Losses outweigh gains on electric cars

By |2019-01-16T11:39:54+00:00January 16th, 2019|Energy|0 Comments

I chipped in to help a friend purchase a new Tesla.

So did you.

Actually, he’s financially very well off, and didn’t ask for any charity. He didn’t need to.

We just generously donated our support because we’re nice, and since that electric vehicle (EV) beauty runs on green energy that comes directly out of a wall outlet, we wanted to pitch in to help save the planet.

But, not so fast there.

How does all that electricity (and it requires a lot) get into those walls? Likely not from solar power when that shiny automotive wonder is being recharged at night. Besides, less than one percent of the U.S. electricity comes from sunbeams anyway.

Wind maybe? Not really, since the breezy six percent of total U.S. electricity it contributes can’t be reliably counted on to blow on command.

Yet even putting those pesky technical trifles aside, why is it that despite massive well-meaning taxpayer subsidies the electric car market is running out of juice?

It’s because unlike true hybrids, which do make a great deal of technical and economic sense, plug-ins are no bargain in any manner.

First off, even with massive federal and state government-funded tax credit subsidies, fuel efficiency mandates and other politically-driven preferential advantages, the vast majority of the driving public-low-income consumers in particular — aren’t buying them.

EVs represent only between 0.5 percent and 1 percent of total U.S. car sales despite a $7,500 consumer tax credit established a decade ago as part of the part of the Obama administration’s 2009 “stimulus”plan.

Of those paltry purchasers, the Pacific Research Institute reported that according to 2014 IRS data, 79 percent claiming those tax credits were from households with adjusted gross incomes of more than $100,000. Only 1 percent represented households with incomes less than $50,000.

Each individual automotive manufacturer’s full federal EV tax credit offering is currently set to end when they reach a 200,000 production cap. GM, Tesla and Nissan who are now nearing or exceeding that threshold are pushing government to extend the cap.

GM, with their Cruise model leading most manufacturers in the driverless car race, is trying to game the system by proposing six times more future tax credits for autonomous vehicles.

Some states dole out additional tax credit breaks. Constituting more than half of the EV car market, California kicks in another $15,000 per car. Connecticut provides a $10,500 tax incentive.

Georgia’s 2015 EV sales fell 89 percent in two months after ending its $5,000 state-sponsored tax credit.

The federal government, along with nearly a dozen states, has also attempted to drive EV sales by fiat through automotive manufacturer Corporate Average Fuel Economy (CAFÉ) mandates. After determining that a 54.5 miles per gallon by 2025 requirement set by the Obama administration was unfeasible, the Trump administration plans to reset the target at 37 miles per gallon by that date.

Again led by California, nine other states are adopting mandates which require EVs to make up a certain percentage of all vehicle sales. Operating under an Obama administration EPA waiver, California has also been allowed to establish its own CAFÉ CO2 tailpipe emission standards. Auto makers are then left with little choice but to increase EV production and pass mounting financial deficits on to sales of other automotive products.

EVs face economic road blocks which combine high production costs and operational inconveniences. A battery package for a medium size vehicle costs more than $13,000 – equivalent to the material cost of an entire gas-fueled compact car – and longer range models can require 8 hours to recharge.

According to The Wall Street Journal, a typical EV starting price is around $42,000. This is some $8,000 more than average price of a new gasoline-fueled vehicle, and $22,000 more than average price of small gasoline car.

Hence, despite tax breaks and mandates, manufacturers sell EVs at a loss – then jack up the price of other vehicles we prefer.

Tesla has cut prices by $2,000 across-the-board beginning with the Model 3 that it is banking on to reach mass market at $44,000. A Model 3 compact sedan is targeted for selling at $35,000.

Last August, UBS Securities LLC estimated that a $35,000 Model 3 version would at that time lose about $2,300 per car, and at $42,000, a Model 3 would make only a $670 operating profit.

Tesla’s then-lowest-cost-version at $49,000 would make more than $3,000.

After losing up to $50,000 each on its now-discontinued Volt, Bloomberg News reported that GM could next be expected to lose only about $9,000 on every new Chevy Bolt.

So who will cover these losses?

You and I will of course, along with billions of dollars more we will shell out this year alone in federal grants and loans to politically plugged-in corporations we reward to remain disconnected from free market demands.