The EV Revolution: ‘It’s the Economics, Stupid’

Fully digital instrument cluster. Benjamin Yong

Commentary

Henry Ford famously said his customers could have any color car they wanted, as long as it was black.

He could afford to say things like that. He was cranking out cars at the time.

Today, it would seem that automakers are taking a similar stand—“In the coming years you can have any car you want, as long as it’s electric.”

Detroit would appear to be going all in on the electric vehicle (EV) revolution.

According to The Wall Street Journal, Ford has committed to doubling production of it’s new electric truck, the F-150 Lightning. GM recently unveiled an electric version of its Silverado and announced 10 EV models that it’ll be selling in the next two years. And Stellantis (Chrysler) has announced that its product lines will go 100 percent electric by 2028.

While electric vehicles have made impressive headway into the market recently—the industry grew 88 percent year-over-year in 2021—those sales still represent only 3.2 percent of the total car market in the United States.

Detroit’s all-in attitude feels like they’re trying to “force” the EV market forward, instead of letting the market decide when EVs will become the dominant mode of transportation.

Unfortunately, you can only manhandle the market for so long. And when it comes to markets, there’s one issue that trumps all others.

The One Question Automakers Will Have to Answer

Right now, and for the foreseeable future, inflation is top of mind for most consumers. Soaring prices are straining budgets, so the most important question these automakers will have to answer is how affordable will their coming EVs be?

By today’s numbers, electric vehicles lose out in a side-by-side cost comparison.

On average, EVs cost 63 percent more than their gas powered grandparents based on sticker prices.

Then you have to factor in the costs of “filling up your tank” beyond your electric bill. You’ll need a home charging setup, which can run into the thousands of dollars.

(Certain models of EVs are still eligible for a nice kickback from the government in the form of a tax credit for buying green. Notably, Tesla and GM are not, though Washington has floated a number of bills to try and fix that.)

But even with that incentive, an EV will cost a driver 22 percent more than a gas model over the long run, according to website WalletGenius.com.

The bottom line is if you’ve got money to burn and want the virtue signaling prestige of driving a Tesla, an EV may make sense to you. But currently there is no financial advantage to buying an electric vehicle.

And that, today, will be the driving factor behind any success the EV market has.

And as far as I’m concerned, until that cost gap is closed completely—and without the government subsidy—green energy in the auto space won’t be a great bet.

Another Reason for the Green Push?

Now all this is not to say that EVs will never become the dominant mode of transportation. They certainly factor into the future. And any company management team worth their salt will always be looking for ways their company needs to evolve to stay competitive.

But for now, even if EV sales don’t start dominating the market, there’s still something in it for these automakers.

Whether or not the market actually makes widespread electric vehicle adoption a reality—it gives these automakers some “green goodwill” just by promising to deliver that future.

And that’s never a bad thing.