Senate ends ethanol subsidies of $6B

Because I was involved in MIT's electric vehicle team, I have been receiving the team emails, even after I left in sophomore year for another research project. It is one of the only "spams" I continue reading even if most of the day-to-day miscellaneous tasks vaguely matter much to me. But I prefer to stay on the mailing list because the projects the team has been undertaking are very interesting.

Today, I received an email from the president of the team, Radu Gogoana, an extremely motivated individual who is truely passionate about building electric vehicles. I remember voting him as the president after he gave a speech to the team on his mission and plans. His email  titled "Senate ends ethanol subsidies. I am providing the content below:
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Radu Gogoana to evt-crew
73 to 27 vote, ending $6B in subsidies for automotive ethanol – see ya E85. The Wall Street Journal advised lobbyists to update their resumes and send them to EV companies. For those who subscribe: http://online.wsj.com/article/SB10001424052702304186404576388113046850414.html?mod=googlenews_wsj Also – I was surprised to see that about half of the scooters and bikes in Shanghai were electric, standing on a random street corner in one of the more industrial areas. Always nice to see things take off at the lowest end of the market. Things are getting interesting!

-Radu
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For those of you who do not have a subscription, here we go: http://www.knoxnews.com/news/2011/jun/18/ethanol-subsidies-take-hit/

The first thing I thought of is how this congressional vote would change the electric vehicle market. Then I proceeded in searching on Google "American electric vehicle company" to see who are the players in the market. One company showed up in a blog, ZAP. Google Finance soon showed me its ticker ZAAP along with a few competitors, including TTTM, ELCR, LMCO, etc. Most of these companies are trading in the down trend, but I expect to see it trending up. I have been following biofuel makers and oil prices, so I paid more attention in learning about electric vehicle developers.

It's known that developing and marketing electric vehicles in U.S. have been unprofitable business and the government used to subsidize ethanol by sending checks to corn farmers. Ending ethanol subsidies means that the price of ethanol would go up, which would drive down consumers' propensity to buy ethanol-mixed gasoline powered cars, drive up oil price if OPEC keeps the supply constant, and drive down the profitability of biofeul makers. This could also mean that electric vehicle developers might turn loss into profit in the median term. 3-5 years? I have no idea.

The second thought that came into my mind is how can U.S. compete in the world market as its debt increases in a unsustainable level. While Chinese have been sugar with its cheap labor to build electricity powered bikes and motorcycles, our government has been subsidizing corn farmers $6B per year with its made believed theory that corns can be turned into ethanol in a profitable manner. Is this more of an effort to support research and development in the area to drive down our expensive oil import, or more of an effort to keep those farmers employed? Regardless what the answer is, the funding is over. More importantly, research and development in the area would decline or even cease to exist, while Chinese start to lead the market.

I still recall how my sister took home the heavy electricity box from her electric motor bike to charge every night and reinstalled it every morning when she went to work. She just let it sit in our living room overnight with no extra work other than the one minute reinstallation every morning. The bike was about 2,000 RMB (~$300) back then, in 2005. It was very cute. Since then, her car mostly just sits in the garage.

With China started innovating, U.S. has been struggling to keep its unemployment rate down, debt sustainable, and consumption level high. I am afraid Jim Rogers's prediction of China being the 21st-century world leader would come true. I see it coming. So here I am, waiting in the Logan Airport, heading to Hong Kong, where the motion is.