Electric vehicles: A tale of woe in the absence of the market process
Introduction
You don’t need a government agent to tell you what you want or when you want it.
Milton Friedman explained that “market processes” allow individuals to interact and exchange goods and services voluntarily. The prices they charge in these exchanges guide production and consumption decisions, ultimately leading to the most efficient resource allocations, maximized customer satisfaction, and increased purchasing power, and this all occurs with minimal need for government interference.
When it comes to electric vehicles, the absence of a “market process” has ignored consumers’ wants and needs and allowed consumer demand to be misinterpreted. Demand exists only when a consumer needs and/or wants a product and can afford it. However, when government mandates and subsidies push EVs instead of more desirable vehicles, we can’t tell if manufacturers are producing the optimal number of electric vehicles.
With the national debt ready to exceed $36 trillion, we know the federal government cannot continue spending recklessly. Whoever occupies the White House next will need to cut spending dramatically. We suggest they start by eliminating electric vehicle subsidies for producers and consumers.
Markets are sending strong negative signals on electric vehicles as American consumers are increasingly hesitant to purchase them. Government policies are, therefore, wasting tens of billions of dollars—soon, hundreds of billions or more—forcing this immature technology into a market where consumers are not ready to purchase.
Americans have many reasons to pause before purchasing an electric vehicle.
- Consumer Confidence
A recent Gallup survey showed that only 7% of Americans owned an EV. A further 9% were seriously considering a purchase, 35% reported they would consider buying an EV, and 49% were not interested in an EV (this includes 1% who had no opinion). This survey revealed an 11% decline in customer demand for EVs since 2023. The Gallup polling compounded the fact that most EV owners own at least one additional internal combustion engine vehicle. According to Edmunds, 40% of all electric vehicle trade-ins were used as down payments to purchase an ICE vehicle in the second quarter of 2024.
- Purchase Costs
Edmunds also reported that, in the first quarter of 2024, there was still a 42% gap between the average price of an electric and gasoline-powered car. That gap expands to 58.5% in the popular and relatively crowded SUV category. A compact electric SUV costs $53,048, while the equivalent ICE competitor’s manufacturers-suggested retail pricing is $35,722. The smallest gap in MSRP was 18% in the large pick-up truck sector, where EV pick-ups average $76,475.
- Range Anxiety
Range Anxiety is the fear of running out of battery power before reaching a destination due to limited battery range or insufficient charging infrastructure. Other factors influencing range anxiety include knowledge of charging locations, charging times, battery degradation, and changes in performance relative to weather conditions.
- Grid Capacity
EVs will strain an already overworked grid. Fleet charging requirements for larger batteries in delivery trucks and public transportation will compound this strain. Utilities will need to manage the complex timing and location of new EV charging infrastructure. Those complexities will be compounded by rushed transition timelines, like the Biden administration’s goal of EVs making up 67% of all new automobile sales in America by 2032. That burden will be compounded by the demand for electric power to supply AI, Bitcoin exchanges, and data centers.
- Safety concerns and weather conditions
Major safety concerns for EVs orbit around the potential for increased damages during crashes caused by the increased weight of EVs over ICE vehicles. Additional concerns exist over the changing nature of vehicle fires associated with lithium-ion batteries. Fires can be sparked by defects in the battery system, causing flammable and toxic gases to be released, damage to the battery system from a crash, or exposure to salt water due to floods or hurricanes. Electric vehicles tend to perform inconsistently, especially in climates with a wide range of temperatures (extreme heat or cold).
- Resale and/or trade-in value of EVs
The average American automobile, light truck or SUV, is 12.6 years old and rising, meaning the business for the U.S. aftermarket looks rosy. But, the prospect of purchasing a used EV causes concerns for many consumers. In 2024, electric vehicles are depreciating faster than ICE vehicles, and the ability to find a good service center to handle the list of growing maintenance needs is becoming more evident and costly. Finally, the realization that at trade-in, or the end of the useful life of an electric vehicle, its value could be negative. The notion of owning something that may have negative value is not endearing when considering a purchase.
- Rental car companies around the world are sending a signal on EVs
Over the past few years, many rental car users have pushed back on driving an EV, forcing European and U.S. companies to reduce their EV fleets. These companies report high repair costs, poor resale value, lack of customer charging centers, and the learning curve it takes to educate first-time users.
Conclusion
This list of reasons why consumers are hesitant about EVs is not exhaustive, but it does provide some clear reasons that companies and government regulators are moderating strategies to transition. Without government mandates and subsidies, it is highly unlikely that even 50% of consumers would choose an EV by the government’s arbitrary date of 2032.
There is a market for electric vehicles, but government mandates and subsidies—regulators predicting winners and losers—cause more harm than good. By forcing technology into widespread use before it is ready for primetime, governments are causing consumers to resist EVs. Instead, government regulators should allow consumer demand, competition, and the “market process” to guide EV adoption.
Dr. Timothy G. Nash is director of the McNair Center at Northwood University.
Mr. Jason Hayes is director of Environmental Policy at the Mackinac Center.
Dr. Tom Rastin is a retired business executive from Ohio.
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