DUBLIN — The author of this WSJ op-ed is well-known for his scepticism about electric vehicles (EVs). They are, he insists, pointless. They don’t do anything about climate change, and they are reliant on wasteful subsidies. In this op-ed, he outlines how traditional carmakers have invested heavily in EVs and how this will hurt Tesla as it tries to hold on to its share of the relatively small EV market. His piece correctly identifies some key challenges for Tesla. But I don’t agree that EVs are useless. Replacing internal combustion vehicles with EVs will have positive environmental consequences. It would reduce exhaust fumes in cities, where they are a growing problem. Power plants are usually outside densely populated places and, particularly in wealthy countries, they are usually subject to fairly strict emissions standards, so switching from petrol to electricity should yield benefits. Plus, many places are retooling their grids to rely less on dinosaur bones (oil, coal, and gas) and more on renewables. As this transition happens, EVs will do even more for the environment. EVs may not end climate change, but only massive and unprecedented global interventions will do that. No one was expecting them to, and pretending that they won’t help at all is dishonest. – Felicity Duncan

Get ready for a pileup, Tesla

By Holman W. Jenkins, Jr

(The Wall Street Journal) “I would have bought my Tesla even without the tax rebate.” So went any number of irate emails from readers over the years, nonsensically for any point I was trying to make. Elon Musk isn’t in the business of leaving money on the table. He priced his cars to make sure every penny of subsidy ended up in Tesla’s pockets and not its customers’.
___STEADY_PAYWALL___

Now Wall Street finds Tesla sales are not adding up as hoped this year. Morgan Stanley is forecasting 344,000, below the low end of Tesla’s last predicted range. An obvious culprit is the dwindling US tax rebate to buyers. The handout, once $7,500, has been cut in half and will soon fall to $1,875. It turns out economics applies after all.

Worse for Tesla, the $7,500 rebate will continue to apply in full to a tidal wave of electric cars about to hit the U.S. market. This onslaught – coming from Mercedes, VW, BMW , Volvo, Porsche, Nissan, Kia, Hyundai, you name it – is the fruit of an estimated $300bn in capital the industry has committed to building money-losing electric cars.

A report out last month from McKinsey tells the story: These cars cost an average of $12,000 more to produce than they can fetch in the marketplace. The role of regulation in causing this pileup “cannot be overstated,” the report adds, while proposing somewhat desperately that the industry try to save itself by “decontenting” its electric vehicles – that is, getting rid of every unnecessary frill and luxury, such as display screens, fancy seating, power windows or anything else that adds costs to what are essentially compliance vehicles.

Of course, this won’t happen. Not only would it turn off the stylish adopters who buy most EVs, it would also undermine the halo effect manufacturers hope and pray their green vehicles will shed over their conventionally powered lineups.

Unfortunately, unlike these companies, Tesla needs to make a profit from its electric cars. It doesn’t have a gasoline-car business. It can match other makers loss for loss only if investors are willing to keep throwing new capital into the company, and they no longer are. Mr. Musk might conceivably seek refuge in US trade law. Domestic manufacturers are entitled to seek protection when overseas rivals sell products in the US below the cost of production. Except that any such action would likely provoke a trade war and hurt Tesla’s access to the even more grossly subsidised electric-car markets in Europe.

An Apple analogy has long bolstered Tesla among its faithful. Something so ineffably wonderful about Tesla cars would let them command Apple-like margins even in a market polluted by competitors willing to offer roughly comparable products at money-losing prices.

We trust this idea has now died a natural death. An electric car is not an iPhone. Everyone already has a car; that car already fulfills the basic function of a car as well or better than any car built by Tesla can. Only limited profits are on offer from selling cars, and no way was Tesla going to exempt itself in the long run from the industry’s bare-knuckle fight over who gets a share.

Let’s also acknowledge that the insanity here is partly Mr. Musk’s own doing. He promoted the myth of the electric car as a solution to climate change. This column warned nine years ago, just before Tesla’s initial public offering, that political favouritism and tax handouts were drawing into the market for electric cars companies that had long experience building cars. Importantly, these companies also had large unionised workforces and lobbyist armies that would give them influence over regulation to dwarf whatever political clout Tesla could hope to muster.

Not even our cynicism, however, was up to anticipating the fallout that would actually materialise: The world’s traditional car industry, even as it continues to churn out 79 million vehicles annually, has been incentivised everywhere to divert some of its profits to making life miserable for the one company that genuinely thirsts to make electric cars and needs to be able to make them profitably.

This outcome has many fathers, including the world media, which has been undiscerning in its cheerleading for electric cars. Bloomberg News recently celebrated the fact that one-third of new cars in Norway were electric. Unmentioned was the litany of handouts that make an electric car a no-brainer for many Norwegians, from giant tax breaks to free parking and even free charging.

The kicker is that Norway can afford its electric car habit partly because it’s one of the world’s biggest oil and gas exporters. Pretty much the same basic model now has been adopted by green regulators everywhere. The world is ruthlessly promoting an electric-car industry that is a hothouse flower and will need massive and continuing subsidies from buyers and users of gasoline-powered cars.