Free cars and the economics of Project Better Place

Shai Agassi may have just walked off the deep end. How much will his Project Better Place electric cars cost? FREE FREE FREE!!!

"Do you want a $40,000 car, a $20,000 car or drive this car off the lot for free?" he asks. Uh, yeah. I'll take the free one!... .

Agassi is taking a jab at current electric and hybrid vehicles' costs. But the economics of Project Better Place -- which proposes leasing batteries to drivers, and then swapping them for charged batteries when they run low -- have always seemed a little dubious to me.

I figure PBP's costs as follows:

Agassi says his electric cars will cost about seven cents per mile to drive. Assuming that his cars will last as long and be driven as much as the average American car, we can expect them to cost PBP about $8,400 over their lifetime (the math: 12,000 miles x $0.07 x 10 years = $8,400).

That's just the cost of driving. You also have to include the cost of the car, infrastructure, research and development, battery replacement, advertising, etc.

So where does the income to cover these cost all come from?

First, raise the cost per mile to around the level of a gasoline car, 35 cents. Then you ask $40,000 from the customer over the life of the car. Knock off the cost of the car and you just might have enough to run this system, as long as lots of people sign up and those people keep driving a lot.

The big question is, how will Agassi sell the plan to consumers? If he simply sells it at a per-mile cost, then this would be a great thing for the environment. Keep the costs of driving high but emissions lower (because the cars are electric.)

If on the other hand, Agassi only gives you a free car if you promise to drive (and pay for) 100,000 miles per year, then that gives Americans huge incentive to drive more. This is bad news for everyone even if the cars are electric.

Another way to put it is, would it be better to buy an electric car yourself, charge it at fast charging stations and spend less over the life of the car, or do you want to hand your money over to Shai Agassi so you can pretend your car is free?

I hate my cell phone already. I'd rather not have to hate my car.