The week of April 1, 2024: EVs & cell phones (sort of) compared, sports stadiums, antitrust, and much, much more.
The week of April 1, 2024: EVs & cell phones (sort of) compared, sports stadiums, antitrust, and much, much more.
Something tells me that those forever talking up the qualities of electric vehicles (EVs) are becoming a little anxious. With clear signs that the growth in EV sales is failing to meet central planners’ expectations, Pete Buttigieg appeared on Fox News with a new tactic to persuade reluctant buyers to jump on the EV, uh, train. The new tactic was mockery, vaguely reminiscent of the tack taken by candidate Barack Obama in 2008, when he talked about those “bitter” Rustbelt folk “clinging” to their guns, religion, or worse.
Once again, the underlying theme was the depiction of a portion of the U.S. population as losers, although Buttigieg did not depict these wretches as having succumbed to unacceptable ideas. They were just people unable to come to terms with the future. As Jack Butler noted in a recent article for National Review, Buttigieg put it this way:
Let’s be clear, the automotive sector is moving toward EVs and we can’t pretend otherwise…Sometimes, when these debates happen, I feel like it’s the early 2000s and I’m talking to some people who think that we can just have landline phones forever.
Well, according to data cited in an article last year by the Washington Post’s Andrew Van Dam, there are still plenty of landlines in use, although not much more than one percent of the adult population relies upon them alone. As of the end of 2022, around 25 percent of adults were in households in which both wireless and landlines were used, a tally that increases sharply (to levels above 40 percent) in one region. Somewhere in Deliveranceland? Nope, the Northeast, not a part of the country where the locals would expect to be attacked by a Democrat as a little slow to catch on. And there are other (relative) holdouts too. Around one third of homeowners were using both landlines and cellphones as at the end of 2022, and fewer than 50 percent of the over-65s had cut the cord.
Those percentages will have dropped since then, and landlines will continue to fall out of use, but it has taken time. Slightly more than 12 percent of the U.S. population were wireless subscribers in 1995 (a figure that includes pagers). Nearly three decades later, despite immense improvements in wireless technology, many Americans still have room for a landline (which itself can be used in more varied way than in the past). And 12 percent would be a big number for EVs today: EVs account for fewer than 1 percent of the cars on U.S. roads and (in 2023) for only 7.6 percent of new car sales. If mobile phones and EVs are, as Buttigieg suggests, (sort of) comparable that means that, if the EV market were left to evolve naturally, we are decades away from EVs rendering their (presumed) predecessors irrelevant.
But a mass “market” for EVs (such as that for cellphones and cars powered by internal combustion engines) is not being allowed to develop naturally, shaped by the constant “dialogue” between consumer and manufacturer. Rather, auto electrification was, to quote Stellantis CEO, James Tavares, speaking in January 2022, “chosen by politicians, not by industry.” Making matters worse, the pace of the EV transition will increasingly be set by regulators focused on the climate, not markets focused on the consumer. Automakers have already begun to anticipate this regime, with consequences that are now becoming apparent as they scramble to adjust to the reality that drivers — who still have some choice in the matter — are not buying enough of the EVs now being offered to them.
As tends to happen when markets are allowed to do their own thing, the market for cellular phones grew in a relatively logical fashion, C followed B, B followed A. To take one example, the early development of the NMT system in the Nordic region does much to explain the surprising emergence of Finland’s Nokia (previously something a ragbag conglomerate on the old Finnish model) as a global mobile powerhouse. Sweden’s Ericsson, which had been making telephone equipment since the 19th centurywith customers across the world, also saw the opportunity represented by mobile telephony and became a global force in that market too.
A key element in the success of two companies from two small countries on Europe’s northern periphery was that enough of a mobile network was in place to support and thus encourage increasing usage of cell phones in the region. Things moved on from there. By contrast, one critical reason for the EV sector’s current problems in Europe and the U.S. is that the underlying “network” (particularly where charging is concerned) is not yet robust enough to support the take-up of EVs on the scale and timetable being demanded by climate policymakers. Elon Musk may have benefited directly and indirectly from government help, but he retains the instincts of a private sector entrepreneur. He was early to see the importance of adequate charging networks and, indeed, Tesla has done well in this area, others, not so much.
Demand for cellphones was driven by the way that (in most respects) they offered something better than landlines from the get-go, namely their most basic feature, an ability to call (or be called) when out and about in a way that a public callbox could never deliver. Improvement then followed improvement, some incremental, some truly novel (Phone as camera? Who’d have thunk it?), a process hugely accelerated by the fusion of the rapidly growing internet with mobile technology. Smart phones represented a gigantic leap forward, a leap that is continuing, still taking the phone into once unthinkable territory.
It is a tale that Henry Ford would have understood. The internal combustion engine offered most consumers a better mode of transportation than the horse or steam-driven or early electric vehicles. Then, thanks to Ford’s mastery of manufacturing techniques, the improvement in performance was sweetened by increased affordability, and countless virtuous circles turned. No one banned the horse.
This is not a story that can be told about EVs. For some drivers, they fill a nice niche, and that niche will grow, but they are highly unlikely to be those drivers’ only car. According to an Experian Automotive Consumer Trends Report covering the second quarter of 2023, 85 percent of American EV buyers also have at least one gasoline-fueled vehicle. Tellingly, only 4 percent had, to use a spectacularly inappropriate phrase, “cut the cord” by going EV only.
Given the current state of technology and supporting infrastructure, EVs represent a step back for most drivers, not an advance, the opposite, in other words, of the dynamics behind the rise of the mass market cellphone. And then there’s the question of cost. The cost of EVs has come down quite some way (even more so when subsidies are added to the mix), but not by enough for enough drivers to overlook their drawbacks. And while mass adoption of EVs in the U.S. and Europe might have some effect on climate change, that effect would (contrary to the claims typically made by EV advocates) be marginal, and not detectable for a long time. And that (for most drivers) is not enough of a reason to pay more for a car that delivers less than their existing conventional vehicle. Carbon-paring climate policy-makers know this perfectly well, thus their willingness to turn to coercion.
On April 1, The Financial Times ran an article by Peter Campbell in which he wrote about carmakers’ concerns over “the current slowdown” in the rate of EV sales growth. It will be worth returning on some later occasion to that article, which is an interesting and revealing read, but for now two observations contained within it stand out. The first is that “some investors are now privately warning about an ‘enormous misallocation of capital’ across the [auto] industry.”
If they are only doing it now, they have left it a bit late. The price of auto stocks would suggest that others have been smarter. There was a speculative bubble in EV stocks (notably during the SPAC era) producing some spectacular gains, followed by spectacular losses. Nevertheless, some EV champs have done well. Since early April 2019, Tesla’s stock is up a spectacular 800 percent (although it peaked in 2021 and has been sliding since December) and shares in China’s BYD have increased by more than 280 percent (but it is well off the all-time high it hit in 2022). For a comparison the S&P has risen by 80 percent over the last five years. Both Tesla and BYD are impressive companies operating in a new field (in which Tesla has been a true pioneer), which is not going away. Critically, they are not burdened with transition costs. They have no internal combustion engine business to worry about.
With traditional automakers, the picture is different. They are being pushed into electrification and out of a technology they have dominated for a long time. That means they are allocating capital away from profitable internal combustion engine vehicles and toward EV production. On top of the growing uncertainty over the demand for those EVs, there are also awkward questions about car manufacturers’ ability to secure the metals and the components they are going to need if they are to ramp up production at the pace policymakers require. There is also the small matter of Chinese competition to consider, a complication not present, until relatively recently, in the evolution of the cellphone market, and to which Buttigieg referred to on Fox. As he saw it, the U.S. could either “fall behind China or we can claim the lead. President Biden wants to make sure that those EVs are made in America as more Americans choose EVs.”
Make sure.
Under the circumstances, the underperformance of many conventional automakers’ stocks is hardly a surprise. Over the five years since April 2019, Volkswagen shares are down some 9 percent. GM is up only 11 per cent, about the same as Peugeot, Mercedes by 26 percent. Ford has done better, rising 40 percent, as has Stellantis (up 65 percent), but taken as a whole these numbers do not suggest that investors are particularly impressed by the potential return on the billions that conventional carmakers have been pouring into EV production, a return that also needs to compensate for the destruction of much of their existing business. Look, by contrast, at the stock price of Ericsson in the 1990s. It too was managing a transition (in telephony), but investors reacted with enthusiasm rather than skepticism. The stock performed well for most of that decade before going stratospheric in the internet bubble. Then it fell to earth, but that’s a different story.
Meanwhile, Toyota, reviled for a long time for being “late” to get into EVs is up 97 percent over the past five years. The stock has been on a tear recently, hitting a record price in March as interest in hybrids has surged. Its former CEO, Akio Toyoda, was squeezed out (in a Japanese way: he was made chairman and remains influential within the company) in early 2023 in part for sticking with hybrids and for his insistence that there should be many roads to electrification. That’s a view echoed in recent remarks by Stellantis’ Tavares: “We should move away from a dogmatic thinking where one size fits all.” Unfortunately, dogmatic thinking is what central planners tend to do. They pick their winner and stick with it. And, as with so much of climate policy, where EVs are concerned, that dogmatism will be reinforced by thinking that owes less to #science than we are supposed to believe.
Speaking of dogmatic thinking, the California Public Employees’ Retirement System and the Office of the New York City Comptroller both voted against Toyoda’s re-election as Toyota’s chairman in mid-2023, yet more evidence of the way that ideology is contaminating investment processes that ought only to be concerned with investor return, something made easier when those demonstrating their virtue do so with other people’s money.
The second observation from Peter Campbell’s FT article worth repeating is this:
“EVs are more expensive and just not as good,” says the head of one carmaker that has nevertheless pledged to phase out engine sales in the coming two decades.
Oh.
That CEO is right, but is still pledged to phase out internal combustion engine sales “in the coming two decades,” a timetable, incidentally, more relaxed than regulators are currently prepared to countenance. It is reasonable to assume that EVs will see further improvement over that period, but still…
The fact that this CEO is continuing down the EV track despite his views on their quality shows that Buttigieg’s statement about the inevitability of (essentially) universal auto electrification is not as foolish as it might seem. That, of course, assumes that the practical problems associated with a massive expansion of EV production can be overcome on the current timetable (spoiler: it’s highly unlikely).
To NRO’s Jack Butler, Buttigieg’s comments on EVs (and other matters) showed him to be not the “Mayor Pete” of his public image but somebody more sinister, “McKinsey Pete”:
By speaking in this way, McKinsey Pete merges the worst of private-sector consultants — can’t you hear him patiently explaining the importance of “reductions in force” to you? — with the worst of forced bureaucratic whim. He disdains anyone who might prefer gas-powered cars as hopelessly antediluvian. He casts them as impeding progress by questioning state-driven efforts to promote a type of vehicle that ought to succeed or fail on its merits. It’s a mode of argument that could only come from someone accustomed to viewing consumers — people — as data sets to be analyzed or manipulated. So we shouldn’t be surprised to see it come from McKinsey Pete.
Buttigieg may only have been at McKinsey, a management consultancy, for three years, but there’s a lot to that. McKinsey may be seen by some as an embodiment of capitalism, but, in reality, beneath the rent-seeking that is one of its defining characteristics, the firm’s ethos is technocratic, and it has found it easy (and profitable) to embrace the corporatism, post-democratic, and top-down, that is at the heart ofstakeholder capitalism and its equally ugly symbiont, ESG. While it has had criticisms of the implementation of the EV transition, McKinsey has been broadly supportive of the exercise in central planning that this transition represents. “That hum in the distance,” wrote a McKinsey team in 2021, “is the sound of the concept of mobility changing—for the better.” Oh dear.
That said, I suspect that few current McKinsey staffers would risk citing the evolution of cellphones in the debate over EVs. For the reasons set out above, comparisons between the former and the latter are to EVs’ disadvantage, as is something else: Governments did not to have to “encourage” the take-up of cellphones with subsidies or by proposing to ban (or squeeze out) the sale of new traditional phones.
That creating a mass market for EVs is dependent on bribes and bullying speaks for itself.
The Forgotten Book
Capital Matters has a fortnightly feature, The Forgotten Book, which is written by National Review Institute fellow, the writer and historian, Amity Shlaes. We live in an age of short attention spans, and one of Amity’s objectives is to introduce readers to books or other primary sources that warrant a second look.
In her Capital Matters column, Amity dedicates herself to sharing with Capital Matters readers older, forgotten books, along with new books that aren’t getting the attention they perhaps warrant.
Her latest column can be found here. In it she discusses “a curious new literary sub-genre… Call it “The Sorta Friendly Biographical Revision of the Free Marketeer”:
The revisions are easy to spot. They convey biographic details in friendly fashion — but from a safe distance. They cover the evidence of some of the benefits of free-market philosophy — but only some. And they tend to imbue the development of free-market theories with a subversive aspect. In such tellings, the humdrum challenges that academics of the 1940s, 1950s, and 1960s offered to traditional antitrust doctrine sound like conspiracies. Here, to be fair, the revisers have an eager audience. Spooked as they are by the number of antitrust skeptics now occupying federal judgeships, fans of, say, the Justice Department’s case against Apple, have developed a fascination with early antitrust reform that borders on weird.
The revisers would be easy to dismiss if they were second-rate.
But many are not. The latest example of quality revision is Jennifer Burns’s Milton Friedman: The Last Conservative…
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 National Review Institute 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 164th episode, David is joined by Nick Murray, the legendary sage of wisdom to wealth advisers who had such a profound impact on David’s life and career.
The Capital Matters week that was . . .
Antitrust
The Department of Justice’s lawsuit against Apple is weak, it seeks to substitute central planning for consumer preference, and it will threaten innovation. At the heart of this issue lies a clash between traditional principles of free-market innovation and what can be described as a “populist antitrust” ideology. While proponents of the latter advocate government intervention to dictate consumer choices, the essence of American innovation has always been rooted in the power of consumers to drive market preferences. Individuals have better knowledge of what they want than any central planner does.
By disregarding this fundamental tenet, the administration risks stifling the dynamism and creativity that have defined our tech sector for decades…
Electric Vehicles
Unsurprisingly, the writers of the article look at the cost of this aspect of the great electrification, not least to truckers, and unsurprisingly they are huge. Tax credits will help, but that merely reallocates some of the cost from one wallet to another, that of the government (in other words, taxpayers). It’s just as well the U.S. has low levels of debt and runs a hefty budget surplus.
Doesn’t it?…
Yesterday, McKinsey Pete showed similar callousness about electric vehicles (EVs). Asked on Fox News about the Biden administration’s continued EV push despite their lackluster sales, he employed some classic consultant-speak. “Let’s be clear, the automotive sector is moving toward EVs and we can’t pretend otherwise,” he said. “Sometimes, when these debates happen, I feel like it’s the early 2000s and I’m talking to some people who think that we can just have landline phones forever.” It’s inevitable, you see — which is why the government has to force it…
Canada
Canada’s declining business investment is the predictable outcome of the federal government’s tax hikes, spending explosion, and overbearing regulatory expansion of the past eight years, and reversing these policies would be the only way to create an environment that encourages business investment. That the Trudeau government instead wants to tell large Canadian pension funds how to invest reflects its unwavering belief that economic problems should be solved by taking a government crowbar to private capital…
Real Estate
Reports of “squatters” are popping up across the country. In Atlanta, an estimated 1,200 homes, primarily owned by institutional landlords, are occupied by individuals attempting to establish permanent residency while the owners are away. Worse yet, some on social media are sharing instructions on how to squat on private property, falsely advertising that the law permits the seizure of temporarily unoccupied property. To be sure, it does not….
Stadium Subsidies
Stadium subsidies are a bad deal for taxpayers, and they don’t create economic growth as usually promised. John Mozena wrote a piece about this for NR Capital Matters last year. Sports teams usually make lots of money and are owned by wealthy people who have the resources to build their own stadiums without government help…
It doesn’t make sense to give taxpayer money to rich people to build or renovate stadiums that won’t create economic growth. But if the rich people are going to pay the entire cost of construction and let you use it for your own sports too, don’t let whiners kill the project…
Congestion Charge
New York City lost almost half a million people between July 2020 and July 2022. Yet the Big Apple seems intent on driving away more residents as well as tourists with its new “congestion charge,” or tax, just approved by the Metropolitan Transportation Authority…
To sign up for The Capital Letter, please follow this link.