CAN THE EV REVOLUTION REALLY SAVE US?

Here’s some fodder (hopefully) for weekend dicussion - nerding out on a policy question: can the electric vehicle “revolution” really save us? There’s more to the answer than you might think.

Please discuss:

In pursuit of saving ourselves from climate change, the Biden Administration has enacted rules that will stop production of gas-powered vehicles in 2035. That’s well and good, but there are some problems with that.

One of those problems is, will Americans actually be able to afford to buy those electric vehicles to replace their internal combustion vehicles?

When was the last time you priced a new car?

In 2023, the year when inflation slowed down to such a reasonable level that the Federal Reserve decided to stop hiking rates, new car prices jumped by 1 percent to an average of $50,364, while used car prices fell by only 2 percent to an average of $31,030.

Cars are still really expensive for many Americans. Only ten percent of new cars are presently priced below $30,000, according to CoPilot. Things are not much better in the used car market, where only 28 percent of listings are currently priced below $20,000.

I bought a used car in 2023 - or as I call them, “a new car to me car”. I paid $5,000 for a 15 year old Toyota Camry with close to 200,000 miles on it, and had to spend another $1,000 getting the catalytic converter up to speed. Fortunately, I now drive somewhere under 7,000 miles a year, so it will take awhile to accumulate mileage.

That’s the most money I’ve ever spent for a car; the last time I bought a new car was in 1975, when I paid $3,500 for a Honda Civic. And I thought I got off cheap. I’m not poor (not rich either), but I can assure you if all there was was those $31,000 used cars, I’d be riding the bus (which is hard to really do here in Los Angeles) and thanking my lucky stars that the local TJ’s is a 20 minute walk, and the local Von’s is about a 30 minute walk; I’d be in the market for one of those “senior tricycles” for running errands. If the choice was one of those “under $20,000 used cars,” the result would be the same.

According to an October 2023 report by Market Watch, your average American new car buyer needed an annual income of at least $100,000 to afford a car - that’s if they're following standard budgeting advice, which says you shouldn't spend more than 10 percent of your monthly income on car-related expenses.

That means that more than 60 percent of American households currently cannot afford to buy a new car. For an individual (like me), the numbers are even worse, with 82 percent of people below the $100,000 line.

Simply put, cars have become more expensive. In November 2019, the average transaction price for a new vehicle was $38,500. In November of 2023, that figure jumped to $47,939.

So, there’s a question about how many new EVs will be bought new in ten years. Given the inflation figures cited above, a new car - the EV version of my Camry - will be priced in the neighborhood of $100,000. For that kind of money, you used to be able to get something a lot more exciting to drive than a Camry.

With that in mind, just how long will it take to phase out gas-powered vehicles? With this information at hand, if an environmentalist-friendly government imposed a phase-out date under about 20050 - long enough to get used EVs onto the market - they would face a pretty strong bi-partisan rebellion.

And it turns out that, after a solid decade of seemingly unstoppable inevitability, The EV Transition is having a few issues. Here in the United States at least, there’s a correction brewing that should give us pause to reconsider a few basic principles.

For one thing, there are already too damn many premium EVs chasing too few buyers; all the classic signs of oversupply are building up. This means higher inventories and incentives, lower transaction prices, and even more red ink in a segment of transportation where anything else was already a rare exception.

More worrying than this prospect is the reaction from EV supporters. It’s not surprising that a sector defined by Tesla would be riddled with magical thinking, but the denial about this is undeniable. Way too many smart people are hoping that high confidence and glib narratives will push the cherished EV Transition narrative past this speedbump on the road to environmental heaven.

The problem is that the EV market currently faces an oversupply of premium market EVs. That’s actually only half of the problem; the other half is the undersupply of affordable EVs. The reality is that the demand curve for EVs here makes them look like Veblen goods - luxury items that connote status in society, such as some cars, yachts, fine wines, celebrity-endorsed perfumes, and designer jewelry. Not stuff you have to have.

The problem is, a car is a Have to Have good.

The problem is that the American market for EVs has a capability floor, a minimum viable product line, below which an EV simply won’t sell.

The simplest metric is range. If I wanted an EV I could drive from here out to the Planes of Fame Air Museum in Chino (about 75 miles) and return without having to find a charging station, the reasonably-priced EVs won’t do the job.

My friend Alex has one of those BMW i3's - which he recently inherited from his grandfather’s estate. The range is 94 miles - under “optimum conditions.” His graqndfather lied in Phoenix, and he was thinking of driving it back to Los Angeles, except when he checked the map there was one section of I-10 where it was 85 miles between listed charging stations. He asked the mechanic who checked the car if he could make it and the guy laughed at him. The car arrived in Los Angeles on a car transporter. He has the option of charging it overnight at home, since his landlady installed a charger. Fortunately he doesn’t have to drive all that much, since he’s not a daily commuter (he’s a writer, like me).

But when Alex has been out and around, and needed to get a charge at a public charging station, he ran into the second big problem with EVs. Charging stations are few and far between, even in Los Angeles, and over half of them are not well-maintained; once you find one, you have to hope you’ve found on that works, and that you have another 20 miles left on your charge, since the likelihood is your search isn’t over. In fact, here in Los Angeles, at least one-third of public charging stations do not work at any given time, and repairs that do get made are spotty, delayed, and not permanent.

There is an alternative. Tesla has stations all over. But their charger requires that the chargers of any non-Tesla have an adapter in order to use it. Cost: about $100. And Tesla electricity is like pulling into a gas station and finding it sells only overpriced premium gas.

According to the U.S. Department of Energy, the number of charging ports in the United States more than doubled between 2018 to 2022. Walmart, Shell, Subway, and Mercedes-Benz, are getting into the market. Ford recently announced that its cars will be compatible with Tesla’s expansive charging network - starting in 2025.

People need a EV that has the capability to get them where they want to go, and back. Just like a gas-powered car. This minimum level of capability demands a large battery pack, which increases cost, which is why all the manufacturers are competing in the premium segment and there is no real competition in low cost Evs.

Fortunately, Teslas have now been around long enough that they are available on the used market. My next door neighbor has three of them - one for him, one each for his kids. He told me he paid around $30,000 for those used Teslas. Yes, it is cheap compared to a new one at around $80,000 - and that price has been lowered by Elmo because he’s starting to have that oversupply problem with his inventory.

Yes, the Inflation Reduction Act includes several billion dollars for construction of public charging stations. But they won’t be as common as gas stations are. And while it takes me a total of around 10 minutes to pull into my local station, pay for the gas and fill the car, charging your EV to around 80% of full charge takes 30-40 minutes, depending on things like temperature. But then add on the time you spend waiting for the guy in front of you to get his charge, and if yoo’re very very lucky, you might be there only an hour. But don’t plan on it. Unless you go to a Tesla charger, since they charge faster.

Even if it’s possible to drive down the cost of batteries to where a 250-mile minimum viable EV is genuinely affordable, there will be factors in that market nobody seems to be considering. That’s because the entire EV transition narrative is built on a false equivalency between gas and battery electric cars that no amount of wishing will magically change away.

If you strip things down to first principles, the differences between gas-powered and electric powered are more obvious. The difference between a cheap gas-powered car and an expensive gas-powered car comes down to two factors: creature comforts and engine power. The size of the gas tank and the refueling experience are no different if your car costs $30k or $100k. With an EV, performance is more or less the same between cheap and expensive EVs - Alex’s i3 is a real “goer” - however, the size of the battery and the quality of the charging network (as I pointed out above) are central to the difference between a cheap EV and an expensive EV.

This distinction is important! American consumers associate cars with freedom and the open road by billions of dollars spent every year in advertising. The resonance of this expectation with the central themes of our national mythology - individualism, the frontier, individual choice, etc - should not be underestimated. The idea that we there can be a market shift from products where freedom is commodified, to a market where you have to pay more for more freedom is crazy. Without a major change in consumer psychology, expecting such a thing to happen is absurd.

The French call a vehicle’s range its “autonomy.” Mobility is the ability to move, but autonomy is the ability to move where you want when you want. In this sense, autonomy is effortless for gas cars of all prices, but it defines the demand for EVs. What you are buying as you spend more money on an EV is the autonomy every gas-powered vehicle comes with. I can jump in my car and go wherever I want without further thought, so long as I have money in my pocket to buy gas when needed. Alex has to plan the whole trip carefully to make sure he can get home.

Survey after survey has shown that consumers see the combination of range, charging and cost as the fundamental challenges to switching over to an EV. The iron relationship between these factors proves that the EV is simply not a drop-in replacement for gas-powered cars.

The upper middle class people here in the western San Fernando Valley who run around in their now widely owned Teslas don’t have to worry about those factors; having a Tesla for most of them is a “Veblen product” and they’re happy to flaunt it and shoot you a superior look when you pull up next to them at a red light in your Camry or whatever.

But when you get away from those people and down to the majority of car owners and users, the demand for the autonomy gas provides is real. The Tesla owners I see aren’t driving three hours to work at a service job in a neighborhood they can’t afford to live in; the people who do have to live like that can’t afford to be sentimental about the value their car provides. The more somebody relies on their one car to survive, the harder it will be to overcome their “autonomy anxiety.” The vast majority of people aren’t like Alex and me, able to choose the time of day we go driving. They’re the ones stuck on the freeway “parking lot” taking 45 minutes to get over the eight miles of Mulholland Pass from the 101/405 interchange down to I-10, to get from the “affordable” Valley to the “expensive” West Side where the jobs that pay better are found. And in normal rush hour traffic, they were in that “parking lot” from the time they got off the 118 freeway onto the 405 15 miles north of the “entry” to the pass. (I tell people that if I had had to ever work a “straight” job in the 43 years I have been here, I would have left LA 42 years ago.)

Until we get to where the marginal cost of batteries is zero, the demand for an EV will always be defined by the autonomy you g et for free from every gas-powered car. My point here isn’t that EVs are bad and gas is good. What has to be dealt with is the problem that we pretend this transition can happen without a fundamental shift in consumer attitudes and behaviors. The sooner we accept that we’ve been fooling ourselves about this the better.

And don’t even think of telling me that developing useful public transportation is the answer. There isn’t enough money in the United States to create that nation-wide in cities, and provide the level of service that would actually get people who have another alternative to give it up and catch the bus.

What will it take to persuade Americans to switch to electric vehicles” This: the ability to drive wherever you want, whenever you want, and never seriously worry about getting stuck. Just like with your old gas-powered car.

Americans will need more public chargers if the goal of drastically reducing carbon emissions from cars is to succeed. More of them than the IRA pays for. A lot more. The lack of support infrastructure is the main deterrent for people who aren’t interested in driving around in an EV for the status.

These problems worry potential EV owners enough that a recent J.D. Power report found a growing number of consumers say they are “very unlikely” to buy an EV, regardless of tax incentives, because of “concerns about charging infrastructure.”

I’d like to think government action to support infrastructure and technological change in batteries regarding capacity and price will come together over the next decade and solve this problem. I’d also like to think that we will get the economic changes necessary for Americans to afford new cars, like we used to.

But I’m not going to hold my breath.

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