E.V., Phone Home: You're Lost

It took 30 years, but many environmentalists have grudgingly come around to recognizing that the recycling crusade of the late 1980s and early 1990s made little environmental sense, and was in many ways environmentally counter-productive, often using more resources than were recovered. Will the same inevitable epicycle for recognizing the defective promises of electric vehicles (E.V.s) take as long? Despite the hype and hoopla, there are signs that the E.V. mania is breaking down already. But as is the case with mandated recycling programs everywhere, politics will hold the key to the story.

It is worth reviewing some history of modern automaking. If you asked any senior executive with a major auto company in the United States over the last 40 years what is the biggest challenge to how they plan their auto production strategy, they would have said it was the market risk of the volatile price of oil. More than a decade ago Ford executive told me, “If you could tell me what the price of gasoline is going to be over the next decade, I can tell you what kind of cars we should make.”

Sport Utility Vehicles (SUVs) are very popular—and highly profitable—when gasoline prices are low, but SUV sales always swooned when gasoline prices spiked. SUVs and minivans, it is important to recall, are technically light-duty trucks, which were deliberately exempted from the fleet fuel-economy regulations the government started imposing in the 1970s. It was a significant, profit-assuring escape hatch for the auto industry from an ill-conceived regulation, and a subtle means for Washington to avoid angering millions of car buyers who could no longer buy a station wagon. (I call this an example of “the doctrine of intended non-consequences.”)

Didn't work in 1926 and it won't work now.

Thanks to the domestic oil and gas revolution of the last decade that has seen the United States become the world’s leading oil producer and a major natural gas exporter, global oil prices, though still variable, are less volatile than back in the day when OPEC dominated the global market. Today, a senior auto executive is much more likely to say their major strategic problem is political risk: How is the government going to affect car design and production decisions with their perverse subsidies and heavy-handed mandates?

Instead of enjoying the decline of the boom-and-bust cycle for automakers, government policy is trying to reshape the auto industry in radical ways that threaten to make the industry more unstable than oil price swings ever did. President Biden wants two-thirds of all autos sold in the U.S. to be electric by the year 2032, and eventually all autos to be electric. California, as usual, is ahead of the game, proposing to prohibit all gasoline powered cars from being sold in the state by 2035.

Leave aside the serious questions about the actual environmental effects of E.V.s, such as enormous raw material supply chains for the batteries that have substantial environmental effects (a massive increase in hard-rock mining worldwide is required, among other problems), the increase in electricity generation required for intensive battery charging, and the vast network of charging stations necessary for a large fleet to be practical. All of these factors cast doubt on whether E.V.s actually yield net carbon-emission reductions. Don’t confuse the absence of a tailpipe with an absence of emissions or negative environmental effects.

The more serious problem is that, like the legendary story of the heavily marketed new dog food, drivers don’t seem to like E.V.s. Consumer Reports finds that E.V.s are less reliable than gasoline-powered cars (79 percent more problems than gas-powered cars), while Bloomberg reports that consumers are increasingly skeptical of E.V.s. “More than half of American car buyers now say they’re not interested in E.V.s, up from just 42 percent who ruled out battery-powered models in 2022,” Bloomberg notes.

On the surface, car makers are full of happy talk about “surging” E.V. sales—up 45 percent over 2022—but a look at the actual sales numbers tells a different story, revealing this cheerleading is a numbers trick. Percentage gains on a low base are always large, but diminish quickly. Sure enough, the auto industry is projecting E.V. sales will only grow by 11 percent this year. General Motors sold 2.6 million vehicles in the fourth quarter of 2023, but E.V.s made up only 75,585, or 2.9 percent of total sales. Although GM currently offers six E.V. models, their sales are skewed to high-end marques such as Cadillac. E.V.s make up 10 percent of Cadillac sales, but only 3 percent of the rest of GM’s models.

E.V.s are piling up on car dealer lots, with an average 120-day supply at current sales rates (normal for most auto dealers is 50 – 65 days). Hundreds of dealers are asking not to be sent more E.V.s, while 4,000 dealers wrote to President Biden asking for the E.V. mandate to be slowed. Oh, Ford reports its E.V. division lost $1.3 billion in the third quarter of 2023, or about $63,000 for every Ford E.V. sold. Total 2023 E.V. losses for Ford may reach $4 billion. Maybe, as the old joke goes, they’ll make it up in volume!

California, here we go.

E.V.s are still largely a luxury good. The early adopters of Teslas were overwhelmingly highly affluent people who added a Tesla as their third or fourth car. One prosperous friend who works in the oil industry bought a Tesla and, because he lives in a state with a coal-dependent electricity grid, attached a bumper strip reading, “How do you like my coal-powered car?” But much the same is true even in coal-free California, where largest E.V. charging station in the state is powered by diesel generators. Don’t confuse the absence of a tailpipe with an absence of emissions.

The proof of the problem is in the icon of U.S. auto-making; the pickup truck. The Ford F-150 pickup has been the best-selling vehicle sold in the U.S. for the last 47 years, though you will not likely find a single F-150 driven by a staff member of a major news organization or faculty at elite universities. The truck is a favorite of working people for whom it is their primary (and often only) vehicle, and an electric version is not promising for the practical purposes of truck buyers. Still, Ford bent to the dictates of the climate campaign and rolled out the all-electric “Lightning” model of the F-150.

Yet despite the lavish electric car tax credits for buyers, and massive subsidies for E.V. battery production, Ford is has announced that it is cutting F-150 Lighting production for 2024 in half, and is cutting the capacity for a planned E.V. battery plant in Michigan in half, too. Ford likely wants to dump the electric F-150 entirely, but can’t because right now the political risk is too high. Unlike SUVs that prospered because of a loophole in the fuel-economy mandates, there is no loophole for pickup trucks in the government’s E.V. diktat.

Counter-productive recycling programs persist because of mandates and incumbent client groups that fight savagely for their perpetuation. The climate fanatics hope the same can be accomplished with E.V.s over time. If the Biden administration or its successors persist in the E.V. mandate and subsidy mania, it will create the next great immigrant opportunity for Cuban auto mechanics who know how to keep gasoline-powered cars running for decades.