They have created false signals to incentivize car makers to push EVs at a faster rate than the market can handle.
They have created false signals to incentivize car makers to push EVs at a faster rate than the market can handle.
E lectric cars are the future, or at least that’s what a certain set of experts has told us. If only consumers would get on board.
Recent sales figures have shown that U.S. consumers simply do not want to buy electric vehicles in large numbers. While 2023 EV sales were higher than in 2022, the rate of growth stalled and stopped short of expectations. Early figures in 2024 reveal an overall reduction in the number of vehicles compared to last year. Even the mighty Tesla is not immune to the EV-sales slump. In October 2023, the number of days an electric car spent on the lot in a dealership before being sold was 97, compared to a number in the mid 50s for traditional internal-combustion-engine (ICE) vehicles. This is after federal and state governments implemented significant subsidies for electric vehicles, up to $12,500 in some locations, leading car makers to scale up production of these costly vehicles and resulting in economic misdirection and environmental waste.
The dip in sales makes sense given the realities of owning an electric vehicle. The number of people who say they would like to own an electric vehicle is dropping as the concept becomes more concrete. Stories of frozen Teslas in Chicago underscore the downsides of owning an electric vehicle in northern climes. While electric vehicles make sense in high-density and relatively temperate locations, they aren’t suitable for every town and city in the U.S.
The financial hazard is also becoming more apparent. For consumers who plan to sell or trade in their car after a few years of use, electric vehicles could pose a greater risk as predicting the value of used electric cars is extremely difficult. This phenomenon is what was behind Hertz’s decision to sell off a chunk of its EV fleet. The value of the cars was dropping faster than Hertz internal forecasts had predicted, and the company couldn’t be sure that it would not continue to plummet in the future.
As the perceived financial viability of large-scale EV production declines, so too do the environmental benefits. In fact, the large-scale government subsidies are contributing to a new environmental problem: EV batteries.
At the current level of technology, batteries cannot be easily parted out or recycled when they reach the end of their usable life. Globally, only 5 percent of lithium-ion batteries are recycled. With fewer parts, EVs could hypothetically be cheaper to service in the long run, but fixing EVs is currently incredibly costly. Some insurers are even dropping coverage for EVs, citing higher costs. By internal calculations from Allianz published in Wired, EVs account for 10 percent of the cost of insurance claims, while only representing 2 percent of claim volume. Once an EV is totaled, its battery cannot be used and will go to a landfill.
These aren’t new problems. Why then are the major car makers caught so flat-footed as they explore scaling back production? The problem is not the existence or development of EV technology, but the timing of the roll-out. Subsidies have created false signals to incentivize car makers to push EVs at a faster rate than the market can handle. The result is not merely a lot of money wasted, but a loss of opportunities to invest that money more wisely.
To merely pivot to an alternate climate solution would miss the core problem. Centralized solutions cannot adequately balance the complex and sometimes opposing factors in play. Misdirected investment can happen even in a normally functioning market, but it cannot last in the long term because the major players will go bankrupt. In our too-big-to-fail economy, the major players will use public funds to fuel projects, and then lobby the government for assistance if those projects don’t pan out. (We saw this phenomenon when the Inflation Reduction Act changed the rules to allow customers to receive an EV tax credit directly at the dealership in the hopes of boosting sales.) Efforts to reduce emissions must account for real consumer preferences.
It would take a crystal ball to tell whether electric cars are the future, and subsidy architects don’t have one. Because they bet on certain technologies over others, the auto industry will continue to suffer until subsidies are ended and the market can right itself.