I mentioned in my last post (about 4,000 gallons of gas) that this time I would discuss the real reason carmakers are rushing to get EVs on the streets. The short answer is that it's not about us, it's about them.

Generally, companies make products to solve a problem or fill a need, and in return, that get paid for that product - hopefully enough to make a profit. Many times the equation gets more complicated such as printers and ink cartridges or cell phones and 2-year contracts. For carmakers, the complication is the recently finalized 800-page document that details the greenhouse gases (GHG) and fuel economy improvements that MY2012-2016 light duty cars and trucks must meet. This document was approved by the FDA and USDOT in Apr2010 and can be found here.

Basically, each carmaker must reduce their fleet-wide GHGs by ~5% each year and improve their fleet-wide fuel economy or miles-per-gallon to ~35 MPG by MY2016.  This 35 MPG is called the Corporate Average Fuel Economy or CAFE standard for 2016. It's an average because the CAFE standards vary by vehicle size in an effort to ensure all models improve, not just the popular ones.

That's not the complicated part, however. The complicated part comes from CREDITS that can be earned when a model exceeds the standards for that model year and those CREDITS can be saved for future model years or applied to past model years where the carmaker fell short of the CAFE standard (see the document link above if you are interested in the details). But here's the interesting part - EVs have an extra incentive! They will be counted as a full CREDIT or zero-emission vehicle for MY2012-2016. After MY2016, upstream emissions to generate the electricity used will be taken into account. Plug-in Hybrids (PHEVs) will have a similar incentive for the portion of electric driving that is expected. However, the CAFE standard caps the zero-emission CREDITS at 200,000 vehicles total per carmaker during the MY2012-2016 timeframe, except for one condition.

As an incentive to accelerate the technology development for low/zero emission vehicles, if a carmaker sells at least 25,000 EVs and/or PHEVs during MY2012, their zero-emission CREDITS cap will be increased from 200,000 to 300,000 vehicle CREDITS!

Now I finally understand why some articles were suggesting that some of these initial EVs might be sold at no profit or even a loss ... they aren't doing it for the consumer as a generous gesture, they're doing it to move at least 25,000 EVs and PHEVs in MY2012 so they have the opportunity to earn an extra 100,000 credits over the MY2012-2016 timeframe.  

That's definitely one way to kick-start the EV industry - you just have to read the fine print to discover it! 

If you've got an opinion on this "electric" topic, I'd love to hear it! Later this month I'll discuss EVs in China. Until then, take care!

Ken