It’s ironic, to say the least, that the U.S. is seeking to imitate China’s economic model at the moment that its industrial policy fractures.
Look no further than its collapsing electric-vehicle bubble, which is a lesson in how industries built by government often also fail because of government.
Tesla last week slashed its prices in China to boost sales in an oversaturated EV market. [emphasis, links added]
In July Tesla and other automakers in China agreed to stop their EV price war, only to scrap the cease-fire days later owing to government antitrust concerns.
While lower prices may benefit consumers, automakers in China are bleeding red ink and going bust.
A plethora of Chinese EV start-ups launched in the past decade, fueled by government support, including consumer incentives and direct financing.
Automakers churned out EVs to suck up subsidies. Giant property developer Evergrande Group launched an EV unit as its real-estate empire began to implode, but now the EV unit is foundering too.
About 400 Chinese electric carmakers have failed in the past several years as Beijing reduced industry subsidies while ramping up production mandates.
Scrap yards around China are littered with EVs whose technology has become outdated, redolent of its unoccupied housing developments created by government-driven investment.
Beijing recently extended an EV sales tax exemption to soften the industry’s problems. Automakers are nonetheless having to slash prices to sell cars they are required to make, which is eroding margins.
China’s EV mandate is similar to those imposed by California and the Biden Administration and especially punishes the West’s traditional fossil fuel automakers.
Volkswagen’s joint venture in China this month announced up to $8,200 in incentives for its electric ID.6 X model. GM Chevrolet dealers in China are discounting EVs by more than 25%.
Although EVs now make up a third of auto sales in China, supply still far exceeds demand. This gap will likely grow as Chinese consumption weakens.
As with real estate, the Chinese government supports inflated EV investment and misallocated capital that could have been put to more productive uses.
Now comes the destruction that invariably follows the government creation, which may be a harbinger for the U.S. as the Biden Administration emulates China’s EV industrial policy.
Cox Automotive reported this month that EV inventory had swelled to 103 days of supply in the U.S., about double that of gas-powered cars.
Automakers and dealers are discounting EVs to sell their growing supply. The average EV price paid by consumers has fallen 20% compared with a year ago to $53,438, driven by Tesla’s price cuts and dealer incentives.
Ford recently reduced its EV production targets as its losses and unsold inventory grew. At the end of June, it had 116 days of unsold Mustang Mach-Es, and GM’s electric Hummer had more than 100 days of supply. And this is in a growing economy.
Traditional automakers will have to raise prices on gas-powered cars to compensate for their EV losses.
A United Auto Workers executive said Sunday that Stellantis is threatening to move production of its Ram 1500 trucks to Mexico from suburban Detroit, no doubt to reduce costs.
The EV jobs President Biden touts will come at the cost of union jobs building gas-powered vehicles.
Meantime, EV start-ups are floundering as interest rates climb, and they struggle to scale up manufacturing.
Lordstown Motors filed for bankruptcy in June. Nikola Corp. warned this year that it had “substantial doubts” about its ability to stay in business.
Business failures are inevitable in a dynamic economy, but the government will be mainly responsible for the destruction that results from its force-fed EV transition—and the damage may only just be starting.
h/t Steve B.
Read more at WSJ
The Soviet Union is a good example of command economies not working. As I have posted many times on this site, liberals are incapable of learning from the mistakes of others if doing so undermines their agenda. What China and the US have done with electric cars is applying the concept of a command economy to that sector. Perhaps the resulting drop in prices will permit a few more families to afford an EV.
The nationwide ban on new fossil fuel vehicles probably will not go into effect. This mandate has to survive both the next election and court challenges. The impact of government tamping will be we won’t have enough production capacity for these types of vehicles.
Biden the Blunder trying to force us into EV,s that nobody wants all over a totally fake crisis Biden needs Impeached or voted out