Voters Should Be Mad at Electric Cars
If Trump and Sanders fans hate absurd handouts to elites, the Tesla economy is the place to look.
Business World Columnist Holman Jenkins Jr. on the upcoming launch of Elon Musk’s latest electric car.
By HOLMAN W. JENKINS, JR.
March 11, 2016 6:10 p.m. ET
How much subsidy is flowing to electric cars these days? An accidental experiment in California might open some eyes. California awards carpool-lane privileges to electric cars, but thanks to a legislative lapse ran out of the green stickers for plug-in hybrids. A local Ford dealer tells us that late-model hybrids with the sticker now fetch a $3,000 premium over the identical car without the sticker.
By the way, this merely confirms an earlier finding by Audatex, a company that serves the auto-insurance industry, that stickers added as much as $1,500 to the value of used non-pluggable hybrids after eligibility was removed from those far more numerous cars.
And $3,000 is a drop in the bucket. The grossest handout, obviously, is the federal tax credit for buyers of $7,500. Additional rebates are available in many states ($2,500 in California, $6,000 in Colorado), not to mention further handouts for installation of home chargers.
Then toss in resalable ZEV credits, for zero-emissions vehicles, under rules in California and nine other states, whose value the Los Angeles Times in 2013 pegged at $35,000 per car in states that account for at least one-third of Tesla’s U.S. sales.
When averaged over Tesla’s total U.S. sales, the combined subsidies amount to $20,000 per car, and in California upward of $45,000. And for what purpose? Electricity, in America, is largely produced from fossil fuels. If the electric system were somehow converted to renewables, then it wouldn’t matter how we powered our cars, because passenger cars account for less than 8% of global greenhouse emissions.
But then arguments have nothing to do with it. “Up with electric cars” is a slogan that you can pick the public’s pocket with.
This month Tesla will unveil its Model 3, its car for the middle class, retailing for $35,000—or considerably less than the value of its explicit and implicit subsidies in many states. And don’t kid yourself that Elon Musk, Tesla’s billionaire impresario, doesn’t price his cars to make sure the full value of these handouts flows through the buyer’s pocket to Tesla’s top line.
One sales prediction we can make with confidence. Tesla is expected to sell its 200,000th U.S. car sometime in 2018, and that sale will fall on or very near the first day of a calendar quarter. How do we know? Under current law, federal tax credits for a given manufacturer begin phasing out two calendar quarters after the quarter in which eligible output tops 200,000.
And you wonder why, on some level, voters sense that our political class has led America into a dead-end where the only people doing well are the ones who have subsidies, regulation and political influence stacked in their favor.
The Kauffman Foundation, in a recent study of waning American entrepreneurship, listed “incumbent protection” as a factor. So a pregnant but almost undiscussed question is whether the federal tax rebate will really be allowed to lapse, and whether Tesla’s business model can survive it.
Tesla’s cars have status cachet, yes. Even middle-class customers might be attracted, notwithstanding low gas prices, as long as helped by an enormous dollop of taxpayer favoritism.
But here’s a problem: GM and other established car makers, under Obama fuel-mileage rules, increasingly also need to churn out electric cars in order to keep selling the pickups and SUVs that earn their profits. GM can’t survive unless it makes and sells electric cars at a loss, whereas Tesla can’t survive unless it sells them at a profit.
A conclusion flows inescapably, especially if the direct tax rebates to buyers go away: The highest, best value of Tesla’s brand can be realized only if Tesla sells itself to a pickup truck maker—or buys one.
Of course this has occurred to Tesla—sort of. In a speech in Detroit last year, Tesla Vice President Diarmuid O’Connell proposed that conventional car makers farm out to Tesla the job of making electric “compliance vehicles” for them.
Is this really what American capitalism has come to? Electric-car fans, of course, recognize their vulnerability to the public waking up to the absurdity of their subsidy regime. So do investors. Maybe that’s why, after falling for five months, Tesla’s stock price turned sharply up the day after the New Hampshire primary.
The New Hampshire outcome, recall, showed Donald Trump dominating the GOP nomination race and suggested to many onlookers that the chances of a Democratic successor to President Obama had materially improved. Indeed, nothing else makes sense when you consider how thoroughly Tesla’s business model depends on taxpayer largess.