What Will Drive Future Electric Car Sales?

I read an interesting, but narrow piece by Martin LaMonica at CNet News titled Will ‘fun factor’ or mandates drive electric car sales? and thought that the presentation he gave was compelling, but too constricted by old thinking.

I’d considered leaving a comment there, but thought that this deserved a lot more consideration than just one comment in a long thread of comments could give.  Here’s the gist of my problems with LaMonica’s article, though I understand why he takes the viewpoint he does.

His article boils down to two choices: we have electric and alt-fuel vehicles because the government mandates that we do or we have electric and alt-fuel vehicles because they’re fun to drive and people love thrill rides.  This narrow set of choices, while arguably the truth behind today’s automotive trends, is still overlooking some fundamentals.

First, our entire energy and transportation structure is so intertwined with government and various bureaucratic sucker fish that the only way to get away from LaMonica’s world of lame choices between government and the slow forces of a market trudging through government quagmires is to, well, remove government from the equation altogether.

Mandating the Paradigm Change to Future Cars

The mandates that would force electrics, hybrids, biofuels, etc. on us would all involve taxation and price gouging of one type or another.  No matter how you shake it down, though, We the People are the ones who get the corkscrew’s business end.

These mandates might seem logical or praisworthy and they would probably be structured in such a way as to make it appear that the costs and levies would be put on someone else.  New ways of nibbling at your paycheck are always advertised as something that will benefit you somehow while only costing the other guy.  Usually implying it will be the “rich” other guy or “big, evil corporation” that pays. In the end, you pay.  Rich guys and evil corporations don’t ever pay, they can hire accountants to figure out how to shuffle the cost off onto you, who can barely afford the $50/year to H&R Block to file your 1040 simple forms.

This, in a nutshell, is American economics.  In the middle are the bureaucrats who will take their share to “regulate” whatever it is that’s been mandated.

As an example: most people would think that mandating vehicles with power sources that are alternative to petroleum, such as electrics, by giving massive tax incentives or percentages of their purchase price written off as being a good thing.  Right?  Everyone saves on taxes just by buying cleaner vehicles that are better for the environment.  Beautiful!

Except…

In order for you to buy that Nissan Leaf at (roughly) $30,000 and get your $4,500 tax writeoff for doing so, you would actually have to have $4,500 paid into the tax system first.  Now, if you’re like most Americans, you have probably not paid more than $4,500 in taxes (all told) in any given tax year.. ever.  I would assume that you have many more writeoffs than just that Leaf you bought.  This assumes there isn’t a mountain of paperwork involved in applying for that tax credit to start with.  Big assumption on my part there.

Further, let’s assume it’s an instant rebate (or a “voucher”) like they did with Cash for Clunkers.  Great.  Except most dealerships hiked up the price of their vehicles that qualified for CfC by at least half or more of what the vouchers were good for.  So suddenly, with a voucher, that $20,000 Toyota was priced at $24,500.  Most people don’t notice this because most finance their cars and are more concerned about the monthly payment than they are the final price of the car they’re buying.  If they weren’t, they might see the final cost of that car after interest and start thinking about the benefits of owning long lengths of rope tied into interesting loops and thrown over sturdy tree limbs..

The Fun Factor

This has often been the driving force behind the initial adoption of any emergent technology.  It has been with electrics and many alt-fuels, that’s for certain.  Otherwise, who would pony up $120,000 just to own a Lotus Elise with an electric drive train?  What about at the turn of the century when cars were all new?  Who bought them then?  Right, rich people who wanted to have something novel and fun.

These are the same people who drive them now.

Oh, sure, there will be those who claim they’re trying to do their part to save the planet or whatever, but if that were truly the case, they’d have bought a horse instead.  No, I’d be willing to bet that nobody who buys an electric car today does so for any reason other than because it’s fun or it’s good for their image.  Or both.

This is not to besmirch electric car drivers, it’s to point out a fact: early adopters of any technology usually do so for reasons other than the technology itself or its professed benefits.  They usually do it to be cool.  It’s human nature.

I’ll  compare it to my own nerdy self just so I don’t sound too pompous here.  I personally own several typewriters, a huge number of books, and a complete collection of Second Edition Dungeons and Dragons books, pamphlets, add-on materials, and so forth.  Yep.  I own typewriters because I like to look at them, not because I use them.  I own books because I enjoy books more than almost any other non-living thing on the planet and I especially like really old books on specific subjects.  I own Dungeons and Dragons stuff because, well, I’m a geek and at one time, my entire life revolved around role playing games and Sunday afternoons in smoky rooms with friends.

None of those things are owned by me for any practical reason.  Most of the books I have aren’t exactly reference material, I haven’t played D&D in years, and I don’t type on a typewriter.  I own them because I think they’re cool. Sorry, girls, I’m happily married.  I know, I know.  Disappointing.

The Third Factor: Markets

The thing is, the “cool” factor has always been a driving force behind markets of all types.  Everything from male enhancement pills to which type of asphalt is the finest are all driven by coolness.  At least in part.  Other market drivers are all things we learned in Economics 101: supply and demand, costs and benefits.  Although costs often enter into this equation, it’s not as often as most people might think.  Especially with things as personal as our vehicles.

The less there is of something, the higher the cost will be both because it costs more to build and market the item and because people are willing to pay a premium for it.  Assuming there’s any real demand for the product, of course.  If there’s no demand for the product, it won’t exist.  Seen any steam-driven cars for sale at your local car dealership?  Me either.  There isn’t much demand for that.

The demand for electrics and bio-fuel vehicles is rising quickly.  Car companies see that and know that they can move to cash in.  Government, of course, is also based on markets since most politics boil down to how many people you can make happy so they don’t form a lynch mob or vote you out of office (depending on your governmental preference).  More times than youd’ imagine, history has shown both things happening to politicians at once.  Theirs is a hard life, full of rape and pil…er…  plunder an… er..  politicking.

Just like any other business in the market, government has to get in on the action too, so they ride popular opinion and “do what’s right”; usually by interfering with markets in ways they really shouldn’t.  Look at Spain and their solar power fiasco or the U.S. ca. 1980 when Carter’s wind energy policies came home to roost.  Ya, sad to say it, but the current subsidizing of all and sundry in the alt-fuel and vehicles industries is also misplaced.  Can you say “ethanol?”

Regardless, when it all boils down, the real happening that will drive the present and future of electric and bio-fuel car sales is..  you guessed it, markets.

It won’t be government, it won’t be the “fun factor,” it will be both of those things plus the rest of us.  There is and will be demand for these vehicles and the industry has established itself well enough that it will continue the trend of supplying that demand.

We’ll have electric cars, hybrid trucks, hydrogen fuel-cell airplanes, algae-derived jet fuels, and all the rest despite government mandates and the perception that the only reason to have them is “because it’s fun.”

God Bless Free Markets.  Or at least mostly-free ones.  You get the gist.

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