Electrical Resistance

A little while back, an anecdote was being passed around by liberal folks on Facebook that made Ann Romney look pretty bad. Apparently she said that a woman in the workforce “should be happy just to be out there in the working world and quit complaining that she’s not making as much as her male counterparts.” Even by the relatively relaxed standards that are rightfully applied to the families of political candidates rather than the candidates themselves, that sounded a little tone-deaf to me. So I checked on snopes.com and, indeed, found out that the story was completely false. It was made up by a humor site, and then picked up by people who don’t like Romney, who were willing to take it at face value. As ridiculous as any particular claim may be, confirmation bias nudges us toward greater credulity when we are faced with stories that we want to believe are true.

Which brings us to the Chevy Volt, the electric car from General Motors. One of the blogs I generally read is Outside the Beltway, which is a group of conservatives who are more than willing to decry the worst excesses of conservatives as well as liberals. I generally don’t agree with them (except for the decrying), but they say a lot of interesting things. Doug Mataconis, one of the bloggers there, fell quite a bit short of that standard in a recent post about the Volt.

Mataconis, relying on an equally silly Reuters article, tells us that GM loses $50,000 every time it sells a Volt. The attitude of the post is simple — “maybe I’m no fancy businessman, but even I know that it’s not a good strategy to keep building cars and selling them at a tremendous loss!”

Well, that would be a bad strategy. So bad, in fact, that it might be advisable to pull back a bit and ask if that’s what’s actually happening.

The answer, to what should be no one’s surprise, is — no, that’s not at all what’s happening. Where does the $50K figure come from? Easy: add up all the costs that have gone into developing and building the Volt, subtract what customers have paid for it, and divide by the total sold. That’s a bizarre calculation to do, and even if one was tempted to do it, it’s blatantly dishonest to describe the result as “the amount GM is losing on each Volt it sells.”

There’s an old West Wing episode which explained this in the case of pharmaceutical companies. One guy complains that a company is selling pills for a large cost when the only cost four cents to make. The other corrects him: “The second pill costs them four cents, the first pill costs them $400 million.” With any new technology, there are development costs. But those costs aren’t repeated every time you sell a new copy of something you’ve developed. The reality is that GM basically breaks even on every Volt it sells, maybe making a bit of a profit. The idea that they should shut down production today because they haven’t yet recouped their development costs is a bit nutso.

It’s easy to explain why someone would allow themselves to believe such an obviously dubious claim: it fits into their pre-existing beliefs, and confirmation bias does the rest. What is really puzzling to me, however, is: why should anyone have such strong bias against electric cars?

I get that an individual person might not want to have an electric car. At the current state of technology, they’re both expensive and somewhat inconvenient. So… don’t buy one. I haven’t gone to a car dealership recently, but my impression is that most of the vehicles on sale are still of the cheerfully gas-guzzling variety. But why would the very concept of other people buying electric cars cause so much internal anger that you lose all sense of proportion?

Part of it is political, of course. Liberals want to stop global warming, and therefore want to encourage alternatives to fossil-fuel consumption, and liberals are bad, therefore alternatives to fossil fuels (which electric cars don’t even count as quite yet, since much of our electricity comes from burning coal…) must be bad.

But it goes beyond that. Controversy erupted between Tesla Motors and the BBC show Top Gear when the show (after saying nice things about the Tesla Roadster’s acceleration) went out of its way to give the impression that the car quickly ran out of charge and had to be pushed back to the garage, even though that never actually happened during the tests. The producers had decided ahead of time to push a gloomy line about the Roadster, and they arranged the filming accordingly.

Whether you are liberal or conservative, a fan of muscle cars or a granola-crunching hippy, I don’t see why anyone would rationally hope that electric cars will fail. It’s a fun new technology! Maybe they will never be profitable or practical, although I suspect otherwise. But actively rooting against them seems bizarre.

Then there is Mitt Romney, who says good things about electric cars, but less good things about innovative start-up companies:

So for instance, I would not be investing massive dollars in electric car companies in California. I think Tesla and Fisker are delightful-looking vehicles, but I somehow imagine that Toyota, Nissan, and even General Motors will produce a more cost-effective electric car than either Tesla or Fisker. I think it is bad policy for us to be investing hundreds of millions of dollars in specific companies and specific technologies, and developing those technologies.

(Parenthetically, I’m not sure how an American politician got away with saying that Japanese car companies might be able to do something, but imply skepticism that Americans are up to it.) Of course this is the same interview where he proclaimed his support for basic science, and the one example he could think of was … cold fusion. Platitudinous declarations of support are good, but sometimes the devil is in the details.

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36 Responses to Electrical Resistance

  1. Neal J. King says:

    “I don’t see why anyone would rationally hope that electric cars will fail.”
    Oil companies and the beneficiaries of their munificence.

    “I somehow imagine that Toyota, Nissan, and even General Motors will produce a more cost-effective electric car than either Tesla or Fisker.”
    This is probably just Romney being Bain-honest (at the wrong time) about who’s going to perform. Remember the definition of a gaffe: When a politician accidentally says something true.

    Romney and cold fusion:
    Don’t forget that cold fusion was “discovered” at the University of Utah, and the Mormons are thick on the ground in Utah. So I have no doubt that he knows many people that would do very well if cold fusion could be realized.

  2. Tony Mach says:

    The nice TV quote “the first pill costs them $400 million” is only inflated by a factor of about 10.

  3. Kaleberg says:

    These are the same people who fought against other government boondoggles such as the telegraph, the jet engine, the computer, the railroads, steam ships and so on. Almost all new technologies require a lot of government support. Does anyone really think the automobile industry would have been developed without the fortune spent on paving roads? They just hate moving forward into the future.

  4. Anonymous Snowboarder says:

    @Robert Woodhead: you have indirectly made the case against EVs. You say you pay $0.75 for your 3o miles a day. You don’t say highway or local so I’ll assume a mix and that a gas equivalent car will get 25 mpg. Even at $5/gallon and driving that 30 miles every day of the year, the most you’ll “save” each year is $1916. How many years will it take to break even on the higher initial cost (good thing rates are at 0 or we would need to do present values too)? 5 years? 10? And as fuel efficiency keeps going up (with many models now a combined 30 mpg) that break even gets even more distant. With demand for crude oil at levels last seen in the 1990s the price of gas is now more dependent upon US fiscal policy (ie, strength of the dollar) than on the amount of crude produced.

    So like it or not, I don’t think EV’s are going to be a big part of the future any time soon.

  5. Georg says:

    Resistance is futile.

  6. Brett says:

    @ #29,
    I don’t think the cost of gas is dependent on the strength of the dollar or U.S. fiscal policy. I think the demand for crude has gone up around the world, China is making major moves, and we are making our main suppliers of crude extremely nervous by engaging in long term military occupations of their neighbors. I would say it primarily depends on the amount of crude produced because the amount of crude produced can’t keep up with the increase in demand as a result of China and India making vehicles far more accessible to their combined populations of 2.5 billion out of the world’s 7.8 billion. I would say EV’s are going to be a big part of the future because they are a big part of the present.

  7. chris says:

    ‘Don’t forget that cold fusion was “discovered” at the University of Utah, and the Mormons are thick on the ground in Utah. So I have no doubt that he knows many people that would do very well if cold fusion could be realized.’

    Pons and Fleischman, the new candidates for the head of DoE?

  8. Jim says:

    I’d love for someone to do a study on confirmation bias at work in pundits’ alacrity for crying “confirmation bias!” upon reading or hearing something that they disagree with disagreed with.

    If you think TR-TC / Q is a “bizarre” calculation to do, I strongly suggest you leave the economics blogging to your betters.

    The headline is certainly misleading—the Volt is in the red but in theory it’ll break even eventually (as the article implies)—but that’s how headlines are written. Misleadingly. Why would you see this one as being somehow different? I suspect it was….


  9. Curious George says:

    I wonder why Detroit avoids the best application for an electric car: an all-terrain vehicle. With motors in wheels you can get an extremely simplified drive train, a free all-wheel all-time drive, and a clearance as high as you dare. True, the battery is not here yet, but that applies to all other designs. Supply a motor-generator.

  10. Kaleberg says:

    If you want some similar bogosity, consider that the US spends about $960B per year on roads and highways and 12M new cars and trucks are sold each year. That’s an $80,000 government subsidy for each new car or truck sold. The numbers are real, but the argument is bogus.

  11. Dan says:

    “I don’t think the cost of gas is dependent on the strength of the dollar or U.S. fiscal policy.”
    Are you kidding?