One of the many reasons that central planning has such a dismal record is that planners have a way of monkeying around with numbers to get the “right” result, however unrelated to reality it may be.
In light of that, this Wall Street Journal report by Michael Buschbacher and James Conde made interesting reading. Here’s an extract:
When carmakers test gasoline-powered vehicles for compliance with the Transportation Department’s fuel-efficiency rules, they must use real values measured in a laboratory. By contrast, under an Energy Department rule, carmakers can arbitrarily multiply the efficiency of electric cars by 6.67. This means that although a 2022 Tesla Model Y tests at the equivalent of about 65 miles per gallon in a laboratory (roughly the same as a hybrid), it is counted as having an absurdly high compliance value of 430 mpg. That number has no basis in reality or law.
For exaggerating electric-car efficiency, the government rewards carmakers with compliance credits they can trade for cash. Economists estimate these credits could be worth billions: a vast cross-subsidy invented by bureaucrats and paid for by every person who buys a new gasoline-powered car.
Until recently, this subsidy was a Washington secret. Carmakers and regulators liked it that way. Regulators could announce what sounded like stringent targets, and carmakers would nod along, knowing they could comply by making electric cars with arbitrarily boosted compliance values. Consumers would unknowingly foot the bill.
The secret is out. After environmental groups pointed out the illegality of this charade, the Energy Department proposed eliminating the 6.67 multiplier for electric cars, recognizing that the number “lacks legal support” and has “no basis.”
Carmakers have panicked and asked the Biden administration to delay any return to legal or engineering reality. That is understandable. Without the multiplier, the Transportation Department’s proposed rules are completely unattainable. But workable rules don’t require government-created cheat codes. Carmakers should confront that problem head on.
There’s a lot that could be said about this game, but one of them is that, as can be seen from the story, it aligns the interests of automakers and regulators in a distinctly unhealthy way. Regulators setting down fuel-efficiency standards can look tougher than they have really been (which, presumably, is why environmentalists were unhappy with this arrangement), but automakers have been given a less onerous way to comply. However, that way is to make more electric vehicles, a key administration goal.
Yet again, we see how automakers’ production of EVs is being shaped (directly and indirectly) by government rather than by signals from the marketplace.
Now that this cross-subsidy may be on the way out, “traditional” automakers will face an additional financial squeeze from tighter fuel standards and a de facto increase in the cost of producing EVs at a time when (1) demand for EVs is growing but not so rapidly as had been expected, (2) they face the prospect of climate regulations squeezing their cash-generative conventional-car business, and (3) they are investing heavily in EV production.
The day of an auto bailout may still be a long way off, but it is drawing closer.