Tesla’s “success,” a great example of how government regulations manipulate markets

Government rules enable Tesla to profit from public choices NOT to purchase its vehicles

voltThe American consumer is resistant to marketing aimed at selling them electric and hybrid vehicles. For the first quarter of 2015, according to the Wall Street Journal (WSJ), Chevrolet sold 1,874 Volts—its electric car introduced in 2010 with “high expectations.” That number might not sound so bad, until you read on to discover that it is equivalent to the number of Silverado pick-up trucks sold in one day. 
In another report, the WSJ states: “Through June, the market share in the U.S. for hybrid electric cars such as the Toyota Prius and C-Max and for electric vehicles such as the Leaf accounted for 2.8% of industry sales. That is down from 3.6% through the same period in 2014. Volumes of those vehicles fell 22% while overall industry volumes rose, according to researcher Edmunds.com.”
“Recent sales data show that consumers don’t want electric cars,” proclaims Investor’s Business Daily. “And these pitiful electric-car sales,” it adds, “mind you, come despite the very generous $7,500 federal tax credit, along with various state incentives—Illinois offers rebates up to $4,000.”
Manufacturers are slashing prices, offering low-priced leases, and 0% financing. Despite the deals, dealers view selling the existing leafbatteryelectric vehicle inventory as a “challenge.” But selling a used electric car, like Nissan’s Leaf, is even harder. The WSJ reports: “Uused sed Leafs aren’t attracting much demand.” Though Nissan offers leaseholders $4,000 in incentives to buy the used model they are driving, drivers are not snapping up the opportunity. When the leases expire there is little market for the cars and dealers are returning them to the manufacturer. 
While demand for electric vehicles has dropped, contrary to logic, investment in them hasn’t. Earlier this year, USA Today said: “Automakers have already invested billions to offer a wide spectrum of vehicle choices and improve fuel efficiency with turbocharged engines, batteries and electric motors, multi-gear transmissions, more aerodynamic designs, and lighter materials. Companies have also spent heavily to market eco-friendly vehicles and have no plans to stop developing them.”
“Why,” you might ask, “don’t manufacturers focus on building the cars consumers want?” The answer: Government regulations in the form of the CAFE Standard. The CAFE — the Corporate Average Fuel Economy — is the measure manufacturers must meet to sell cars in the U.S. 
CAFEFirst enacted by Congress in 1975, the idea was to reduce energy use, thus preventing an over-dependence on foreign oil and improving national security. In 2009, under the Obama Administration, the program morphed to include a higher focus on tailpipe emissions with a two-stage implementation process. Phase One demands a 23% improvement in pollution standards and a CAFE target of 34.1 miles per gallon (MPG) by model-year 2016. Phase two calls for a further increase of roughly 35% in pollution standards, equivalent to 54.5 miles per gallon by 2025. 
While the exact calculations are complicated, these standards are not meant to be met by each vehicle, but by the entire fleet produced by each manufacturer. So a company that makes small, fuel-efficient cars, such has Honda, easily meets the requirements. While a company like Chrysler, known for its Ram trucks and American muscle cars, faces an uphill climb. In fact, it is the CAFE Standards that made the Chrysler/Fiat marriage attractive, as the Fiat fleet includes a 40-MPG car. It is also what makes the Volt a good option for Chevy.
Manufacturers who don’t comply with the regulations face fines—or they can buy credits. Either way the costs ultimately get passed on to the consumer who dares to purchase a vehicle based on his or her personal preference rather than the fuel-efficient vehicles the government wants automakers to produce. 
These government regulations manipulate the markets and make winners and losers that would not be the case if we had a true free market. 
Interesting stories emerge. 
One is Ferrari, which by the nature of the car cannot meet the U.S. government regulations. As one report on the topic declared: “Ferraris are beautiful. They are fast. They are nimble. And they are thirsty.” The hybrid LaFerrari gets 14 MPG. 
Most readers are not likely to buy one of the 499 LaFerrari cars built, but its story is illustrative of the market manipulation. lAfERRARI
Since 1969 Ferrari has been part of the Fiat family, but that will soon change as Ferrari is being spun off to make it an independent automaker. While the sale is reportedly being done “to finance expansion plans,” it will remove the gas-guzzler from the Fiat Chrysler fleet—making meeting CAFE easier. Yet, earlier this year, CEO Sergio Marchionne said: “The U.S. auto industry should ask the U.S. government to push back fuel economy targets.”
While an independent Ferrari will have challenges meeting CAFE without Fiat to help create an acceptable average, another single focused manufacturer meets the requirements handily—so well, in fact, it has credits to sell. I am talking about Tesla, the car company that the Environmental Protection Agency smiles upon because it produces only electric cars. 
Most U.S. car companies—like Fiat Chrysler—want the federal fuel economy mandates to be watered down. Tesla wants the targets to be tougher.
Companies—like Ferrari—that don’t meet the fleet standards can purchase compliance credits. CNN Money reported: “Since Tesla sells nothing but electric cars, it is rolling in the credits and is one of the few sellers.” The Los Angeles Times( LATsays: “Since 2008, the company has earned more than $534 million from the sale of environmental credits.” It adds: “Tesla has created a brisk market in credits, selling to automakers that either don’t produce electric cars or have made a strategic decision to buy credits and cap their own sales of such vehicles.”
JUNKYARDBut it is not just Ferrari that will have trouble meeting the 2025 standard. According to the LAT, Mitch Bainwol, chief executive of the Alliance of Automobile Manufacturers—which represents companies like General Motors, Ford, Toyota, Fiat Chrysler, and others—said: “While consumers have more choices than ever in energy-efficient automobiles, if they don’t buy them in large volumes, we fall short.” 
The American car-buying public is resistant to doing what the government wants them to do,  yet Tesla continues making a car that few can afford and that many of those who can don’t like.  On October 20 Consumer Reports pulled its “recommendation” of the Tesla Model S after owners complained about a “range of issues.”  Still, Tesla is receiving a huge windfall from its competitors while the standards drive up costs for consumers.
Addressing the 54.5-MPG for the 2025 model year, Marchionne said: “There is not a single carmaker that cannot make the 54 number. The question is, at what price?”
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About the Author: Marita Noon

Marita Noon

CFACT policy analyst Marita Noon is the author of Energy Freedom.,

  • mf

    the 140US$/barrel oil seems like a distant memory. A rather simple examination of potential demand versus supply tells us that the memory will return quite rapidly if the world economic growth resumes. Changing the fleet of cars on the street takes a decade or more and represents an enormous monetary investment. Some government interference with this market is not unreasonable. The US is still importing ~40% of it’s fuel consumption, increased production notwithstanding. This has nothing to do with global warming. Perhaps markets can take care of this, but given the importance of energy, this is a big perhaps.

    • technodan

      One reason for Russia to be in Syria is to, along with Iran, get oil prices back up. Low oil prices have been hurting the exporting nations such as Russia and many Middle East countries.

  • tke265

    Owners of electric vehicles are spreading the word “THEY SUCK DON’T BUY”..

    • Dano2

      False.

      Best,

      D

      • Brin Jenkins

        Do you run one?

        • Dano2

          You can’t show where owners are doing that either, got it.

          Best,

          D

          • Brin Jenkins

            So you never invested in your own best advice? Why not?

  • Happycrank

    I am a fairly rare bird among people who own electric cars. I don’t believe in the AGW hypothesis, because the climate models have failed. And I’m not an “EVangelist,” which makes me perona not grata in most EV circles. And I’m especially not a fan of Tesla or the hype that surrounds them.

    However, I do think EVs — especially Volt-style “plug-in” hybrids — are not only here to stay, but will be increasingly common, and in fact dominate the sedan market a decade from now. And I think this will be a good thing, and ought to be tax-subsidized — although I’d cut off tax subsidies for luxury cars.

    This is a very complex topic. I’m fully capable of doing the data dump, but I won’t. Instead, I’ll be simple as possible.

    On average, given the mixture of fuels the U.S. uses to generate electricity now and is likely to use over the next 25 years, a vehicle driven on battery power is 2-1/2 to 3 times as energy efficient as one driven on gasoline power. This has nothing to do with CO2. It’s a matter of the conversion of heat energy to motion.

    When it’s all said and done, a plug-in hybrid that (like the latest Volt) goes for 50 miles on battery before the gas engine kicks in, will be mainly an electric car, with gas as a supplement. It will be far more fuel efficient than a non-hybrid. This is an old-school “waste not, want not” argument. If you can double or triple fuel efficiency, that’s a big leap and a good one.

    I don’t think pure battery cars will be mainstream for a long time, because of technical and cost issues. But plug-in, Volt-like hybrids are another story altogether, and should be encouraged.

    • Dano2

      the climate models have failed

      Completely false.

      Here’s how the models are doing.

      A different look at latest run.

      Here’s how some older models are doing.

      And some older ones.

      And some older ones.

      And some older ones.

      And some older ones all together.

      And what several scientist said in the 1980s that was surprisingly accurate about Arab Spring.

      Here is the the very first climate projection from 1981, constructed from this paper. Pretty dang good, no? Not what the disinfo sites tell you, is it?

      Here is something from the 1970s that is surprisingly accurate as well.

      Heck, even Exxon scientists were pretty durn close in the early 1980s!

      This is where we are now.

      Best,

      D

      • Happycrank

        Would this be using fake data from NOAA, then?

        • Dano2

          Since there are no “fake” data from “NOAA”, who knows what point it is that you think you are trying to make.

          Best,

          D

          • Happycrank

            NOAA has been caught faking the data on multiple occasions, but fanatics like you are perfectly fine with that. A lie in the service of the Church of Climatology is permissible.

            • Dano2

              NOAA has been caught faking the data on multiple occasions,

              You were duped. Hilariously so.

              I LOLzed!

              Best,

              D

              • Happycrank

                Somehow I doubt we’ll agree on anything other than the documented fact that you are an asshole.

                • Dano2

                  I’m an a-hole cuz I LOLz at false assertions? Wowie.

                  Best,

                  D

                  • Brin Jenkins

                    If I was to agree with you on Carbon being the problem we would both be wrong!

          • Brin Jenkins

            idiot again.

  • Dano2

    All gubmints regulate all markets. Free Markets (TM) don’t exist.

    Best,

    D

    • Brin Jenkins

      What do you mean, explain so folks know?

  • Art

    If I were an auto executive I would declare that I am going to continue building 2015 cars for the next 5 years and jam it to the goobermint’s CAFE program.

  • technodan

    Electric cars run to a large part on electricity produced by coal fired plants. Until that changes significantly, “zero-emissions” electric vehicles are a fantasy (even solar power generation has its environmental impacts from panel manufacturing and installation site impact). See “Unclean at Any Speed” on the IEEE Spectrum website for more about electric vehicles running primarily on coal.