Sparking Europe’s economy

Published in Business Spectator (Melbourne), 22 April 2010

Governments across Europe are planning for a new electric age. Driven by car manufacturers and energy companies, European politicians are vying to lead the development of electric cars.

The Irish government has joined up with Renault-Nissan to increase the share of electric cars to 20 per cent by 2020. Spain subsidises the purchase of new electric cars with up to €6,000 ($8,800). France has announced the purchase of 50,000 electric vehicles for its government’s car fleet. Not wishing to be outdone, German Chancellor Angela Merkel has invited 400 business leaders to a national summit on electric mobility in early May, just days before a crucial state election.

The idea of electric cars is not new, although it has never really taken off. Politicians and industry leaders may claim that this time it’s different, but electric mobility still needs the auxiliary engine of ongoing taxpayer support. Even that will not guarantee its long-term success.

One of the world’s first electric cars was a real Porsche. In 1900, the legendary car engineer Ferdinand Porsche amazed visitors at the World Expo in Paris with his Lohner Semper Vivus. At that time, Porsche still carried Latin names and did not hide behind cryptic number combinations or fantasy brands like Boxster.

Other things, however, have hardly changed since then. The biggest problem of Ferdinand Porsche’s hybrid was the enormous weight of the lead battery: At 410 kilograms, it was almost as heavy as the rest of the car. Despite this gargantuan battery, the Porsche had to be recharged after only 50 kilometres. And its price tag of up to 35,000 Austro-Hungarian kroners (about $230,000 in today’s money) made it much more expensive than conventional cars with an internal combustion engine.

Batteries, reach and price: these remain the biggest worries for the developers of electric cars today. Despite some improvements, there is still a wide gap between what modern consumers expect and what electric cars can deliver.

The electric version of the Mini, produced by BMW, is a good example. Since 2009, the Germans have been testing the Mini E, which offers even less space than its petrol sibling. The 5,088 cells of its lithium-ion battery have taken the place of the back seats and leave a tiny boot volume of only 60 litres.

Unsurprisingly, this battery makes the Mini E weigh 300 kilograms more than the standard model. Although its reach of just about 200 kilometres is higher than that of other electric cars like Daimler’s E-Smart or Volkswagen’s E-Up, it is still rather disappointing.

The Mini E needs to be recharged for 2.5 hours at a specially designed high-voltage station or for 10 hours plugged into a standard power socket. This way, driving even medium distances like the 660 kilometres from Melbourne to Canberra would take a couple of days. Don’t expect to see electric cars along the Hume Highway anytime soon.

It is not only their modest technical capabilities, though, that make electric cars a disappointment. Their much praised environmental qualities are also highly dubious. The Mini E, for example, consumes 17 kWh per 100 kilometres. Based on average emissions figures for electricity generation calculated by the German Federal Environment Office, this would still equal emissions of about 98 grams per kilometre. In countries like Australia with a higher share of fossil fuels in the energy mix, this would be even higher.

At such emission levels, the new generation of petrol efficient cars is better. Volkswagen’s Polo Blue Motion only emits 87 grams of carbon dioxide – and it can drive four people with their luggage for more than 1,300 kilometres on a single tank. This does not even consider the environmental effects of the kind of batteries that electric cars use. They require large amounts of rare earth elements and are difficult to recycle.

It is no wonder, then, that environmentalists are not at all enthusiastic about electric mobility. “For the foreseeable future, electric cars won’t be suitable for everyday use”, says Jürgen Resch of Deutsche Umwelthilfe, an environmental group. Greenpeace has also joined in the criticism. Their transport expert Marc Specowius believes that the car industry’s drive towards electric cars is nothing but a pseudo-environmental initiative to brush up its image.

The environmentalists have a point. Car manufacturers have been fighting stricter emissions standards tooth and nail. Yet when it comes to electric cars, they are quick to discover their inner greenie. Considering the availability of public funds, it is not difficult to understand why.

The global car industry has to cope with high over-capacity, which the economic crisis has exacerbated. Governments around the world are attempting to support struggling carmakers through a combination of direct subsidies, support for R&D, and stimulus measures for car buyers.

The vague prospect of all-electric cars provides yet another excuse for governments to splurge more money on their preferred industry. Its alleged green effects and an assumed potential for job creation make the electric car an irresistible temptation for politicians.

As a result, the car industry is at its most politicised state for decades, which is clearly visible in their lobbying activities. The German car industry association VDA boasts former federal transport secretary Matthias Wissmann as its president. Former Foreign Secretary Joschka Fischer now works as an advisor to BMW; General Motors has just hired former State Minister Volker Hoff as its chief lobbyist; Austro-Canadian car parts maker Magna has former Austrian chancellor Franz Vranitzky on its board and also secured the services of Thuringia’s ex-Premier Dieter Althaus.

Such appointments are a good investment for the car industry, especially when it comes to pushing for new subsidies. VDA president Wissmann is already explaining why his industry needs help with its electric car plans: “Electric cars cost between €8,000 and €15,000 ($11,700 and $22,000) more than conventional cars because of their batteries. Without some support, ordinary consumers can’t afford that”, he said in an interview.

It is not hard to imagine where this support should come from if the VDA and its members have their way. Ahead of their meeting with chancellor Merkel in May, the CEOs of Daimler, BMW and Volkswagen have all called for increased public funding for electric cars. European taxpayers should be wary of their car industry’s attempts to leech off the public purse.

Back in Ferdinand Porsche’s age, such subsidies were unheard of. As a result, production of his electric car ceased in 1906. It had never been able to compete with conventional petrol-driven vehicles.

Instead, Porsche built his legendary fame on the VW Beetle – an affordable car for which there was huge popular demand. To Porsche’s heirs, this must sound like a strange business plan.