A technology chosen by politicians. What could go wrong?
The Week of December 26, 2022: EVs and their problems, inflation, regulation, and much, much more.
I t’s been a little while since I devoted a Capital Letter to looking at how things were going with electric vehicles, a central planning project within the broader central planning project that is the western world’s response to climate change/crisis/chaos. The short answer is that things are not going particularly well. The danger that the attempt to push buyers to pick EVs will represent a disaster for consumers, the economy, workers, and for the West (geopolitically), continues to be all too real, something that will be of no great surprise to those who have studied the failures of central planning in the past.
Nor is it any surprise that the risks of following the path now being taken with EVs have been greatly increased by the fact that many people in the know are reluctant to sound the alarm, a phenomenon hardly unknown in the history of central planning.
With that in mind, a recent (December 19) story from the Wall Street Journal made for an interesting read:
Toyota Motor Corp. President Akio Toyoda said he is among the auto industry’s silent majority in questioning whether electric vehicles should be pursued exclusively, comments that reflect a growing uneasiness about how quickly car companies can transition.
Auto makers are making big bets on fully electric vehicles, investments that have been bolstered by robust demand for the limited numbers of models that are now available.
Still, challenges are mounting—particularly in securing parts and raw materials for batteries—and concerns have emerged in some pockets of the car business about the speed to which buyers will make the shift, especially as EV prices have soared this year.
I don’t know whether Toyoda (a skeptic of some longstanding when it comes to EVs) is right about there being a “silent majority” within the sector that worries about the pursuit of a “single option” — the fully electric vehicle — but his claim that many are reluctant to “speak out loudly” because they think this pursuit is “the trend” rings true.
At a guess, Toyoda diplomatically chose the word “trend” for its blandness, but what he is talking about is the pressure being put on automakers to go exclusively electric (and to do so very quickly) from major institutional investors playing the ESG game: from climate activists and rent-seeking consultants to regulators and, of course, governments. That’s how today’s corporatism works. Observant readers will note that car buyers are not included in that list, and that their absence counts for nothing. To climate policymakers, car owners and car buyers are at best nuisances, and at worst enemies.
In June, I cited comments from the CEO of Stellantis, the world’s fifth-largest automaker (formed as a result of the merger between Fiat Chrysler and Peugeot), as someone else who has refused to keep quiet. In January, he said this:
What is clear is that electrification is a technology chosen by politicians, not by industry . . . Given the current European energy mix, an electric car needs to drive 70,000 kilometres to compensate for the carbon footprint of manufacturing the battery and to start catching up with a light hybrid vehicle, which costs half as much as an EV (electric vehicle).”
I added this:
A technology chosen by politicians. What could go wrong?
But at least the electricity grid is in good shape to cope with the increased demand.
Isn’t it?
And what about the sources of that electricity? How green will they be? This extract from a Bloomberg story, which I also cited in June, offers some insight:
Maruti Suzuki India Ltd., the automaker that sells every other car on the nation’s roads, believes electric vehicles aren’t the answer to reducing carbon emissions in the world’s third-biggest releaser of greenhouse gases — at least not in the immediate future.
India’s largest automaker reckons that vehicles powered by hybrid technology, natural gas and biofuels present a better path toward a cleaner future than electric cars considering the nation generates about 75% of its electricity from dirty coal, Chairman R. C. Bhargava said in an interview.
“Talking about electric cars without looking at the greenness of the electricity generated in the country is an inadequate approach to this problem,” Bhargava said in an interview from his home in Delhi last week. “Until the time we have a cleaner grid power, it’s necessary to use all the available technologies like compressed natural gas, ethanol, hybrid and biogas, which will help reduce the carbon footprint and not push any one technology.”
Again, note how Bhargava, someone else who is prepared to speak out, disapproves of solely opting for EVs.
And anyone who thinks that “dirty” electricity is a problem confined to countries such as India or China should take a look at where Europe’s electricity is coming from, or read this piece from Capital Matters on EVs’ contributions to greenhouse gas emissions.
But back to Toyoda’s “trend,” a word that also presumably reflects the effect of the billions of dollars that automakers have poured into EVs: Spending that largely reflects both corporatist bullying and the companies’ read on the effect of the government policies now underway. Now that those companies have committed capital, it makes sense for their executives to (a) talk up EVs, and (b) support government efforts to force people to buy them.
Toyota has taken a different tack.
The Wall Street Journal:
While [Toyota’s] major rivals, including General Motors Co. and Honda Motor Co., have set dates for when their lineups will be all-EV, Toyota has stuck to a strategy of investing in a diverse lineup of vehicles that includes hydrogen-powered cars and hybrids, which combine batteries with gas engines.
The world’s biggest auto maker has said it sees hybrids, a technology it invented with the debut of the Toyota Prius in the 1990s, as an important option when EVs remain expensive and charging infrastructure is still being built out in many parts of the world. It is also developing zero-emission vehicles powered by hydrogen.
“Because the right answer is still unclear, we shouldn’t limit ourselves to just one option,” Mr. Toyoda said. Over the past few years, Mr. Toyoda said, he has tried to convey this point to industry stakeholders, including government officials—an effort he described as tiring at times.
The term “stakeholders” is a classic corporatist buzzword, something that should alarm both consumers and shareholders, as corporatists do not care very much about either.
And Toyoda’s use of “tiring” is obviously diplomatic.
The Journal’s writers also point out that:
[“Traditional”] gas-engine businesses are still driving the bulk of profits needed to fund the costly shift to electric vehicles, which not only requires the development of new models but also construction of new facilities and battery plants.
But what happens to those profits if, despite plans by many leading manufacturers to switch to EV-only production, and — despite forthcoming bans on the sale of new internal combustion engine (ICE) vehicles (such as those announced in the EU, the U.K., and in U.S. states such as California) — large numbers of consumers don’t switch to EVs, but stick with their ICE vehicles for longer and/or opt to replace them with secondhand ICE cars?
It’s a question worth asking, especially as demand for EVs appears to be less robust than growth statistics (from a low base) might suggest. There are a lot of reasons for that, but upfront cost, inconvenience and insufficient charging infrastructure are three that weigh heavily.
In addition to the other dissidents I have cited, the WSJ’s writers give further reason to indicate that Toyoda is not as isolated as he suggests:
Mazda Motor Corp. executives once cautioned that whether EVs were cleaner depends largely on where the electricity is produced. They also worried that EV batteries were too big and expensive to replace gas-powered models and better suited to the types of smaller vehicles that Americans didn’t want.
Nissan Motor Co., which launched the all-electric Leaf over a decade ago, had until recently taken a more cautious stance on EVs with executives saying they were waiting to see how the demand would materialize.
Note that “until recently.”
Nissan Chief Executive Makoto Uchida said the company moved too aggressively with the Leaf early on, but lately demand for EVs has been growing faster than many had initially expected. Nissan said last year it would spend roughly $14.7 billion to roll out new battery-powered models. Now, Mr. Uchida said it may need to spend more.
The wild card, he said, is regulations and government subsidies globally that could speed adoption even more. “Would that be enough? The answer is it may not be,” Mr. Uchida said.
Tellingly, Uchida stresses government sticks and carrots, incentives not normally required for a product for which there is widespread bottom-up demand.
The WSJ:
Mr. Toyoda’s cautionary tone toward EVs has caused some concern from investors and consumers that the auto maker could be falling behind in the EV race.
The phrase “EV race” does not give much support to the notion that car companies are allocating their capital wisely in this area.
Quite why consumers should be concerned about Toyota “falling behind” in this race is a mystery. If anything, they should be pleased, as that would mean that they will (if they are allowed to) still be able to turn to Toyota for alternatives to EVs in a future when those may be difficult to find from other automakers.
That said, I clicked on the link (which is to a WSJ report from September) to find out who these concerned investors were. The only ones specifically mentioned are some Scandinavians, the Church of England Pensions Board, a bond investor with a weakness for ESG (which didn’t seem too unhappy), and the office that manages New York City’s public-pension funds, a body with a track record when it comes to playing political games with other people’s money. Move along, nothing to see here.
I also discovered this:
Toyota has also been interacting more with environmental group Greenpeace, which has for the past two years placed the Japanese company at the bottom of its auto-industry decarbonization ranking. Toyota has started saving seats for Greenpeace at EV-related company events and recently invited representatives to have an in-person meeting, according to Daniel Read, who works at the organization on energy and climate issues.
Why?
As Toyota (which has sold more hybrids than any other auto manufacturer) ought to know, there is nothing that the company can do to appease Greenpeace’s fundamentalists. By September, Toyota had, despite Toyoda’s skepticism about the way in which the technology was being imposed, already announced plans to spend $35 billion on EVs over the next decade.
It would be better for Toyota’s shareholders if their company spent less on EVs, and it would be better for everyone else if Toyoda talked more about them.
Capital Matters Conference, New York City, January 26, 2023
National Review’s Capital Matters is hosting a conference called “Innovation, Growth — And Their Newer Enemies” at the Union League Club in NYC. Sponsorship information and tickets are available here: https://bit.ly/3VH8i0x.
Speakers so far: Larry Kudlow, Kevin Hassett, Linda McMahon, Amity Shlaes, David L. Bahnsen, Jason Trennert, Peter J. Travers, Andrew Puzder and, well, me.
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and NRI trustee David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by the National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 99th episode, David walks through the highlights of 2022; the big themes on Capital Record; and all the guests, topics, and dramas that made this a year to remember.
No Free Lunch
David has also launched a new six-part digital video series, No Free Lunch, here on National Review Online. In it, we bring the debate over free markets back to “first things” — emphatically arguing that only by beginning our study of economics with the human person can we obtain a properly ordered vision for a market economy . . .
The series began with a discussion with Fr. Robert Sirico of the Acton Institute. Later guests include Larry Kudlow, Dennis Prager, Dr. Hunter Baker, Ryan Anderson, Pastor Doug Wilson and Senator Ted Cruz.
Yes, the six-part series now has seven parts.
Enjoy.
Capital Writing
As part of a new project for Capital Matters, called Capital Writing, Dominic Pino will be interviewing authors of economics books for the National Review Institute’s YouTube channel. For our first interview, Dominic talked to Samuel Gregg of the American Institute for Economic Research about his book The Next American Economy: Nation, State, and Markets in an Uncertain World.
Edited transcript of some extracts are available here.
An extract from the extract:
Samuel Gregg:
The idea of ordered liberty is not just an American thing. It’s an idea that all peoples are capable of, but we have been blessed that this has been made so much a part of who we are as a country in a way that no other country can come close to claiming. The more we look back at that, the more we look, for example, at The Federalist Papers and the political economy envisioned there, or my favorite of the Founding documents, Washington’s farewell address. The vision of political economy that shines through there is of America as a commercial society and a commercial republic, in which entrepreneurship and economic creativity flourishes, in which economic competition binds the country together, and in which America is looking out and has a dynamic trade relationship with the rest of the world. That is ultimately a deeply optimistic document, and it is far preferable to the defeatism that has entered so much of the American body politic, on the left a long time ago, but unfortunately, we find it now on parts of the right as well.
You can find the full interview here.
Please take a look.
The Capital Matters week that was . . .
Banks
Normally if a bank holds securities they have to be marked to market (i.e., valued at their current market price). Doing that to the bonds bought during that period (and, I assume, many of those bought before then) could trigger a hit to the capital base of the banks that hold them, a hit that, depending on its size, could mean that the banks in question might be required to raise new capital. That’s generally not something that shareholders want to hear.
Employment
As we now know, the economic pain of the shutdowns reversed quickly, and not only did economic activity resume by late 2020, with strong GDP growth in 2021, but the unemployment rate dropped quickly. Indeed, the narrative of 2021 shockingly became one of inadequate access to workers instead of millions looking for work. One problem was seemingly solved, but another problem was seemingly created.
That problem is the failure of the labor-force participation rate to return to normal . . .
Taxation
I adamantly opposed the idea of pumping an additional $8 billion into the IRS’s annual budget every year for the next ten years, but that ship has sailed. The question now is how to get the most bang for our buck. In my opinion, the answer is taxpayer assistance and education . . .
Education
The National Assessment of Educational Progress (NAEP) is known as “the Nation’s Report Card.” Sadly, the most recent “report card” represented failure for many states, not the least of which is my home state of New Mexico, which came in dead-last in all categories studied: fourth-grade and eighth-grade reading and math.
Sadly, especially for New Mexico kids, the additional tax dollars being spent by the state’s education system have not moved the needle. If anything, the needle has moved in the wrong direction . . .
How can the education–industrial complex remain after so many years of criticism, and, it seems, a growing public awareness of its nonsense? The arguments for a true education faced a fundamental challenge. Granted, ex hypothesi, that college was a waste of time; what, then, was the intelligent youth to do? It’s all well and good to conclude that college is a hoax and to pursue education on one’s own; but as long as the money and prestige continued to go to the credentialed, and the university bubble continued to swell, those who opted to forgo its purported benefits found themselves at a disadvantage. Even the most Socratic lover of wisdom could feel jilted when employers proved to value résumés and awards over an independent spirit after all.
Recognizing the conundrum, Michael Gibson has adopted a wholly more practical approach to toppling the false idols of the university. Gibson has put his money where his mouth is, and has made his career betting on the idea that because what happens in elite universities and other centers of power is bunk, one can make a killing by tapping the reserves of talent among the uncredentialed. His new memoir-manifesto, Paper Belt on Fire: How Renegade Investors Sparked a Revolt Against the University, is the story of how that bet has paid off . . .
Regulation
It is by now clear that the airline chaos of the past week, which started during the punishing winter storm shortly before Christmas, is largely the fault of one airline. Southwest has been the source of most of the flight-cancellation chaos, while other airlines recovered quickly from the disruption of a freak weather event. Anecdotal evidence abounds from crew and others affected by the chaos that Southwest’s antiquated crew-scheduling system collapsed, leaving the airline with no idea where its crews were and forcing agents to try to schedule crews manually.
Yet many on the political left are using this one-company event to call for tighter regulation of the industry as a whole . . .
Climate
As California, New York, and other states move to phase out the sale of gasoline-powered cars, public officials routinely echo the Biden administration’s claim that electric vehicles (EVs) are a “zero emissions” solution that can significantly mitigate the effects of climate change.
Car and energy experts, however, say that there is no such thing as a zero-emissions vehicle: For now and the foreseeable future, the energy required to manufacture and power electric cars will leave a sizeable carbon footprint . . .
Climate-warning labels on foods such as beef would be a device designed to keep the converted on the right path, and to persuade others to follow their example. They are also intended to stigmatize such foods, and to pave the way, first for mandatory labeling, and then for taxation at a level that would in turn be relentlessly increased in the interests, allegedly, of the planet. The endgame? To transform beef into a relatively rarely eaten luxury. The motive (in many cases)? The opportunities for social control, virtue-signaling and, of course, the all-too-common pleasure that too many people have always taken in denying pleasure to others and, sometimes, even to themselves.
Technology
The new national broadband map recently released by the Federal Communications Commission (FCC) shows widespread coverage of high-speed internet across the U.S., although some are challenging its accuracy.
Senator Roger Wicker (R., Miss.) sponsored the Broadband Deployment and Technological Availability (DATA) Act, which required the FCC to improve its mapping process to help determine which areas of the country are unserved or underserved. He said the first draft of the map is flawed . . .
Healthcare
The beginning of 2023 represents an unfortunate milestone: All Millennials are now 26 or older and, per federal law, are no longer covered by their parents’ health insurance. The generation is officially on its own — and it’s vastly overpaying for insurance . . .
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