Michael Swartz / November 29, 2022

Cronyism Drives the EV Market

The heavy hand of the federal government is unduly influencing the fate of electric vehicles.

Thank goodness for gubmint subsidies. Otherwise, only the virtue-signaling elite could afford an electric vehicle.

Beginning in 2010, those who bought EVs were eligible for a $7,500 tax credit — an amount that still can’t overcome the vast price difference between an electric and a conventional gasoline-powered car. But for some, that “free” money is just too good to pass up.

Changes in the law created by the so-called Inflation Reduction Act, though, have made the full amount more difficult to come by. For one thing, the IRA made the credit non-refundable — meaning that someone whose tax liability is less than $7,500 won’t get the full amount. Even so, automakers such as GM are expecting EV sales to increase. Accordingly, they’re also trying to bring their battery supply chains onshore to improve the profitability and reliability of supply.

EVs have been considered something of a status symbol ever since Elon Musk and Tesla revolutionized the industry, but there was a time when General Motors tried to be an EV trendsetter. Alas, the GM EV1 never really took off in its 1996-99 run, leading the company to abandon the program to such a degree that even former lessees (the car was never actually sold) were forced to turn in their cars. All but a handful of EV1s were scrapped, with a few being placed in various automotive museums and the Smithsonian.

A decade later, at a time when gas prices were climbing sharply, the federal government decided it had to goose the EV market with the tax credit that’s been modified to what it is today. But the dirty little secret is that much of the market has been created by state regulations, particularly California’s, which demand that a certain percentage of the cars sold there be “zero emission vehicles.” California’s large market share has pushed Detroit and led the way to other states adopting similar regulations.

Not surprisingly, GM is expected to be a prime beneficiary of the new Inflation Reduction Act scheme. While its capital expenditures are expected to increase significantly over the next few years, according to The Wall Street Journal, “GM expects the Inflation Reduction Act to add between $3,500 to $5,500 per vehicle in profit — a transformative 5 to 7 percentage points in margin. Suddenly, EVs could be as profitable as conventional equivalents.” The Journal adds that the tax incentives are now sweeter for business purchase of EVs and that still more “huge tax credits” for the automakers will be available for participating in battery production. It’s a classic wealth redistribution scheme.

Given that the first move by several automakers with the impending passage of the IRA was to increase the prices of their EVs — even though they swore up and down that the additional subsidies had nothing to do with it — you’ll pardon us for being just a bit cynical about how government regulations and subsidies affect EV pricing.

“This whole sordid business is hopelessly corrupt, and it is antithetical to America’s economic and strategic interests,” writes Power Line’s John Hinderaker. “Nevertheless, it appears that EV mania will march on until it becomes obvious that the entire project is impossible.”

In the meantime, though, it’s certainly not impossible for the government to dream up new ways to pick winners and exercise power — especially when it comes to subsidizing something the market never really wanted in the first place.

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