In the early 1990s, every American couple and retired suburban couple bought an electric bread maker, with sales reaching 4 million units. But the fad quickly faded when these amateur bakers discovered that stuffing a specific amount and ratio of flour, eggs, butter, yeast and salt into a metal box took time and cost much more than a stroll to the corner bakery.
Although TSLA,
With CEO Elon Musk's entrepreneurial brilliance and billions of dollars in US government subsidies to support electric vehicles, it appears that consumers would still rather drive to the gas station five minutes to refuel than upgrade their garage and suffer anxiety about the range to come. From searching for a charging station in the parking lot of an abandoned shopping mall. JD Power reports that 21% of public chargers don't work anyway. As consumers begin to turn away from electric vehicles, their choice will impact not only the auto industry, but U.S.-China relations, state budgets, and commodity prices.
The evidence is pouring in quickly. Earlier this month, Hertz, HTZ,
Which bought 100,000 Tesla cars to great fanfare in 2021, executed a stark 180-degree turn and began scrapping a third of its fleet of electric cars, taking a charge of $245 million on its profits. Its pledge to purchase 175,000 electric cars from General Motors.
Smoke will likely billow as well.
“Electric vehicles tend to stay on the lot about three weeks longer than gasoline-powered cars.“
Outside of affluent and fashionable communities, consumers are passing up electric cars and opting for hybrids and gasoline engines instead. In the last quarter of 2023, electric vehicle sales rose only 1.3%. According to Edmunds, electric cars tend to stay on the lot about three weeks longer than gasoline-powered cars. With Mercedes-Benz MPG,
EQS units have been struggling for four months, and the company's CFO recently admitted the market is a “pretty brutal space.” Customers are staying away despite the Ford F price war,
Tesla and General Motors reduced electric vehicle prices by 20% on average, resulting in Ford losing $36,000 on each unit sold.
is reading: Tesla warns Wall Street it may grow slower this year
“State governments have been pumping out massive subsidies for electric cars, even as their budgets are bleeding. “
Meanwhile, state governments have been pumping out massive subsidies for electric cars, even as their budgets are severely bleeding. California is still pumping $7,000 into every new electric vehicle (on top of the maximum federal credit of $7,500), despite running a record budget deficit of $68 billion. New Jersey sends $4,000 check to electric car buyers, despite shrinking revenue. How long can these countries keep the money tap open?
Skeptics of electric cars like the Toyota 7203,
– which is betting instead on hybrid cars – now seems prescient. Over the past year, Toyota's stock price has outperformed GM's stock price by 40%. After receiving criticism from electric car enthusiasts and Wall Street analysts, Toyota President Akio Toyoda announced last October that people are “finally seeing reality.” Auto industry unions are certainly relieved, considering that electric vehicles require 90% fewer parts and 30% fewer labor hours to manufacture.
None of this diminishes the ingenuity of electric vehicle engineers and designers. Watching Smart Cars race and then park parallel, it's hard to believe they were once considered golf carts with hood ornaments. Musk has been called many names — some unprintable — but his cars outpace Porsches, his rockets outpace NASA's rockets, and his insider skills leave SEC lawyers in the dust.
However, that doesn't mean he always wins. Electric vehicles face obstacles that go beyond even physics and consumer inertia: a flawed electrical grid. More Americans today spend more hours sitting in the dark. US Energy Information Administration reports indicate that between 2013 and 2021, the average duration of a power outage doubled, from 3.5 hours to more than seven hours, while the frequency of power outages jumped by about 20%. It's no wonder people are reluctant to connect their commute to a wall outlet, especially given doubts about the reliability of renewable energy sources like solar and wind, which will always be vulnerable to draft and stagnant air.
The United States is not alone, of course. China BYD 002594,
The automaker (“Build Your Dreams”) recently made headlines for selling 3 million electric cars last year, compared to Tesla's 1.8 million. However, China's wobbly economy is vulnerable to weak US sales. The Chinese government and private sector are betting big on battery production and on countries such as Zimbabwe, the Democratic Republic of the Congo, Cuba and Russia, which extract lithium, cobalt, cadmium and other key minerals. But will China continue to buy off African political leaders as commodity prices fall? How long will that tap stay open?
The bread machine fad of the 1990s never took advantage of public subsidies, government mandates, or aggressive discounts to gain market share. If that were the case, it might have continued for a few more years. Electric vehicles have been promoted by presidents, governors, the IRS, and technology experts. But the public doesn't listen. One day, President Dwight D. Eisenhower, who looked cool in a 60-horsepower Jeep, remarked, “You don't drive by hitting people over the head: that's assault, not driving.” In the automobile market, the internal combustion engine is still at the forefront.
Todd J. Buchholz, a former White House economic policy director under President George W. Bush and managing director of the Tiger Hedge Fund, is the recipient of the Allen Young Teaching Award from the Harvard Department of Economics. He is the author of New Ideas from Dead Economists (Bloom, 2021), The Price of Prosperity (Harper, 2016), and co-author of the musical Glory Ride.
This commentary is published with permission from Project Syndicate — Are electric cars a dead end?
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