Tesla’s Message to Biden
A regulatory regime that rewards money-losing vehicles is a
loser for America.
By Holman W. Jenkins, Jr. -
Wall St Journal
May 30, 2023
The vexed position of the electric car in the U.S.
automotive marketplace makes moves like Elon Musk’s recent price cuts all the
Mr. Musk’s daily regimen includes giving Tesla bulls
something to cling to. So, in his telling, the cuts will be more than amply
repaid by profits on software upgrades down the road. To a more disinterested
party, Tesla is doing what car companies have done since time immemorial,
trying to maintain volume in a largely fixed-cost, vertically integrated
production system. In Mr. Musk’s case, the system became positively River
Rouge-like when he added upstream battery production the way Henry Ford once added
mining and steel production.
But a third interpretation views his price cuts as a
reflection of his basic hostility toward our electric-vehicle policies, Mr.
Musk’s purpose being to punish Washington and the traditional automakers for a
fuel-economy regime that has them dumping EVs on the public at a loss.
The basic problem: Policy makers have adopted a view that
electric vehicles are the future but haven’t invented the economics to go with
it. As an Obama administration leaker explained way back amid the 2009 auto
bailout, “At some point . . . the drive for profitability is likely to collide
with [the government’s] fuel-efficiency and low-emission goals.”
In fact, this point is always coming. A collision has always
been just around the next bend ever since Washington tweaked its original
“fleet average” fuel-economy rules to require the big three to build their
mandated fuel-sipping small cars in high-cost United Auto Workers factories
even if it guaranteed losing money on every car.
Since President Obama, the deal has been modified: build
electric cars and lose money on them in return for being allowed to sell large,
gas-guzzling pickups. Joe Biden, under his hilariously titled Inflation
Reduction Act, has merely quadrupled down, along with adding new UAW-protection
elements. The result is an improbable plan by which 67% of new cars will be
domestically-made EVs by 2032.
This is improbable because either the remaining 33% of gasoline
car sales would have to be exorbitantly profitable to cover the EV losses, or a
giant carbon tax would have to be enacted, pricing gasoline cars out of the
market and turning consumers into willing buyers of electric vehicles.
Neither is going to happen. The historically guaranteed
outcome is a large kludge down the road, midwifed by auto-industry lobbyists,
the UAW and their beholden congressmen, to finesse Mr. Biden’s suicide mission
so auto companies aren’t bankrupted all over again. The only question is when.
As my colleague Allysia Finley has pointed out, whatever
else Mr. Musk’s price cuts on his popular Model 3 and Model Y accomplish, they
accentuate the unworkability of the current incentives. Given Tesla’s dominance
of the electric-vehicle market, their effect worsens the losses conventional
car builders are racking up on their EV sales.
Mr. Musk’s dissent has long been clear to anyone who
listens. He has loudly, and without success, lobbied Washington and California
to tweak their rules to encourage other companies to buy fuel-economy credits
from Tesla instead of building their own electric vehicles. He has deplored the
Biden plan for a subsidized national charging network that would undercut the
millions Tesla has spent building a private charging network for its customers.
I said back in 2010 that with its absence of in-house UAW
clout, Tesla would be a loser in these regulatory bargains, but as a major U.S.
player it can’t be left out altogether. Its very ability to report a profit
recently is provided by fuel-economy credits that regulators have enabled it to
sell to other automakers. Tesla itself is living off the pickup truck profits
that support the domestic industry under the Obama kludge.
A carbon tax, of course, would be the efficient way to
subsidize electric cars, along with every other carbon-reducing innovation,
while genuinely reducing emissions. But a carbon tax is no longer popular with
greens, who now see in our giant rent-seeking, cross-subsidy, EV-incentive
machine something they are happy to confuse with their desired “green
It’s impossible to overstate what a fraud the national
fuel-economy regime has become, its lack of any real traction related to any
national problem in return for its Rube Goldberg complexity and economic
irrationality. The lesson should perhaps go with us into the 2024 voting booth.
Americans need a 40-something president who has a real stake in the country’s
future, not a Joe Biden who sees only short-term opportunities to milk today’s
unstable governing charades for the benefit of his backers. Americans are not
going to vote for somebody because he promises a more rational fuel-economy
regime. They might vote for somebody who understands that things have gone
wrong in America and exudes confidence that rational policies can fix them.