When I hear President Biden promoting electric vehicles, I’m reminded about an old joke: A dog food company develops a new nutritious dog food and spends mega-millions of dollars on advertising, marketing, and PR. After several months the sales of this new product are in the tank. He calls in a top executive and says, “We’ve spent all this money promoting this do food and it’s not selling. What’s the problem? The executive responds, “The dogs don’t like it.”
Biden’s plan was to offer incentives to both consumers and car manufacturers that would increase the number of EVs produced and sold. The President said that he wanted electric vehicles to be produced by American car companies.
Knowing the price of EVs is very high, Biden proposed to have the taxpayers pay $7,500 of the price for anyone purchasing an EV in the form of a tax credit that would be received when annual income taxes were filed. That was meant to lower the market price to consumers. Biden reasoned that, at the lower price, Americans will buy many more EVs.
He also encouraged the car companies to make more EVs. As part of his Investing in America policy, Biden announced “a $15.5 billion package of funding and loans primarily focused on retooling existing factories for the transition to electric vehicles—supporting good jobs and a just transition to EVs.”
The future looked great, except for one problem. The American consumer didn’t want more EVs. The lower market price stimulated only small increases in demand. The manufacturing incentives caused large increases in supply. Tesla, the pioneer in EVs and the market leader, saw a dramatic decline in market share and sales.
The other car companies had similar difficulties. They designed and manufactured some very impressive and often futuristic EVs. But the consumers didn’t want all those cars. The car companies cut back on production and absorbed billions in losses.
In January 2024, the average new electric car price was $55,353—17% higher than the overall new car market average, according to CarEdge.com. That is up substantially from 2023, when electric car prices averaged 8% more than the overall market average.
Government policies to have consumers buy products they don’t really want is that the development of EVs will be slowed. Nearly all the auto companies have placed large amounts of capital into the EV market, which has, thus far, turned out to be much smaller than they were led to believe.
This is another classic example of how well-intentioned government policies cause market distortions that turn out to be inefficient as well as costly to taxpayers, consumers, and business.
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Frank
Frank Victoria is an award-winning author and screenwriter. He’s been an Amazon bestseller with his recent book,The Founders’ Plot, a political thriller for our times. He donates proceeds of his books to Tunnels to Towers and Fisher House, helping military veterans and first responders. His novella,The Ultimate Bet is available on his website and Amazon. Check out his new website:Frank M. Victoria
©2024 Frank Victoria
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