Can electric vehicles save the planet, New York, or just Governor Andrew Cuomo’s reputation with the base of the Democratic Party?  

In New York State, transportation produces more greenhouse gas emissions than any other sector, according to the the New York State Energy Research and Development Authority (NYSERDA).

In March, the governor announced the $70 million Drive Clean Rebate plan, which gives state residents a rebate of up to $2,000 if they purchase an EV, a plug-in hybrid EV, or a hydrogen fuel cell vehicle. Fifty-five million dollars is dedicated to rebates, while the remaining $15 million will be used to install more charging stations throughout the state, and to raise general awareness of EVs.

Paired with the current $7,500 federal tax rebate, the Drive Clean Rebate plan is an attempt to cut carbon emissions in New York, with a goal of reducing greenhouse gas emissions 40 percent by 2030.

But will a nearly $10,000 inducement intrigue enough New Yorkers to plug in? Can EVs be a driver’s primary means of transportation? And where will New Yorkers buy these cars?

That’s what the governor, a state senator, and a lawyer from Boston are trying to discern.

Why drive electric?

I met Paul Dietershagen at the NYSERDA kickoff event of National Drive Electric Week in front of Schenectady City Hall on Sept. 9.

He told me that he’s been leasing EVs for the past five years; his first EV was a Nissan Leaf,  and on the day we met he had a Mercedes-Benz. The lease on the Benz is coming to an end, and he’s looking to lease another Nissan Leaf, which he says will go 150 miles on a single charge.

His first ride in an EV was at an event similar to the one we were attending. He said that the Nissan Leaf dealer told him to take the car for a test drive. The EV had an “amazing amount of pickup, a Bose sound system, and was quiet as a mouse,” Dietershagen said.

He said, at the time, gas was $3.50 a gallon, and that he was was spending $400 a month in gas. “The base-model of a Nissan Leaf was $200, I felt like I was driving for free,” he said.

Even the Benz is a bargain; the monthly cost of the lease is $300, when you factor in the rebates, he said.

What Dietershagen loves about EVs is that they “have no maintenance whatsoever.” He has an old Toyota Rav4 for longer drives, and in the past year and a half, he said, he has had to install two catalytic converters, an alternator, and brakes. In five years of leasing EVs, he’s never had to repair anything.

I asked Dietershagen  what he thought about the market for EVs when the government rebates go away, He said, “It would have an impact, no doubt. But the prices of the [electric] cars have been coming down dramatically. I think in a few years these cars will reach parity” with gas-powered cars.

A successful program to learn from

Since 2014, Massachusetts has had a program that offers rebates to buyers of plug-in electric vehicles (PEV), of up to $2,500.

The Massachusetts Offers Rebates for Electric Vehicles (MOR-EV) program has issued or reserved 5,133 rebates that have paid out $10.4 million; an average of $2,029 per rebate.

Nicole Appenzeller, project manager for the Center for Sustainable Energy, the organization that administered MOR-EV for Massachusetts — and who is also administering the Drive Clean program for New York — said about the program: “It’s been successful. We now average around 250 rebates per month this year. And had an average of about 75 rebates a month when the program started in 2014.” She added, “The number of rebates has increased around 50 percent every calendar year.”

Appenzeller has access to data from the Massachusetts Registry of Motor Vehicles that has allowed her to compare the total number of electric vehicles registered in the state to the number of electric vehicles that have participated in the MOR-EV program, and found that participation rates are high.

An Enterprise analysis shows that, in 2015, in Massachusetts, there were 1,122 newly registered plug-in hybrid vehicles (PHEV) and battery-electric vehicles (BEV), collectively known as plug-in vehicles (PEV). That year, the MOR-EV program provided 922 rebates to PEVs; 82 percent of newly registered PEVs, in 2015, in Massachusetts, received some kind of rebate.

Correlation does not imply causation, but with such a high number of EV buyers obtaining rebates, is it possible that, once government stops aiding the purchase of EVs, there will still be a market?

Alicia Barton, the new president and chief executive officer of NYSERDA (and the aforementioned lawyer from Boston) is very optimistic there will be.

She says, “The reason we offer programs, like the Drive Clean rebate program, is that it serves to buy down the upfront costs of some of these technologies, that we know are newer technologies to the market and therefore are, in some cases, higher cost in the first instance.”

She uses solar power as an example and says that, once scale is reached, prices start to fall dramatically.

“We think about it as, ‘We do our part to try and give it a little kickstart to make these technologies more accessible and affordable, while they’re still newer and over time we’ll move away from subsidies as those technologies start to grow and they become cost competitive,’” Barton said, adding, “We see that trend time and again when it comes to renewable energy and we’ll see the same thing with electric vehicles.”

So, we have demand. But now, supply is a problem.

“There is a challenge to have manufacturers provide the inventory in the Northeast, and we’ve experienced that with the MOR-EV program. We can educate and promote EVs all we want, but sometimes there aren’t a high number of vehicles on lots, so that’s a challenge,” says Appenzeller

Then there is the case of the market leader in EVs, Tesla, which will sell to consumers in only a very specific way.

Tesla

As with most things dealing with cars, franchise law goes back to Detroit and the “Big Three” automakers: General Motors, Ford, and Chrysler.

Rather than sell cars themselves, the Big Three chose to license the rights to sell their cars. This allowed the car companies to focus on what they do best, engineering and manufacturing.

And it allowed licensed dealers, who were more attuned to the attitudes and buying habits of local consumers, to create the best market for the Big Three’s products.

The problem for franchisees was that they could be subjected to the whims of what was a very cornered market; the manufacturers could exploit their position as, essentially, monopolies.  

Eventually all 50 states passed dealer-franchise laws, which would protect licensed dealers from bad business practices by their own suppliers. The laws prohibited the Big Three manufacturers from owning their own dealerships or selling directly to customers.

Enter Tesla: a technology company, like so many others, that refuses to play by the rules that have been in place for decades; a budding monopoly looking to replace an entrenched one.

According to a report from Moody’s Investors Service, a financial analysis and crediting-rating agency, Teslas accounted for nearly half of all EV sales in the United States in the first six months of this year. Its Model S (base price: $68,000) had 29 percent of the market, about 13,900 cars. Tesla's Model X ($79,500) had 16 percent roughly 7,600 cars.

Now, as Tesla rolls out its first mass-production car, the Model 3, with a starting price of $35,000, it is looking to expand its footprint in New York.

Tesla’s direct-to-market approach stems from what it says is an aversion by traditional dealers to sell electric vehicles, and the need to educate consumers on its technology. Tesla asserts that its EVs have lower maintenance costs than traditional, gas-powered cars. And this disincentivizes traditional dealers, whose service departments are money-makers for them.

Currently, New York State law allows for five direct-to-consumer dealerships; all are Tesla and all are located three hours south of the Capital Region.

Senator Amedore’s push

“There’s certainly a lot of interest in Tesla, both because the product they produce is quality and because of the environmental benefits,” says Republican State Senator George Amedore, who represents District 46, which stretches from Montgomery County to Ulster County.

In the senate, Amedore is sponsoring a bill to amend the state’s Vehicle and Traffic Law, for manufacturers of zero-emissions vehicles, which along with its counterpart in the state assembly, would allow for an additional 15 direct-to-consumer dealerships in New York State.

Amedore says, after striking a deal in 2014 to allow Tesla five stores in New York State, it’s become pretty clear that EVs are here to stay. “I think, because of the demand that’s growing, it’s time to start the conversation about how we are going to address this issue. Ways for Tesla to sell more, and be serviced more throughout New York State, so everyone  — the consumer, the local economy, the environment — can benefit,” he says.

Amedore also says, “With the introduction of the new Model 3, which is a less expensive model, I think we will see demand in the market, in New York State, for Tesla, continue to grow.” And more EV infrastructure will also help, he says, “I think you will see demand continue to grow as charging stations are being built. In [District] 46 there are two large stations, one in Kingston and one in Guilderland.”

With this bill, Amedore says, he wants to start a conversation about the most beneficial public policies to grow the economy.

He says, “It’s good for job creation. I know, for instance, that Tesla just made a major announcement down in Long Island, that is a training center. It’s an economic opportunity for that local area, but it’s also a job creator.” Amedore is referencing a public-private collaboration between Tesla and Farmingdale State College, which will offer five to 10 students a training internship, where some students will learn the business side and some students will learn how to service and perform maintenance on Teslas.

Professor Mohamad Zoghi, the coordinator of automotive programs at the Department of Automotive and Mechanical Engineering Technology at Farmingdale State College, says, “As a college of technology, it is crucial for us to have relationships with local industry.

“The goal is having students get training in the form of internships prior to graduation. And when they do graduate they are job-ready. Most of the time, these internships become full-time jobs,” Zoghi says, adding, “It’s great for us, because our graduates get a job in a field with cutting-edge technology, and it is good for industry because they don’t need to re-train these new hires because they have already had an internship with them. It’s mutually beneficial.”

Amedore says, “Right here, locally, Cole’s Collision, now is becoming certified in fixing and servicing Teslas that have been in accidents. Again, it helps a small-business owner to create jobs and helps the local economy to grow."

John Cole, of Cole’s Collision, says the affiliation with Tesla ”sets us apart.” Cole’s Collision is just one of 115 shops in North America that is certified to repair Jaguar and Land Rover vehicles. Cole says that in the world of high-end vehicles, the JLR badge is a great one to have.

He said Tesla heard about the JLR certification and approached him about working together. “It makes us different,” he says.

Asked if he thought that the demand for EVs will go down once rebates go away, Amedore said,

“I don’t think what is driving the market is tax incentives — it helps, certainly it helps — but that’s not going to be permanent.”

He says, “The more you produce them, the more demand you will see, the more prices will come down. We see this with solar-voltaic panels; we see them more and more on real estate. The reason why is that demand is growing, and the production of them is decreasing in cost.”

Amedore says, “New York may have to change some of its thinking. Innovations in technology have made industry, and the economy, think differently. We need to embrace it, not shun away from it.”

Picking winners

Using generally accepted accounting principles (GAAP), Tesla has never posted a profit.

Still, politicians from both sides of the aisle are optimistic that when rebates go away, EV sales will not follow. But what happened to Tesla halfway around the world, and what is happening on the opposite side of the country may belie those expectations.

In April, in Hong Kong, a policy change is thought to have been the reason for a drop in the number of newly registered Teslas. The Wall Street Journal reported that in March, 2,939 Teslas had been registered with Hong Kong’s Transportation Department. In April? Zero. In May, five EVs were registered.

Tesla doesn’t disclose sales figures for specific countries, but cars have to be registered before they can be driven in Hong Kong. So, the number of registrations are seen as an accurate view of sales.   

The drop was interpreted as a result of Hong Kong’s reducing a tax break that is applied to EVs. Originally, the registration tax was waived on purchases of new EVs, but in April that tax break changed to the first $12,500 of the purchase.

A spokesperson for Tesla told The Enterprise that Tesla would not comment on the impact of tax rebates on sales, and directed The Enterprise to previous comments made to the Wall Street Journal.

In California, home of Tesla’s headquarters, and, in general, the EVs biggest market (50 percent of total U.S. sales), the state assembly passed a $3 billion program that aims to give EV buyers  — and only EV buyers, not purchases of any other environmentally-friendly vehicle — even bigger rebates and incentives.

The program is seeking to boost Governor Jerry Brown’s goal of having 1.5 million clean cars on California roads by 2025; so far, 300,000 EVs have been sold.

The timing of the bill could be seen as curious. From the Internal Revenue Service: “The qualified plug-in electric drive motor vehicle credit phases out for a manufacturer’s vehicles over the one-year period beginning with the second calendar quarter after the calendar quarter in which at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States.”

Tesla is expected to hit sales of 200,000 EVs by 2018. If it hits those expected sales, then a stepped-down scale of rebates will become zero after one year. This is not ideal for a company with its mass-produced Model 3 aimed at more price-conscious consumers.

Government and the market

“There are two prominent theories that explain why governments seek to promote the electric car: risk management and industrial policy,” according to Bradley W. Lane, lead author of Government Promotion of the Electric Car: Risk Management or Industrial Policy?

Problem: Trying to reduce our dependence on foreign oil, and clean up the environment. Devin Hartman, a report co-author, wrote in an email to The Enterprise that risk management is a “policy that directly targets the reduction of risks associated with oil consumption.” And if the policies enacted happen to make EVs more attractive to the consumer and further environmental cleanup, then great.

Industrial policy is understood as: "We want to be the dominant supplier of motor vehicles to the world in the future. Since there is is growing global interest in electric vehicles, we want to be the dominant supplier of electric vehicles. Consumer incentives for plug-in vehicles help accelerate the development of the US electric vehicle industry. Environmental protection is a secondary rationale for the incentives," report co-author John D. Graham emailed The Enterprise.

So, if we think back to California, and its $3 billion plan for EVs, it’s easy and cynical to say it’s a “giveaway to business.” But what California is doing is consciously engaging in a combination of risk management and industrial policy-making.

Helping nascent technologies is a major function of what government does. In many cases, the government is, often, just as important as the innovator.

Why? Because, up until recently, when everything became a pyrrhic battle based along party lines, government’s support of scientific research and design was — with only slight hyperbole —  to give smart people money and stand back. And it worked very well for everyone.

In 1996, armed with $4.5 million from the National Science Foundation, two Stanford University graduate students set about to find a way to collect, catalogue, and retrieve all of the world’s information better than what was available online, at the time (the internet — known as ARPANET when it was conceived by government scientists — is also a product of research funded by the government).

What Larry Page and Sergey Brin did was create new algorithm called PageRank to search for information on the internet better than anyone had before. There’s a chance you’re reading this on their eventual creation — Google. Page’s net worth: $44.2 billion; Brin’s net worth: $43.1 billion.  

The smartphone in your pocket is a “Rube Goldberg” of beneficiaries of federal funding. Money from the National Science Foundation and the Department of Energy led to the development of the lithium-ion battery. GPS was created at Johns Hopkins University with funding from the Department of Defense and NASA. The touchscreen was first developed in 1971 at the University of Kentucky; then, with funding from the National Science Foundation, it was improved at the University of Delaware.

It’s difficult to incentivize research and development in private industry, because that is money that is not going into shareholders pockets. Look at what has happened in the pharmaceutical industry: Companies, instead of plowing money into research and development, have been “buying old neglected drugs and turning them into high-priced specialty drugs,” according to a report from The New York Times.

Think about the Tesla-Farmingdale collaboration that Senator Amedore spoke about. This is not specific to Tesla; I’m not taking potshots to make a point. But in the not-too-distant past, private businesses had apprenticeship programs that trained workers while they earned a paycheck; business has been able to shift that cost onto the public.

Without the government getting involved, market failures will kill new technologies.

Wildly successful American businessmen and tech luminaries are often venerated with Horatio Alger-style — or more likely today, John Galt — biographies; the self-reliant, rugged individual, who casts off the yoke of the oppressive state to become the paragon of meritocracy. But more often, these people are geniuses who are able to brilliantly aggregate federally-funded research and development, or have had their inventions or technologies subsidized, to some degree, by the government, until they are financially viable.

Electric vehicles are just the latest in a long line of inventions and technologies that have benefited greatly from government support to change the world.

Modified on Sept. 22, 2017: The name of the spokesperson for Tesla who said she would not comment on the impact of tax rebates on sales was removed because she had spoken with the understanding her comment would not be attributed.