Everyone loves more free money. But EVs can stand on their own four wheels, so to speak. Let competition force innovation on automakers.
By Wolf Richter for WOLF STREET.
In my entire lifetime, there has never been so much dynamism and innovation in the previously oligopolistic auto industry. EVs have shaken up that industry. EVs need to beat ICE vehicles on their own, and they’re doing that. But it takes a while because you cannot turn an entire manufacturing industry upside-down overnight. Now comes Congress to muck it up.
I won’t even get into the ridiculous provisions in the proposed EV-incentives bill that discriminate based on whether or not an automaker has a unionized workforce. I’ll just swat that asininity aside with disdain.
It’s as if the authors of the bill were trying to distract the mainstream media from the much more important and totally braindead economic policy in the bill: Piling on government incentives via tax credits on an already red-hot industry that is already planning to invest hundreds of billions of dollars to compete and bring EV prices down, amid red-hot demand from overstimulated consumers chasing down new vehicles no matter what the price, amid red-hot inflation and historic inventory shortages.
EVs are a great technology and are cheaper to produce then ICE vehicles except for the battery, but now, with enormous investments over the past decade, battery technology is coming along nicely, performance is more than adequate, prices have come down hard, while prices of ICE vehicles have shot up, and consumers have turned the corner on EVs.
EVs don’t need incentives. They need cut-throat competition from new and legacy automakers globally, and that’s happening. Tesla and GM have already run through the original $7,500 per vehicle tax credit, and they’re doing fine without it. The other automakers are going to run through those tax credit once they crank out over 200,000 EVs. And that should be it.
From that point forward, automakers and battery makers need to compete on their own in a life and death struggle to develop the best and lowest-cost technologies that consumers want, and those that cannot compete will fall by the wayside. Innovation thrives under these pressures.
As if to purposefully screw up the new dynamism in the auto industry, the EV incentives bill, to be voted on by the House Ways and Means Committee on Tuesday as part of the $3.5 trillion spending bill, would create tax credits totaling up to $12,500 per new EV, as long as the price tag doesn’t exceed $55,000 for a car and $74,000 for a truck. Yup, the taxpayer is getting shanghaied into saving the luxury buyer some money.
This bill would:
- Make permanent – and revive for Tesla and GM – the original tax credit of $7,500 per new EV for all automakers.
- Add a new tax credit of $4,500 per new EV for unionized automakers.
- Add a new tax credit of $500 for using US-manufactured batteries.
- Creating a new tax credit of up to $2,500 for used EVs.
The total tax credits for new EVs made by unionized automakers would be $12,500. The total for Teslas, Toyotas, etc. would be $8,000.
If you buy a Ford EV, you’d get $12,500 in tax credits. If you then sell the EV to your niece, she’d get another $2,500. Taxpayers would be out $15,000.
Let’s get this straight: The shift to EVs isn’t going to boost manufacturing jobs; instead, it’s going to slash manufacturing jobs because EVs are a lot simpler to manufacture. The entire ICE powertrain manufacturing segment will be gutted, to be replaced by a much smaller number of jobs in the EV industry. That is the nature of technological development. Incentivizing EVs will incentivize the auto industry to shed jobs.
The EV industry is rocking and rolling. Tesla forced it on the legacy automakers, and they have finally responded. Well-funded startups have sprung up in the EV space. All kinds of new and exciting EVs have already come and are coming on the market. This is the most exciting time in the auto industry in my lifetime. No tax credits needed to drive this forward.
EVs are already competitive when purchase price and operating costs are put together, and they’re getting more competitive, a process that is now forced on automakers by competition. If left alone, automakers will come up with EVs that blow ICE vehicles out of the water to where buying an EV is a no-brainer. That’s the goal. Competition will force that.
But tax incentives, by soothing the pain of competition, will take the pressure off and reinforce self-satisfied oligopolistic behaviors.
Automakers, like any company, charge the maximum price consumers are willing to pay. The competition is ICE vehicles. Most of the tax credit would simply cause automakers to raise EV prices to the maximum consumers would be willing to pay, given the tax credits. This is the automaker enrichment act.
Now imagine this: Is a Republican Congress then going to create a $12,500 tax credit for ICE vehicles? How about a $12,500 tax credit for diesel pickups? Get it? Everyone loves free money. And these braindead incentives go both ways.
This is just another free-money program for people who don’t need it. If you can afford to buy a $74,000 truck, you don’t need free money from the rest of the taxpayers, to whom this free money is not free.
The economy is already the most monstrously overstimulated economy ever, and inflation is red-hot, and the last thing this economy needs is more free money to buy more things that are already in short supply.
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