The Volt and Daniel Gross

Chevrolet's new hybrid electric car, the Volt, is expensive. It's list price is $41,000 and GM is reportedly selling it at a loss. You can get an additional $7,500 federal grant to buy the Volt which still makes the price twice what the same car costs with a traditional gasoline engine.

Slate's financial columnist and Obama apologist, Daniel Gross, thinks that the price will come down. His reasoning boils down to the fact that other prices have dropped so why not the Volt? As examples, he gives the price of the original Model T and PCs. In a related column, he defends government subsidies for the Volt, pointing out the returns that the government got on investments in telegraphs and railroads.

There are huge problems with his reasoning.

He spends the most time recounting the price drops for the Model T. While impressive, these are irrelevant. They reflected the transition from hand-built cars to mass-produced ones. We are unlikely to ever see that level of productivity increase again. The Volt already takes advantage of the same mass-production techniques used in other cars. In fact, except for its drive train, it is exactly the same as other cars. It has the same type of body, windshield, seats, etc. Can improvements in manufacturing the drive train bring down the cost? Probably, but these will be tiny improvements.

Comparisons with personal computers are also strained. The Volt is innovative but it is not a new technology. At its heart it is an electric car with a generator for recharging the batteries. Electric cars have been around for more than a century. Gas-powered generators are nothing new, either.

The real cost in the Volt comes from two sources. The first is that it is both an electric car and a gasoline-powered one. The Nissan Leaf is a pure-electric and costs thousands less (of course, the Leaf also has limited range).

The biggest expense is the battery pack. A battery pack for a notebook computer costs upwards of $150 and would only move a volt a few feet. It takes lots of batteries to power a Volt. They are expensive. They are also big and heavy which reduces available interior space.

This is also the biggest problem with Gross's predicted lower costs. Big leaps come from new technologies. Integrated circuits, the heart of the personal computer, have only been around since the 1970s. The big, easy gains in computer chips have already been made. It is getting harder and more expensive to design newer, faster chips.

In contrast, batteries have been common since the 19th century. Advances in battery life and weight have been incremental and require exotic (and often toxic) metals. R&D on batteries is not dependent on the Volt. Gross talks about the increases in computer power but fails to mention that battery life on notebook computers has been flat since they were first introduced (Netbooks and tablets get extended battery life by using special reduced-power chips.).

In order for the Volt to be competitive with the $20,000 Chevy Malibu, batteries will have to have a quantum drop in price. Ironically, the Volt, the Leaf, and the Prius are likely to cause battery prices to go up instead of down. The best batteries require fairly exotic metals and increased demand will push the price up. The sudden demand for conflict-free resources will make batteries even more expensive since most of the required metals such as lithium come from the third world.

The Volt is unlikely to ever be competitive with gasoline-driven cars. If the price of gas goes up enough to make the Volt desirable then the increased demand for batteries will make the Volt more expensive. In fact, the Volt and other electric and hybrids can only exist as niche products.