However, there is a problem: today, most OEMs [Original Equipment Manufacturers] do not make a profit from the sale of EVs [electric vehicles]. In fact, these vehicles often cost $12,000 more to produce than comparable vehicles powered by internal-combustion engines (ICEs) in the small- to midsize-car segment and the small-utility-vehicle segment (Exhibit 1). What is more, carmakers often struggle to recoup those costs through pricing alone. The result: apart from a few premium models, OEMs stand to lose money on almost every EV sold, which is clearly unsustainable.
This is from Yeon Baik, Russell Hensley, Patrick Hertzke, and Stefan Knupfer.
Now Wall Street finds Tesla sales are not adding up as hoped this year.Morgan Stanley is forecasting 344,000, below the low end of Tesla’s last predicted range. An obvious culprit is the dwindling U.S. tax rebate to buyers. The handout, once $7,500, has been cut in half and will soon fall to $1,875. It turns out economics applies after all.
Worse for Tesla, the $7,500 rebate will continue to apply in full to a tidal wave of electric cars about to hit the U.S. market. This onslaught—coming from Mercedes, VW, BMW , Volvo, Porsche, Nissan, Kia, Hyundai, you name it—is the fruit of an estimated $300 billion in capital the industry has committed to building money-losing electric cars. This money is spent in response to emissions rules that essentially require building electric cars to offset conventional ones.
Not even our cynicism, however, was up to anticipating the fallout that would actually materialize: The world’s traditional car industry, even as it continues to churn out 79 million vehicles annually, has been incentivized everywhere to divert some of its profits to making life miserable for the one company that genuinely thirsts to make electric cars and needs to be able to make them profitably.
READER COMMENTS
Thaomas
Apr 13 2019 at 9:28am
Politics abhors a vacuum. When first best policies (a carbon tax, EITC) are politically impossible, we get Nth best alternatives (green energy and minimum wages).
Cliff
Apr 15 2019 at 12:00pm
Wow, EITC is politically impossibly, eh? And yet its continued existence has not led to destruction of the universe.
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