Electric cars: the weirdest two-part tariff I’ve ever seen

Late to posting today – I was travelling out to (and back from) the office. But I lined up three posts over breakfast!

First: the Financial Times is carrying a great story about an electric car. After killing their last one, General Motors is getting back in the business.

General Motors may allow buyers of its Chevy Volt electric car to rent the vehicle’s battery as a way of pricing the vehicle at a comparable level to a traditional, petrol-driven family saloon.

The Volt is emerging as one of the most crucial vehicles in GM’s history. Failure would be a deep embarrassment after the fanfare surrounding its development. But success could propel GM past Toyota as a pioneer in alternative energy vehicles. GM has assigned 150 engineers to the project.

The Detroit carmaker aims to launch the Volt by 2010. The battery would give a range of 40 miles and maintain full performance for at least 10 years. It would be recharged either by the car’s small combustion engine or from a normal electrical point.

Battery rentals would help fulfil GM’s goal of giving the Volt a wider appeal than the petrol-electric hybrid vehicles now on the road. Noting that the Volt will be marketed under GM’s global, mass-market Chevrolet brand, Frank Weber, the carmaker’s chief engineer, said that it “needs to be affordable to the buyer of a normal mid-sized car”.

I gave up hyperlinking brands and companies half-way through. Also that typo is not mine, but I hate the use of “(sic)”.

Two-part Tariffs

Two-part tariffs are a form of price discrimination, when the ‘good’ being sold is divided up – part is sold for a fixed amount, the other part sold per-unit. Razors are good example of this (thanks, Dave!). We buy the handle, first:


And then we pay for the razor itself:

razor box

The handle purchases our access to the usage of the razor as a whole (i.e. the ‘good’). GM is going for the same thing: purchase the car for a lump sum, then rent the battery as you actually use the car. Technically it is not a perfect example, unless the batteries (or, say, battery size/capacity) are bundled in a manner than extracts more Consumer Surplus than an ordinary market for batteries (such as purchasing them and charging them yourself).

What doesn’t follow, exactly, is the idea of making the car more affordable by employing this approach. It’s a hybrid, but more an electric car than petrol – it ought to be poor without the battery, right? So you buy the car, and you give GM the power to tap into your Consumer Surplus as time goes on. You buy a car that is immediately held hostage by GM. Rationally, we should accept that, if buying a house is supposed to make more sense than renting, in the long run, shouldn’t buying a car do so, also? Particularly given that the car itself is supposed to be priced to match others:

GM’s goal is to price the Volt, excluding battery, at about the same level as its Chevrolet Malibu saloon.

Mr Weber estimates that an average Volt owner would spend about $25 a month on petrol, against $145 for a traditional Malibu. The difference could be used on battery rental payments, giving a similar total cost.

Meaning that, as petrol prices increase, you can expect to see your rental prices increase. On the other hand, it could also confer to batteries (the key ingredient of a power in an electric car) the same advantage one gets from leasing an entire car – you get to upgrade, as upgrades come along. This way you might get to keep the same car, but get progressively more power/fuel efficiency as the technology improves.

It might turn out great for the environment (I’d take it)! I’m just saying, I don’t see you making money off GM, along the way.


1 comment so far

  1. […] We’ve been here before. […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: