The Rise and Fall of Electric Bread Makers
In the early 1990s, an electric bread maker became a must-have appliance for every self-respecting American yuppie and retired suburban couple. This craze led to the sale of 4 million units. However, the fad quickly faded as these enthusiastic amateur bakers discovered that achieving the perfect loaf of bread required time and incurred higher costs compared to simply buying bread from the corner bakery.
The EV Conundrum: Consumer Preference and Its Implications
While Tesla’s CEO, Elon Musk, showcases entrepreneurial brilliance and U.S. government subsidies for electric vehicles (EVs) amount to billions of dollars, it appears that consumers still prefer the convenience of a quick fill-up at a gas station. This preference impacts not only the automotive industry but also U.S.-China relations, state budgets, and commodity prices. The choices consumers make now will have far-reaching consequences.
The Backlash against EVs: Hertz and Beyond
Hertz, which made headlines by purchasing 100,000 Teslas in 2021, recently made a surprising move. The company began divesting one-third of its EV fleet, resulting in a $245 million charge against its earnings. Additionally, Hertz’s plan to buy 175,000 EVs from GM is now uncertain. Outside of wealthy and trendsetting communities, consumers seem to be favoring hybrids and gas-powered vehicles over plug-in EVs. In the fourth quarter of 2023, EV sales only saw a marginal increase of 1.3%. The lagging demand for EVs is evident as these vehicles continue to sit longer on dealership lots compared to their gas-powered counterparts. Mercedes Benz’s EQS units, for example, remain unsold for four months. Amidst a price war that has seen Ford, Tesla, and GM slashing EV prices by an average of 20%, Ford reported a loss of $36,000 on each unit sold.
The Paradox: Enormous Subsidies and Bleeding Budgets
Ironically, while state governments provide enormous subsidies for EVs, their own budgets are drowning in red ink. California continues to offer a $7,000 incentive for each new EV purchase, on top of the $7,500 federal credit, despite a record $68 billion budget deficit. Similarly, New Jersey grants a $4,000 check to EV buyers, even as its revenues shrink.
The Advantage of Hybrid Bet: Toyota’s Success
Toyota’s decision to bet on hybrids instead of fully electric vehicles now appears prescient. Over the past year, Toyota’s share price has outperformed GM’s by 40%. Considering that EVs require fewer parts and less manufacturing time, automobile unions are likely relieved by this shift in consumer preference.
Obstacles Beyond Consumer Adoption: A Faulty Electrical Grid
Despite impressive technological advancements, EVs face challenges beyond consumer inertia. One significant concern is a faulty electrical grid. The U.S. Energy Information Administration reports a doubling of the average duration of blackouts from 2013 to 2021, from 3.5 hours to over 7 hours, with a nearly 20% increase in frequency. This unreliability makes people hesitant to rely solely on wall plugs for their mobility, especially when renewable energy sources like solar and wind are susceptible to cloudy days and stagnant air.
A Global Picture: China’s EV Dominance
China’s automaker BYD (“Build Your Dreams”) has recently gained attention for selling 3 million EVs in 2021, surpassing Tesla’s 1.8 million. The Chinese government and private sector have heavily invested in battery production and securing key minerals from countries like Zimbabwe, the Democratic Republic of the Congo, Cuba, and Russia.
The Enduring Dominance of the Internal Combustion Engine
The 1990s bread-machine fad ultimately faded due to consumer preferences, without any public subsidies or discounts. EVs, on the other hand, have been heavily endorsed by presidents, governors, the IRS, and tech visionaries. However, as Dwight D. Eisenhower once cautioned, true leadership does not involve forcing an idea on people. Currently, the internal combustion engine retains its dominance in the automobile market.
About the Author
Todd G. Buchholz, former White House director of economic policy under President George W. Bush and managing director of the Tiger hedge fund, earned the Allyn Young Teaching Prize from the Harvard Department of Economics. He is the author of “New Ideas from Dead Economists” (Plume, 2021), “The Price of Prosperity” (Harper, 2016), and co-author of the musical “Glory Ride.”