Tuesday, July 14, 2015

"Did you bring the charger?"

Will we all drive electric cars shortly because the filling stations will go away? A Marginal Revolutionist thinks not:

The Electric Vehicle Tipping Point?

by  on July 14, 2015 at 7:25 am in Economics | Permalink
Geoff Ralston, a partner at Y Combinator, argues that electric cars will soon dominate the world. He gives several arguments regarding cost and convenience that I take no issue with but his most interesting argument strikes me as wrong:
Gas stations are not massively profitable businesses. When 10% of the vehicles on the road are electric many of them will go out of business.  This will immediately make driving a gasoline powered car more inconvenient.  When that happens even more gasoline car owners will be convinced to switch and so on.  Rapidly a tipping point will be reached, at which point finding a convenient gas station will be nearly impossible and owning a gasoline powered car will positively suck.  Then, there will be a rush to electric cars….
Why is this wrong? Consider that in 2009 there were 246 million motor vehicles registered in the United States. A 10% reduction would be 221 million vehicles but that is how many vehicles there were in 2000. Was driving an automobile so much more inconvenient in 2000 than it was in 2009? No. Even a 25% fall in gas vehicles would bring us back only to the number of vehicles circa 1998.
More fundamentally, the argument goes wrong by not thinking through the incentives. Suppose that gasoline stations did become so uncommon that finding one was inconvenient. What will happen? More gasoline stations will be built! Ralston has implicitly assumed that building gasoline stations will add so much to the price of gasoline as to render that option uneconomic. In fact, gasoline stations are relatively simple, small businesses that easily expand or contract in response to the pennies on a gallon that people are willing to pay for convenience.
Addendum: By the way, even though the number of vehicles in the United States has been increasing, the number of gasoline stations has actually been decreasing, largely because greater fuel efficiency means that we want fewer stations.
Hat tip: Vlad Tarko.
- See more at: http://marginalrevolution.com/marginalrevolution/2015/07/the-electric-vehicle-tipping-point.html#sthash.D49rikT5.dpuf

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