Electric Cars: Thriving in an Artificial Market?

2017 Chevrolet Bolt

Are electric cars being force-fed to an unwilling American public? Through the first 11 months of 2016, Americans have purchased about 130,000 electric vehicles. That sounds pretty impressive, until you compare that to the nearly 16 million cars sold in the U.S. so far this year.

While it feels like electric cars are gaining traction here, the truth is that they account for only a tiny fraction of total sales and hold a minuscule portion of market share.

So why are automakers continually announcing plans for new electric cars and touting them as the future of American transportation?

Because California says so.

The California Air Resources Board (CARB) has stringent requirements for automakers to sell cars in the state. Since California is the largest state in the nation based on population, automakers have to abide by its rules to have access to the tens of millions of car buyers there, in addition to the car-buying public in nine other states that have adopted CARB rules. One of the CARB requirements is adhering to the ZEV program.

Here’s how it works:

The ZEV program assigns each automaker “ZEV credits,” which represent the company’s sales of electric cars and trucks. Automakers are then required to maintain ZEV credits equal to a set percentage of non-electric sales. The credit requirement is 4.5 percent of sales in 2018, rising to 22 percent in 2025.

That means they have to offer electric cars to the public in order to keep selling gas-powered cars. The result is an artificial market for electric cars that don’t sell for anywhere near the price needed to maintain their production naturally. Most EVs sell for considerably less than their cost of development, a problem of which General Motors is painfully aware as it prepares to sell the Bolt EV.

According to Bloomberg, sources close to the automaker claim that each 238-mile Bolt that GM builds will represent a $9,000 loss.

That means consumers get a great deal on new technology that should cost much more. Plus, they get to take advantage of the government’s $7,500 tax credit after making a purchase.

This isn’t to say that electric cars shouldn’t exist. Driving gas-free is an appealing prospect to environmentally conscious people around the country. However, if the market isn’t naturally demanding them, or willing to pay the real cost of them, is the U.S. being smart in forcing the issue?

Prices of electric cars will decrease as battery costs go down so perhaps these programs are simply jump-starting an industry that will be in full-force within a decade or so.

If that’s the case, it probably makes sense to jump on the bandwagon now while the government is willing to pay you to do so.

Will you buy an electric car to take advantage of the tax credit?


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