The U.K. coalition government has warned auto industry that it cannot continue to offer financial assistance to enable it to fully recover from the global recession. In addition, concern has been raised that even purchase grants for plug-in vehicles may be at risk if the government is unable to save money elsewhere in its budget.

As governments worldwide start to tighten spending and reduce public debt, is the fledgling EV industry at risk before the first mass-produced EVs roll off the production line?

GM is currently choosing which of its European factories will make the European version of the 2011 Volt. It goes without saying that it is unlikely GM will choose a country unwilling to offer GM some form of financial incentive to build the Volt/Ampera in its country.

Under the previous U.K. administration, car firms had been offered grants to help them set up new manufacturing lines for plug in and fuel efficient vehicles. But in an interview yesterday with the Financial Times, business secretary and Liberal Democrat Vince Cable warned that the auto industry in the U.K. should no longer expect direct government financial support to solve company cash flow issues.

But with auto companies worldwide still relying on governmental grants to assist in retooling and building of factories that will build the first in the new wave of plug in vehicles some countries risk loosing out.

While no-one wishes to see world governments hand blank cheques to auto companies who only last year went cap-in-hand in private jets to Washington to beg for loans, caution must be exercised in order to ensure that the design and building of EVs are supported as much as possible.

While governments tread a fine line between financial stability, growth and environmentally responsible policy decisions, consumers could loose out.

As we reported with the European roll-out of the 2011 Nissan Leaf, car companies are reticent to enter into markets without full economic and logistical support structures in place. Normally this includes tax credits on EV purchases as well as discounted vehicle registration or the use of HOV lanes. To date, the current U.S. administration has supported all measures to stimulate EV takeup.

Sadly electric cars are still very costly to engineer and produce. This is partly due to the cost of the drivetrain and battery development, but is also affected by economies of scale. As EV technology improves and the numbers being produced increased, the retail price will gradually drop.

As this happens, more consumers buy them. While the environmental, social and economic impacts of oil exploration and extraction becomes an ever-increasing stick to motivate buyers towards plug-in vehicles, tax incentives, grants and other social benefits such as free parking form the larger carrot to entice buyers to go electric.

And all these carrots come from government.

In the current economic climate, very few car companies are willing to swallow huge losses in order to sell EVs at a price consumers can afford.  While they do not have any god-given right to public funds to keep shareholders happy and prices low for consumers, car companies do need continued support if EV programmes are to continue.

Perhaps an alternative to continuing grants and loans to car companies would be to spend more government money on ensuring that those who wish to drive electric cars can afford to. Giving larger grants and tax breaks to those on a lower household income would help to spread EV uptake throughout communities.

However it is done, government support is essential.