Electric Vehicles: Another Warning from Automakers

In the most recent Capital Letter, I wrote about the plans to force the switch to electric vehicles (EVs):

A willful determination to enforce a transformation on this scale, regardless of what markets signal, consumers want, and manufacturers can produce, is an invitation to disaster.

That comment was partly inspired by a warning from an association that represents companies responsible for roughly 97 percent of new cars sold in the U.S. It has claimed that the pace of the switch to EVs needed to keep manufacturers in compliance with the EPA’s proposed new emissions regulations is “neither reasonable nor achievable.” The EPA’s targets cannot be met, it argues, “without substantially increasing the cost of vehicles, reducing consumer choice, and disadvantaging major portions of the United States population and territory.”

Now there’s this (via the Daily Telegraph):

In Detroit . . . manufacturers are worried. A rebellion against Biden’s plans has gathered pace in recent days, with a parade of major companies warning the policy is unrealistic.

Ford, one of the so-called “Detroit Three”, has warned that meeting the target is “outside the control of vehicle manufacturers” given their dependence on a significant increase in lithium supplies for batteries.

Another of the Detroit Three, Chrysler-owner Stellantis, said Biden’s plan “significantly underestimates the actions needed to build the targeted EV market.”

Its laundry list of concerns include “manufacturing capacity, battery production, charging infrastructure, and consumer acceptance of EVs.”

It is not just US carmakers who are concerned: some of the toughest criticism has come from Honda.

Part of Biden’s plan involves ramping up electric car sales to 50pc of the market by 2030. But the Japanese manufacturer has bristled at this target, complaining that the deadline is “barely one product design cycle away”.

The carmaker has also objected to the fact that the new rules effectively force car makers to go electric, unlike previous demands to reduce emissions that gave manufacturers leeway over how they met the goal.

Honda warned: “Should the market not pan out within the agency’s ambitious timeline — even for reasons entirely beyond an automaker’s control, such as a slower-than-expected rollout of public charging infrastructure that has a chilling effect on consumer interest in EVs — there is no safety net.”

Biden’s plans are also underpinned by a bet that battery prices will drop. There is no guarantee this will happen.

“The accuracy of this claim is perhaps the most important aspect of the entire proposed regulation,” Honda said.

These worries were mirrored by Hyundai, which said: “This is predicated on significant assumed reductions in battery pack pricing, which is far from guaranteed given uncertainties in mineral availability.”

Volkswagen and Toyota have also objected to the plans. . . .

Professor Peter Wells, director of the Centre for Automotive Industry Research at the University of Cardiff, says the small scale of sales today is partly why the industry wants to “slow down the pace of change, and allow a more orderly progression into this sort of new regime.”

He adds: “The car industry has a long history of crying wolf on these issues and eventually falling into line.”

If Wells is right, auto companies are complaining about the mandate from the central planners at the EPA in part because they are worried about the small scale of sales today.

Shocking!

In a free market economy, manufacturers are meant to react to signals from consumers. But then, as is becoming ever more evident, climate policy-makers do not have a lot of time for the free market.

The Daily Telegraph again:

Ultimately, however, the best course of action for the US car industry may be to quit complaining and ramp up production of battery-powered vehicles, says Prof Wells.

When automakers huffed and puffed over government demands for more efficient vehicles following the 1973 oil crisis, the result was that Japanese competitors with better efficiency moved in and seized market share.

Today, a slew of Chinese electric car makers are keen to ramp up exports after saturating their home market.

Prof Wells said: “The risk for the American industry is they do the same thing and they open up that market to Chinese imports. They need to learn from history and perhaps get a move on.”

Demand for Japanese cars in the U.S. did indeed surge in the 1970s, from about 6.3 percent of the market in 1973 to 21.3 percent by 1980. And the superior fuel economy of Japanese cars was a big part of the reason why. Courtesy (mainly) of two oil shocks, the price of gas had risen sharply. In 1972, the year before the first oil shock, it averaged 36 cents a gallon. In 1974 it rose to 53 cents. In 1980, the year after the second, it was $1.19.

U.S. consumers wanted cars with higher gas mileage, and Japanese manufacturers were able to meet that demand.

Now, there’s a different problem. Automakers (and not just American ones) are having a technology they have not chosen imposed on them on a timetable they have not chosen. Meanwhile, consumers (so far) are not switching to EVs in sufficient numbers.

Professor Wells suggests that those carmakers who are complaining should get a move on, or the Chinese will move in. He may be right, although the Chinese appear to be focusing on the EU (where tariffs are 10 percent), rather than the U.S. (where they are 27.5 percent). Chinese cars would also, of course, not benefit from the tax subsidy available in the U.S. for American-made cars.

Nevertheless, the threat from Chinese imports to car manufacturers based in the U.S. should not be underestimated. If the government is set on forcing through the switch to EVs (which it should not be, not least due to the comparatively trivial difference it will make to global greenhouse-gas emissions), it should at least do so at a pace that does not hand the U.S. auto market over to Chinese manufacturers.

One other point to make on this (for now). Automakers are partly funding their massive investment in EV production out of the profits they make from the sale of conventional cars. Shrinking those profits by government edict seems . . . unwise.