"Airpods", which are cars that are powered by compressed air, are now in service shuttling passengers at two airports in Paris and Amsterdam. These cars are similar to what Tata Motors is proposing, as well. If they actually work they could be a potential alternative for short trips. There are many skeptics, however. Most engineers argue that air power is simply too inefficient at this point to reasonably power a car. The same is true for steam power, which is also under development as an alternative power source.
There are two big questions for me about these types of vehicles. First, what are the potential counter-factual scenarios where we (collectively) invested in developing electric, air powered or steam engines rather than internal combustion? In the late1880s none of these power plants had an obvious advantage over the others. The advantages of one were cancelled out by problems or advantages of others. The point is that air, steam or electric powered cars shouldn't be dismissed as unworkable. They all deserve a chance.
However, the second question is will people start consuming based on their daily experiences or will they only buy cars based on an occassional need for huge capacity? The evidence suggests that people will not buy cars with a 100 mile range even though that is more that enough for nearly all daily driving. They also will tend to buy cars that are bigger than they need based on a perceived need for space at some point in the future. These buyer preferences are true for home buying and other purchases as well. The consumer preferences may prove a bigger deal for changing our power sources than anything else. Efficiency is not a major concern for car buyers (regardless of what was reported when gas prices rose-that was a short term reaction).
So how can we encourage efficient vehicles? I recommend a few thing, and I think we will move towards these policies eventually, but the process should be hastened. First, user charges on the roads so people pay for the roadspace they consume. This improves congestion, traffic flow and potentially raises money to pay for transportation investments. Second, pay per mile insurance can switch a fixed cost into a marginal cost for travel, which will reduce overall travel and make people aware of how much they actually drive. Lastly, a weight tax on vehicles should be imposed. Heavy vehicles cause more damage to roadways, pedestrians and bicyclists and should be discouraged. Something along the lines of $1 per pound payable at sale will guide poeple and car builders towards lighter cars that cause less damage.