Plug-in hybrid hype gets zapped

NEW YORK (CNNMoney.com) -- If you want to save big money on fuel and create a cleaner environment by buying a new, hot off the production line plug-in hybrid, you'd better hold your horses.

For at least a couple of decades, plug-in hybrid vehicles are likely to cost too much for drivers to earn any financial benefit, according to a government advisory group.

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Despite travelling miles without gasoline, cars like the Chevy Volt are unlikely to have a big impact on the nation's fuel consumption.

High battery costs are the main culprit, according to a National Research Council report.

Also, Americans shouldn't expect a big environmental impact from these vehicles even if they're very successful with consumers, the report said.

Among plug-in hybrids, those that rely more on gasoline and less on electric power, like Toyota's planned Prius plug-in, are expected to become cost-effective sooner for consumers. That's because of the high cost of the lithium-ion batteries required for these cars. The farther a car is expected to drive on electricity alone, the larger, and more expensive, its battery pack will have to be.

Fuel savings won't cover the extra battery cost unless gas prices rise sharply, the report said. That extra cost will have to be offset somehow, either by passing it on to consumers or by providing higher government incentives to car buyers, or both.

A car like General Motors' Chevrolet Volt, which is expected to travel 40 miles on a fully charged battery before burning gasoline, won't be cost effective for new car buyers until 2040, assuming gasoline prices don't rise above $4 a gallon, the report said. The Volt is expected to go on sale in late 2010.

On the other hand, a car like Toyota's planned plug-in Toyota Prius, which is expected to travel only 10 miles on electricity before burning gasoline, is expected to become cost effective for buyers before 2030. The Prius plug-in is due to hit the market in 2011.

Representatives of GM, Toyota, Ford (F, Fortune 500) and other companies provided information used in the report.

In order to help these vehicles gain market acceptance in the meantime, the government will need to spend "tens to hundreds of billions of dollars" in subsidies to generate sales of these vehicles. The Volt, for instance, will be eligible for a $7,500 federal tax credit which will help bring its expected $40,000 sticker price down to about $32,000. Bigger government incentives than that may still be needed, according to the NRC report.

The extra cost to build a car like the Volt, compared to a similarly sized gasoline-only car, is expected to be about $18,000 according to the NRC. Of that, $14,000 is for the battery pack alone. A car like the plug-in Prius would cost about $6,300 extra to produce, including $3,300 for the battery pack. Added to that, some homes will require electrical system upgrades to charge the vehicle, work that will add about $1,000 to consumers' costs, the report said.

GM spokesman Rob Peterson called the NRC's estimates of battery cost "bloated," saying the Volt's battery would cost much less than that. Battery costs will also come down quickly, he said.

"Our starting point, which already costs much less than they estimate, is just the first step," he said.

Bill Reinert, Toyota's national manager for advanced technology, took less issue with report, saying its conclusions were generally correct.

"As a general rule, society has not really looked through all the issues (with plug-in cars)," he said.

Ultimately, the goal of reducing fuel use and cleaning the air will be reached through a combination of technologies, including improved internal combustion engines and advanced bio-fuels, he said.

Higher gas prices or faster-than-expected reductions in battery costs could shorten the time it takes for these cars to become cost effective and decrease the amount of government incentives needed sell them, the report said.

Competing against gasoline power One of the biggest challenges facing plug-in hybrid cars will be the continued improvement of ordinary, non-hybrid vehicles.

The Chevrolet Equinox SUV, already on the market, gets 32 miles per gallon on the highway and the Chevrolet Cruze compact car, due out around the same time as the Volt, is expected to get 40 mpg. Both will cost thousands less than the Volt and will carry more passengers and cargo.

Also, those cars won't need to be plugged in.

"Some people will probably look at that as something they don't want to have to do," said Jim Katzer, an MIT researcher and one of the reports' authors.

Even given optimal expectations of 40 million plug-in hybrids in a fleet of 300 million, they will have relatively little impact on the nation's fuel consumption before 2030.

"You've got tremendous inertia in the existing fleet that's got to be turned off," Katzer said.

Improvements in green house gas and other emissions will take much longer because of the higher emissions of the typical American power generating plant, the report said.

"As long as you have the grid as it is now, and you don't clean it up, you don't save a lot," Katzer said