U.S. Government Is Using Electric Vehicle Subsidies All Wrong

Different types of plug-in electric cars parked at EV charging stations in a company parking lot
Ellen Isaacs/Alamy

"Of the 1 billion vehicles on the world's roads, fewer than 1m are powered by electricity alone." -- The Economist, Feb. 24, 2015

And what's true worldwide is true here in the U.S. as well. The number of fully electric vehicles merging onto America's national roadways continues to just putt-putt along.

According to the latest tally from InsideEVs, the online magazine tracking "all the plug-in sales for the United States by auto maker and brand," only 119,710 electric car sales were reported in the United States last year. Out of some 16.5 million total U.S. vehicle sales, that's just seven-tenths of 1 percent. Add in the 167,539 electric cars sold in 2010 through 2013, and we're still looking at something less than 300,000 "EV" cars and trucks roaming U.S. roads.

Would you care to guess how much money the U.S. government has spent subsidizing the purchase of these cars?

Um, $1.05 Billion?

Good guess! That's precisely right. According to a just-released U.S. National Science Foundation report on electric car sales from 2011 to 2013, the federal government spent (in the form of granting tax credits and deductions) $1.05 billion to subsidize Americans buying electric cars during this period.

That's quite a lot of money to spend supporting the purchase of battery-operated cars for some of America's richest car-buyers. Surprisingly, though, $1 billion in subsidies (roughly $3,580 per car) hasn't put a lot of electric cars on the road.

According to the NSF, this may be more a function of how the money was spent than of how much money was spent.

Consider: According to the NSF, had it not been spent on electric car subsidies, $1.05 billion would have been enough money to build -- at taxpayer expense -- about 60,000 electric car charging stations for use by consumers who chose to buy electric cars unprompted. That's about half the number of gas stations operating in the U.S. -- about 120,000.

Just for fun, let's double the NSF's numbers. If it cost $1.05 billion to subsidize electric car sales in America over three years, and if the same money could have built 60,000 electric car charging stations, then you could probably build a network of charging stations 120,000 strong -- as many as there are gas stations in the U.S. -- for twice the $1.05 billion spent on subsidies: $2.1 billion.

Wait! You Want to Spend More of My Taxes on This Stuff?!

Well not me, exactly. But there are a lot of people who do believe that electric cars are both more fuel efficient and environmentally friendly than their gas-burning cousins. Assuming they're correct, then finding the most economically efficient way to get more EVs on the road is a goal worth pursuing.

And according to the NSF, Cornell University researchers Lang Tong and Shanjun Li argue that one big obstacle to getting more car buyers to "go electric" is the lack of car charging stations -- and the fear that without a comprehensive network of such stations across the country, battery-operated cars will run out of juice, stranding their drivers. This is commonly referred to as "range anxiety." And considering that roughly half (51.5 percent) of the electric cars sold between 2011 and 2013 were sold without benefit of tax subsidies, range anxiety appears to be a greater factor in EV economics than "sticker shock."

So why not take away that anxiety by building more charging stations? Tong and Li hypothesize that if the government had spent its $1 billion building 60,000 charging stations, this could have increased electric car sales by a factor of five. Logically, building 120,000 charging stations would increase sales even more -- helping to guarantee that more of these charging stations would be put to productive use charging cars.

What It Means to You, the Taxpayer

Reasonable minds can differ on the question of whether the government should be in the business of subsidizing electric cars in the first place. Especially when most of these subsidies currently go to car buyers who can look at the $70,000 sticker price on a new Tesla (TSLA) Model S and not blink. But the fact is, the government is in that business already, to the tune of $1.05 billion of your tax dollars.

One thing we can probably all agree on is this: If they're going to spend that money on subsidizing electric cars, the government should at least spend it in the most economic, and efficient, way possible.

Motley Fool contributor Rich Smith looked at the sticker price on a Model S once. He blinked. Rich has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Tesla Motors.To read about our favorite high-yielding dividend stocks for any investor, check out our free report.