During one of President Obama’s factory visits -- some might call it a campaign stop -- he joked that he would buy an electric car in about five years, or after his second term. That was just before GM, which makes the Chevy Volt, said it would suspend production of the car for five weeks beginning later this month.

What gives? Sales of the Volt have not met expectations. But even before that GM announcement, the president had been touting a plan to get more hybrid and electrics one the road, as well as those that are run by such fuels as natural gas. How so? By giving tax credits to buyers of those vehicles and by providing money to build out the necessary recharging and fueling infrastructures.

“We can't just keep on relying on the old ways of doing business,” says President Obama, in a speech to truck workers at a Daimler plant in North Carolina. “We can't just rely on fossil fuels from the last century.  We've got to continually develop new sources of energy.”

Advocates say that the administration is thinking outside the usual paradigm -- to get past the dinosaur age of fossil fuels and into the modern realm. The financial incentives are necessary to grow the market and to create economies of scale that would improve technologies and decrease prices. Consumers would then be attracted and the subsidies could cease.

Skeptics of the proposed tax credits and federal spending are arguing that the market knows best -- not a bunch of politicians sitting in Washington, D.C. The internal combustion engine has survived all of these years not because of a lack of creative thinking but because it works better than anything else. Cars that run on gas can travel much longer distances than those that are powered by electricity.

Take the Chevy Volt: In 2011, GM sold 7,600 of those cars, short of its goal of 10,000. In 2012, the car maker had wanted to sell 45,000 of them. But if February is any indication, the company is a long way off. In fact, electric vehicles accounted for 2 percent of all cars driven off the lot in 2011, according to the Electric Drive Transportation Association.

Utility Revenues

That’s a ominous start to the president’s goal of putting 1 million electric cars on the road by 2015. Hence, the White House is trotting out its new proposal to jump start sales -- all hyped by $4 gas prices. The essence of his plan is to give $10,000 tax credits to buyers of alternative technologies as well as to pump in $1 billion to build out the infrastructure in key cities to run such vehicles.

"Accelerating the national deployment of electric drive cars and trucks -- battery electric, hybrid, plug-in hybrid -- and promoting diverse infrastructure options to support them will have real benefits,” says Electric Drive Transportation Association President Brian Wynne. “Vehicles that run on electricity offer consumers cost savings and help boost use of domestic energy, as opposed to imported petroleum.”

Electrification of the auto sector could potentially be a boon to utilities’ bottom lines. Hundreds of billions are spent each year on gasoline. Even if car sales fall short of what the president is preaching, power companies would still be selling electricity into new business lines and creating lucrative revenues in the process.

There’s still a ways to go before it would hit that point. In an analysis posted on its web site, vehicle expert Edmunds says that consumers can buy traditional cars and still pay the high price of gasoline and typically come out better than if they buy all-electric cars. In general, at $3 a gallon, the payback would be 15 years while at $5 a gallon, it would be nine years.

The Chevy Volt costs about $39,500 before the current tax credit of $7,500. The Nissan Leaf, its competitor, is about $32,000 before the same credit is applied. “The premium charged for hybrids and electric vehicles takes time for consumers to recover in fuel savings — often a long time, maybe even longer than they intend to own the car,” says Michelle Krebs, senior analyst at Edmunds.

She goes on to say that the sales of such cars could increase irrespective of gas prices. That’s because roughly 51 new hybrids will hit the market while eight new all-electric cars will do so. At the same time, though, smaller traditional cars that are getting 30-40 miles per gallon are becoming available.

Indeed, that’s the free market at work. Consumers will have a choice of electric or traditional cars, many of which will use less petroleum than the current options. And that’s something that the White House also supports, although it wants to pave the road for alternative vehicles to succeed.

EnergyBiz Insider is the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has also been named one of the Top Economics Journalists by Wall Street Economists.

Follow Ken on  www.twitter.com/ken_silverstein


Industry thought leaders will be discussing this topic and more at the upcoming EnergyBiz Leadership Forum, Harnessing Disruption, taking place in Washington D.C., March 19-21, 2012. Review full conference details by visiting www.energybizforum.com