Why Electric Cars Are Selling in California: They're Free

NEW YORK (TheStreet) -- Sales of electric cars in certain California markets such as Silicon Valley vastly exceed electric car sales in other U.S. markets by several orders of magnitude.  The primary reason is that for some Californians, electric cars are completely free to buy and drive.

Wait -- you said free?

Yes, free.  Let me explain.

Let's start with the nominal price of an electric car.  If you are looking for a commuter car, you might be interested in the all-electric Chevrolet (GM),Spark, which at 400 lb.ft. of torque is more powerful than a Ferrari 458.  It has an EPA-certified range of over 80 miles.  Considering that the average American has a commute of 12 miles, and that 80% of Americans are below 40 miles, it handily covers the daily commutes of most people.

The price of the electric Chevy Spark is approximately $28,000. It doesn't have a lot of options.

Now for the subtractions from that starting price:

First, you may be eligible for a Federal tax credit of up to $7,500.  If you make anywhere near $100,000 per year, you are likely eligible for this.  Most tech workers in Silicon Valley therefore qualify.

Now you're down to $20,500.

Second, the state of California gives you a $2,500 rebate in exchange for you driving alone in the carpool lane during rush hours.

Now you're down to $18,000.

Third, your employer may give you a car allowance if you get a car eligible for driving in the carpool lane.  This makes you happier as an employee, since you're not worrying about rush hour travel as much, so therefore the company assumes you will show up for work earlier.  Or whatever the theory is.

An example: as of 2013, Evernote -- a well-known software and service company -- offered its employees a $250 per month allowance to buy an eligible plug-in electric car such as the Chevy Spark.  $250 per month is $3,000 per year, or $18,000 for six years.

Now you're down to zero.  Free.

To summarize:

Car price:  $28,000
Federal tax credit:  $7,500
California state rebate:  $2,500
$250 per month employer subsidy:  $18,000 over 6 years
Net cost to you:  Zero

Yes, somewhere between the Federal government, the California government, and your employer, you could have a free car for six years. 

But wait, there's more!

Not only do Mr. & Mrs. California get a free electric car, but they also get free fuel.  Most public charging stations are free -- many even include free parking.  For example, if you live in Google's (GOOG) home town of Mountain View, just pull in at City Hall, park, and charge your car for free. It's particularly convenient if you are having dinner around there, or live within walking distance.

What about charging your car for free at work?  Absolutely! That's now a feature from an increasing number of employers.  A novelty as of 2009, workplace electric car charging has suddenly become almost as common a perk as employer-subsidized health care.  I have yet to see an employer in Silicon Valley charge for electric car charging (no pun!).  There is probably the rare exception somewhere, but I haven't seen it, and I've visited my fair share of Silicon Valley companies.

So, do you think that giving people a free car and free fuel increases electric car adoption? 

You betcha!

If you get off an airplane at the San Francisco or San Jose airport and drive for a few minutes, you will quickly see the phenomenon. Almost every new car seems to be either a Nissan (NSANY) Leaf, a Chevy Volt or a Tesla (TSLA) Model S. 

And now you know why. Free car, free fuel.

Nothing sells like free! 

What could possibly go wrong?

It should be pointed out that in my example above, I used the Chevy Spark.  I could have used a Nissan Leaf, where the base price is close to $28,000, and dealers typically offer a discount.  You could also buy a more expensive car -- a $75,000 Tesla, for example -- and pay the difference.

I recently spent four days at the Detroit Auto Show, held in America's car capital.  While driving in and around Motor City for four days, I saw a grand total of one (1) electric car, except for those belonging to the big local auto makers such as GM and Ford.

Compared to Silicon Valley, it was like rewinding the clock by six years.

Over the same four days in Silicon Valley, you would see so many thousands of plug-in electric cars that you would never be able to count them.  It's like visiting a completely different country. 

I'm not saying that one is better or worse than the other; just that the difference couldn't be more stark: Total electric car dominance, vs. essentially none at all.

Yes, I know there are other reasons that sales of electric cars are higher in California in general, and Silicon Valley in particular.

  1. Tesla is located in Silicon Valley.  Many people simply buy the locally engineered and manufactured car.  This is highly understandable.

  2. The weather is mild and ideal for electric cars.  With "range anxiety" still an issue for most electric cars, the ability to squeeze an extra 25 miles out of your electric car is a huge deal.

  3. The California government mandates sales of them!  There's nothing like forcing a product upon the people.

  4. Lots of greenie-weenies.  However irrational, there are millions of Californians who are brainwashed into believing that they are saving the trees or something by buying an electric car.  Hey, the one thing we know for sure is that they cure noise pollution.

  5. Love of new technology!  Without a doubt, electric cars are a fantastic new technology in terms of offering a superior driving experience.  Just like SSDs replaced HDDs in computers (and subsequently in tablets and smartphones to the tune of 100%), buying a car that's silent and has 95% fewer moving parts is extremely attractive, particularly to tech enthusiasts.

However, when all is said and done, getting a free car, with free fuel, is likely the strongest reason why sales of electric cars in California are through the roof -- unlike in almost all of the rest of the country and the world. 

Follow the money!

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

More from Stocks

Pegasystems Founder Explains Why He Has One of the Hottest Tech Stocks Around

Pegasystems Founder Explains Why He Has One of the Hottest Tech Stocks Around

9 Stocks Goldman Sachs Thinks Will Blow Wall Street's Performance Away in 2019

9 Stocks Goldman Sachs Thinks Will Blow Wall Street's Performance Away in 2019

Jim Cramer on U.S.-China Trade: The Media Has it Wrong

Jim Cramer on U.S.-China Trade: The Media Has it Wrong

Is Tesla's Stock Set to Nearly Double to $500?

Is Tesla's Stock Set to Nearly Double to $500?

Tesla's $78,000 Model 3 Is a Bargain. Here's Why

Tesla's $78,000 Model 3 Is a Bargain. Here's Why