So Tesla loses money on every car it sells but makes a profit because of
the subsidies from all the other car companies pay it to cover their
Electric Vehicle targets?
Sounds like a bizarre and unsustainable business model to me, though as
Keynes was reputed to have said "the markets can stay irrational longer
than you can stay solvent"
------ Original Message ------
From: "Nicholas Gallop" <nsgallop@xxxxxxxxx>
To: wvic@xxxxxxxxxxxxx
Sent: Wednesday, 5 Aug, 20 At 08:10
Subject: [wvic] Interesting article from WSJ about Tesla profit and US
Gov't policies
The Tesla Secret
Why don’t Wall Street and the press talk about how the EV business
really works?
By Holman W. Jenkins, Jr.
Aug. 4, 2020 7:06 pm ET
Wall Street is narrowly focused on Tesla’s stock price, the press on a
brainless debate about whether electric cars are good or very, very
good. But try listening to Elon Musk.
Last quarter the company lost $100 million on electric cars and reported
a profit thanks to $400 million in mandated government gifts from other
car makers who get their profits from trucks and SUVs. Mr. Musk has
stridently complained about regulators encouraging others to build their
own electric cars rather than buy fuel-economy credits from Tesla. He
urged Detroit to farm out its production of compliance vehicles to
Tesla. He renewed the proposal again this week. Essentially, he wants
Tesla to help itself to a big share of the profits these companies are
obliged, under green mandates, to shift to EVs.
I know certain readers don’t want an analysis, only a thumbs-up or
thumbs-down on Tesla. This column has long said it’s great that people
voluntarily want to make and buy electric vehicles. It’s the policy
environment, to borrow a phrase, that has entered ludicrous mode.
Let’s understand: If a market opportunity exists for electric vehicles,
it hardly requires an existing car maker to exploit it—Tesla has proved
that.
If a public good is served by promoting electric cars, GM or other
existing auto companies hardly need to make them, any more than Exxon
needs to make windmills and solar panels. This is just a dumb category
error, like saying a maker of arms for chairs must make arms for the
military.
Unfortunately policy salesmanship often operates on such dumb errors.
You need a story that can be told to an idiot (the public) as well as a
bunch of special interests eager to be greased. And we live in a time of
emboldened, self-confident stupidity. The press swooned at President
Obama’s vaporware target of 54.5 miles a gallon. The fairy tale was
treated as the real thing while ignored as too wonky to report was the
actual practical, calculated effect: freeing Detroit to make big pickups
and SUVs under fuel-economy rules in return for producing token numbers
of money-losing EVs to be exploited for presidential photo-ops.
Until the media starts doing its job, this slide toward policy idiocy
will only accelerate. Such government interventions always tend to
cartelize the industry they take aim at. That’s the drift here. Mandates
that result in electric vehicles being dumped on the market are a
deterrent to new EV entrants. Tesla wants to shelter behind these
barriers too, though you would never get Mr. Musk to admit it.
Not that these arrangements are ever likely to prove stable. In Europe,
the scheme already is unraveling as the previous diesel fetish did.
Governments are pumping out desperate amounts of money to make electric
vehicles free to some buyers in hopes of relieving their auto companies
of enormous fines they will soon face for missing government-imposed EV
targets.
This silliness has nothing to with climate gains and everything to do
with politicians trying to stop their deranged artifices from blowing up
on their companies and auto workers. Only two developments in history
have made a discretely detectable impact on global emissions: the
invention of fracking and the collapse of Soviet heavy industry. Both
imparted a one-time boost to the steady, consistent decline in global
GDP energy intensity as manufacturing has given way to service-based and
then digitally based economies.
Even greens now admit as much: These trends, unless interrupted by
terrible policy mistakes, virtually guarantee that emissions over the
next century will fall far short of the worst-case scenario (known as
RCP 8.5).
In the meantime, we lie to ourselves histrionically that electric cars
will have any impact at all. Take the big electric SUVs now flooding the
market because, with their high price points, manufacturers hope to
recoup more of their losses. These vehicles are actually worse for the
environment, so energy-intensive is production of their large batteries.
So what about Tesla’s stock price? The company is plainly valued as if
tomorrow’s expected profits won’t be coming from the car business but
from some Musk magic yet to be revealed. And that’s fine. Investors are
entitled to bet, God bless them, that Mr. Musk is creating the next
Apple, not the next GM.
This column supported Mr. Musk in his battle with the SEC. It urged him
to raise capital in the middle of the fight to show he still had
investor support. Let technology and consumer tastes, rather than
regulatory actions, determine the outcome.
But a bizarre sidelight is that Tesla’s market capitalization is now
greater than GM, Ford, Daimler, VW and Fiat Chrysler’s combined. Tesla
is worth more than most of the industry that it relies on for the
subsidies that are the only reason it was able to report three
consecutive quarters of profit.
Nick Gallop
+44 (0)7867 808 872
nick.gallop on Skype
