Will GM Be an Unlikely Hero in the Kochs' War on Electrics?

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For a product that only commands one-tenth of one percent of the global auto market, there's a lot riding on electric vehicles (EVs). Many countries are counting on EVs to reduce future greenhouse gas emissions and governments have poured millions of subsidies to support the vehicles' development. And, in response, auto companies have made huge bets on the EV's future. But hopeful advocates of the technology aren't the only groups predicting that their sales will soon take off. The electric car is also being taken very seriously by the same people who want to kill it as soon as possible.

Foremost among those opposing the growth of EVs are Charles and David Koch. The petroleum industry billionaires have well-known anti-environmental credentials. They've thrown small fortunes to fund scientists attempting to discredit climate change. They have supported numerous efforts to gut legislative efforts aimed at reducing greenhouse gas emissions. Now, top associates of the Kochs are quietly rallying other petroleum interests to attack government subsidies to EVs. How serious are they? Extremely. This group may spend up to $10 million a year on this anti-EV effort, according to a refining industry insider.

An effort to shut down electric vehicle technology fits right in with the Kochs' anti-environmental portfolio. But it also seems out of proportion to the technology's tiny sales footprint. What makes are EVs such an urgent threat? Why expend substantial amounts of effort and money to stomp out the technology? There can only be one answer. The Kochs must think that electric vehicles sales will take a bite out of petroleum profits in the near term.

They're right. There are two primary reasons why EVs are positioned for a huge jump in sales over the next decade. First, the speed bump to mainstream adoption of electric cars has always been battery technology. To attract a large number of American drivers, EVs will need to break through what is called "range anxiety." Mainstream drivers want a car that can go 200 miles before needing a re-charge. Some cars, like Tesla's Model S already offer that, but they cost $70,000 - a prohibitive amount for most drivers.

This brings up reason number two. To truly make it into the mainstream, battery technology also needs to deliver 200 miles of range in a car with a sticker price comparable to gasoline cars. Fortunately, battery prices are getting much cheaper very quickly. In fact, costs have fallen 65% since 2010, including 35% just last year. Around the start of the next decade, EVs could be as cheap as their gasoline counterparts even without any government subsidies.

When this sticker price parity is met, electric vehicles will hit a tipping point in mainstream adoption. A recent Bloomberg article titled, "Here's How Electric Cars Will Cause the Next Energy Crisis," neatly sums up why this rosy future for EVs scares the petroleum industry. By 2040, it claims, 35 percent of autos will come with a plug and they could be displacing two million barrels of oil every day by 2023. Before the end of the 2020s, this would mean the same sort of glut that sent oil prices plummeting over the past two years.

While any price crash hurts petroleum profits, this one would have a critical difference. In 2014, prices began falling because of a supply-side glut due to new extraction techniques like fracking that opened up huge amounts of previously untapped oil and natural gas. But an electric vehicle-driven glut would play out on the demand side. Prices would still plummet simply because consumers wouldn't need or want as much of the stuff. A glut created by lack of demand is a much graver issue for petroleum companies. This is exactly what the Kochs are determined to head off with their attack on electric vehicle technology.

But there is also another remarkable side to this story. The biggest threat to the Koch empire is not going to come from an auto industry outsider like Tesla. A traditional manufacturer is much more likely to get the Koch's attention. Instead of an upstart tech company, this breakthrough electric vehicle comes from General Motors -- the automaker once blamed for killing the electric car.

Back in the 1990s, a California state mandate on zero emission vehicles led GM to create the Chevy EV1. The electric car was only leased in certain markets in California, but developed a fervent following. Then California weakened the standards based on pressure from car companies like GM, Chevy got rid of its electric car program, recalled all the vehicles and crushed them. Nothing could have made oil companies happier. But, two decades later, GM may be able to win some redemption.

The road back began with the plug-in 2011 EV Chevy Volt. It had an electric only range of some 40 miles after which a "range extender" gasoline engine kicked in. Since its introduction, the Volt has repeatedly topped Consumer Reports customer satisfaction ratings. With its second generation 2016 model, it is now approaching 100K in sales.

Later this year, GM will raise the stakes with the 2017 Chevy Bolt. The vehicle checks off all the boxes for mainstream adoption: it will cost around $30,000 with incentives and offer a range of 200+ miles. More importantly, the Bolt is being offered by a company with decades of experience making millions of vehicles a year. It's the worst nightmare of the petroleum industry: an affordable long-range electric vehicle made by an established mass-market manufacturer.

In 2016, GM made nearly 10 million vehicles in 30 countries. The company knows their unique advantage in the future market for electric vehicles. In April, Mark Reuss, GM Global Product Development chief said "Scale is something that's still lacking in the EV business. But we've got it." It has big plans for expanding the plug-in market in the US and in its largest market, China where it will offer 10 new plug-in vehicles over the next 5 years. In fact, a plug-in version of the new Cadillac CT6 will be manufactured in China and imported back into the US.

This combination of scaled up production and global reach is an advantage GM will have over still growing companies like Tesla for a while. The company can create a truly international vehicle. The same advanced, affordable, fuel-efficient, zero-emissions model could be sold in China, Europe and United States for years - even as increasingly stringent environmental standards come online. And, by linking these markets, GM can leverage massive economies of scale.

Investing in an electric future is not an obvious direction for a company like GM - and it has reversed course in the past and it could do so again. But if they do stay the course, it is absolutely deadly for oil companies. The scaled up growth of plug-in vehicles, combined with other new technologies like autonomous driving or social trends like car sharing and on-demand vehicles will dramatically decrease the amount of gasoline and diesel we consume.

No wonder the Koch brothers are worried.