeffrey Folks is the author of many books on American politics and culture, including Heartland of the Imagination (2011).

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