EMAIL FROM PATRICK MINFORD, ECONOMIST

EMAIL FROM PATRICK MINFORD, ECONOMIST
(this column was published on the True Blue Will Never Stain blog, www.tbwns.com)

Britain intends to ban the purchase of internal combustion and diesel
engine cars in 2040, hoping to make everyone switch to electric cars.
California, China and France all have similar schemes in place. These
government decisions naturally provide yet another implicit subsidy to
Tesla Motors (Nasdaq:TSLA) whose first quarter’s production of its
latest ‘mass market’ model totaled a magnificent 260 machines. For those
of us needing reliable transportation for work or shopping, it may be
time to invest in a horse.

Whatever the future of electric cars, one thing we can be sure of: Tesla
(Nasdaq:TSLA) will not be in business by 2040. Instead, the
manufacturers of electric cars in 2040 will be very much the same names
you see today in the petrol automobile market, maybe with a couple of
Chinese outfits thrown in. Now that General Motors is planning a line-up
of 20 new electric models by 2023, the future belongs to companies that
actually have the capability to manufacture and sell automobiles, as
distinct from gigantic subsidy-driven vanity projects.

Tesla has from the beginning been a creature of government subsidy and
leisure class vanity, making the kind of automobiles that Thorsten
Veblen might have designed as a moral example. Having proved itself
incapable of scaling up production effectively or of controlling costs,
Elon Musk’s dream now faces a bleak future in which the White House is
controlled by its political opponents for at least four years, causing
the subsidy spigot, essential to the company’s survival, to drip at the
best rather than gush.

Add the likelihood of a substantial recession within the next 18-24
months, and the entry into the electric automobile market of a myriad of
huge, well financed, manufacturing-savvy competitors, and Tesla’s fate
is inevitable. For us free-marketers, one is reminded of Oscar Wilde’s
line on Dickens’ maudlin over-sentimentalized ‘Death of Little Nell: ‘ A
man will need a heart of stone not to laugh at the bankruptcy of Tesla
Motors.

We must not however suppose that the impending bankruptcy of Tesla will
mean the end of the electric car industry. Governments have frequently
shown their ability to force markets into a direction that they would
not naturally follow, generally at astronomical cost. The most recent
example of this is in incandescent light bulbs, subject to a tsunami of
regulatory hatred in 2006-07.

Governments appeared at one point to have forced consumers to use the
grossly inferior CFL light bulbs, which gave out a sickly yellow light,
at far less intensity than their official rating, perished as quickly as
incandescents (while costing about 10 times as much) and were so full of
toxic substances that if you threw one away, the environmental Thought
Police would be round on your doorstep within hours. Fortunately, before
the forced transition to CFL was gloomily complete, the blessed free
market came up with a solution. LED bulbs were much closer to the light
emission they were rated, gave light of a decent quality (if you bought
good ones) and, blessedly lasted at least some substantial fraction of
25 years in use so that the unpleasant and mildly dangerous job of
changing a light bulb became much less frequent.

Governments thus achieved their objective in banning the incandescent
lightbulb –LED bulbs are both most energy-efficient and more
materials-efficient, since they last longer. GE, which paid off
legislators to get the original legislation passed, on the other hand
did less well.
 They closed their incandescent light bulb plants in the
United States, as they wanted, but the gigantic CFL plant in China with
which they were going to dominate that market has proved a white
elephant, and their dominance in LED lightbulbs has so far been much
less than it was in incandescents. So the story is not without useful
moral lessons.

This does not mean, however, that governments are going to succeed in
forcing consumers to transition to electric cars. You would not imagine
that voters cared much about light bulbs, but there is considerable
evidence that the 2007 legislation, as it came into effect, was a major
factor in the rise of the Tea Party and the Republican takeover of
Congress in 2010.

Automobiles, on the other hand, are the largest single purchase most
people ever make, and are of great psychological and practical
importance to them. It is thus very unlikely indeed that governments
will be able to revolutionize people’s automobile buying habits without
a massive voter backlash, sufficient to put an anti-electric, populist
President into the White House, even if the current incumbent has been
replaced by then. The same is most likely true in other countries in
which the government attempts to switch the public to electric cars,
even where their cultures are naturally more deferential to authority.

The reason for this is that electric cars are an inferior product, and
will continue to be.
 They remain very expensive – Tesla is failing to
make money selling them for $70,000 and up, even with the subsidies of
$10,000 per vehicle or more available from Federal and state sources.
However, that is not their only disadvantage. They require power from
the grid, in large quantities to keep them running. While the range of a
Tesla Model S is said to be 330 miles, you cannot rely on anything like
this in traffic, so the risk of being stranded is high.

The real problem with electric automobiles is that they require to draw
large amounts of power to recharge their batteries from electric grids
that in most countries have no excess supply available
. Were they to
become a true mass market product, they would cause brownouts all over
the world. 
Germany is the most spectacular case; there the country
intends to take its nuclear power stations off line in 2022,
interestingly the year before General Motors will have an ‘all-electric
future’ available. Since coal fired power stations are genuinely more
polluting than automobiles, and nuclear power stations are now
impossible to build thanks to the environmental lobby, this does not
leave many options for building the vast array of power stations that an
electric car fleet will require.

With electric cars being difficult to recharge – and indeed entirely
useless every time there is a power cut, which will be frequently —
even those families who for environmental or subsidy reasons buy an
electric automobile will make sure to have an old petrol driven banger
in the garage for when something goes wrong. The push to an all-electric
automobile industry will thus add massive costs to the global economies,
and be entirely ineffectual in achieving the ‘global warming’ mitigation
that its advocates desire. For one thing lithium mining, apart from
being environmentally nasty, also itself generates a considerable amount
of greenhouse gases.

General Motors may therefore find that its ‘all electric future’ is far
less profitable than it imagines, though doubtless it will manage to
sting various unfortunate sets of taxpayers for much of the cost of
constructing the necessary facilities. Doubtless some clever Chinese
manufacturer will make the real money, producing modest petrol-driven
automobiles for use when the beautiful electric chariots have flat
batteries.

Of course, the crazed governments may by 2040 ban the use of
petrol-driven automobiles altogether, forcing us all to rely on the
balky, unreliable new electric cars. In which case, there will only be
one solution available: it will be time to invest in a horse. At the
cost of piles of horse droppings all over the streets, cities will then
revert to the noisy, malodorous inefficiency of the nineteenth century.
Productivity growth has been more or less stopped by crazed monetary
policy and regulation in the last decade; but productivity is not
everything. By reverting 150 years, horse users will at least be able to
avoid being stranded altogether.

-0-
(The Bear’s Lair is a weekly column that is intended to appear each
Monday, an appropriately gloomy day of the week. Its rationale is that
the proportion of “sell” recommendations put out by Wall Street houses
remains far below that of ‘buy’ recommendations. Accordingly, investors
have an excess of positive information and very little negative
information. The column thus takes the ursine view of life and the
market, in the hope that it may be usefully different from what
investors see elsewhere.)

Martin Hutchinson is the author of “Great Conservatives” (Academica
Press, 2005) — details can be found on the Web site
www.greatconservatives.com and co-author with Professor Kevin Dowd of
“Alchemists of Loss†(Wiley – 2010). Both now available on Amazon.com,
Great Conservatives only in a Kindle edition, Alchemists of Loss in both
Kindle and print editions.

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