Biden’s EV Policy Will Slow Innovation

President Biden believes that Americans should be driving electric vehicles rather than those with gasoline powered engines. His plan was to offer incentives to both consumers and car manufacturers that would increase the number of EVs produced and sold. However, the result of his policies will slow the development of EVs.

Had Biden not taken any action, the marketplace would have progressed with the transition from gas powered cars to EVs — that is if American consumers wanted EVs. The President said that he wanted electric vehicles to be produced by American car companies. After discussions with Ford, General Motors and Stellantis in August 2021, the White House issued the following statement:

“Today, Ford, GM and Stellantis announce their shared aspiration to achieve sales of 40%-50% of annual U.S. volumes of electric vehicles (battery electric, fuel cell and plug-in hybrid vehicles) by 2030.”

California took Biden’s goal and upped it. CA said all new cars sold in the state must be EVs or other zero-emissions by 2035.

There is a problem with trying to reach those goals. That is, the American consumers are simply not buying it. By altering market prices to achieve Biden’s goal, the long-term results will be the opposite of what the government intended.

Biden said that he understands the price of electric vehicles is very high. So, he volunteered to have the taxpayers pay $7,500 of the price for anyone purchasing an EV. That was meant to lower the market price to consumers. Biden reasoned that, at the lower price, Americans will buy many more EVs.

He also encouraged the car companies to make more EVs. As part of his Investing in America policy, Biden announced “a $15.5 billion package of funding and loans primarily focused on retooling existing factories for the transition to electric vehicles (EVs) — supporting good jobs and a just transition to EVs.”

That attractive offer meant the car companies could transition their manufacturing at the taxpayers’ expense. Since Biden assured them there would be a large increase in demand, this was a no-brainer. Except for Toyota, every major automobile manufacturer started to transition to EVs. The future looked great, except for one problem.

The American consumer didn’t want more EVs, at least not at this time. The lower market price stimulated only small increases in demand. The manufacturing incentives caused large increases in supply. Tesla, the pioneer in EVs and the market leader, saw a dramatic decline in market share. Its profitability plummeted.

That left less funds for future development from the company that was, by far, the leader in innovation.

The other car companies had similar difficulties. They designed and manufactured some very impressive and often futuristic EVs. But the consumers didn’t want all those cars. The car companies cut back on production and absorbed billions in losses. That’s funds that are supposed to create new capital to be used for future development. For a market in its infancy, capital formation is very critical.

In addition, in January 2024, the average new electric car price was $55,353—17% higher than the overall new car market average, according to CarEdge.com.

That is up substantially from 2023, when electric car prices averaged 8% more than the overall market average.

The result of government policies that are intended to have consumers buy products they don’t really want, is that the development of EVs will be slowed. Nearly all the auto companies have placed large amounts of capital into the EV market, which has, thus far, turned out to be much smaller than they were led to believe.

Had the government not taken the action to try to change market demand, the EV market would have evolved with more market-driven advancements, which would lead to better quality products and lower prices. That’s how a competitive free market works.

Instead, we have companies that brought EVs to the market much sooner than the market needed them. That generally means the production cost is higher than it should be and there are not as many well-thought-out features.

Once again, this is a clear example of how good-intentioned government policies cause market distortions that prove to be extremely inefficient as well as costly to taxpayers, consumers, and business.

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