History runs in circles. What the government used to mandate sooner or later is banned.
About 65 years ago, cigarettes were good for you. Radiation too. Maybe milk will join the ranks soon: here. In 1977, President Jimmy Carter promoted coal as the energy source for the future, and Congress responded by passing the Surface Mining and Reclamation Act (here). Coal was in and natural gas was out: here.
Oh, how times have changed. I don't think I need to remind you that coal became a chief villain of the Obama Presidency and that the war on coal may have cost Hillary Clinton the Presidency. 1977 - coal good. 2016 - coal bad.
Which leads me to electric cars.
For background, consider the following two items:
Electric cars are good for the environment, they say.
There has been no shortage of pro and con arguments vis-a-vis the environmental benefits of electric cars for well over a decade. The arguments tend to go to the source of the electricity: Basically, if the electricity comes from fossil fuels, then electric cars aren't as good as if the source of electricity is some renewable such as solar or wind power.
Once one takes for granted that - even if not today, not yet - electricity comes from renewable sources, then all but the most staunch opponents of electric cars tend to agree that at least electric cars will provide for "some" environmental benefit, at least in the coming decades. At that point, the argument tends to shift to whether this benefit is worth of all of the costs of the subsidies that are doled out to induce people to buy EVs today.
After all, such subsidies could be spent on something far more efficient in terms of cleaning up the environment, or so the argument goes. This video by Bjorn Lomborg, former Director of the Danish government's Environmental Assessment Institute in Copenhagen, makes this case as well as anything I have seen here.
John Petersen recently made an outstanding case in favor of just this consideration - that whatever the (slight) environmental benefit of electric cars, the costs to subsidize electric cars are astronomical and therefore could be spent more effectively in some other way - here. I highly recommend you read it.
2. A Trump administration will reduce or eliminate electric car subsidies.
The recent election has moved the prediction-consensus when it comes to electric car subsidies from a scenario where the subsidies would remain the same or be increased (in a Hillary Clinton administration) to a scenario where they may either be reduced or abolished outright (in the Donald Trump administration).
However, even if you were to get rid of subsidies and other privileges for electric cars outright - and I outline some of them in this article: here - there would still be electric cars sold. People buy electric cars for reasons other than saving money (even if they don't actually save money, but assuming people believe that they do) which is in turn a function of subsidies and their various other forms of legislative privileges such as carpool lane access.
What would those non-subsidy reasons for buying electric cars be? A certain kind of performance, for example. There is no arguing with Tesla's (NASDAQ:TSLA) superior 0-60 MPH acceleration (as long as the car doesn't overheat or break down). 2.5 seconds for the hatchback or 2.9 seconds for the heavier Model X minivan are simply numbers that no other car at that price or practicality (5 or 7 adults) comes close to matching.
For yet other people, electric cars are of interest because of technology's own sake. I for one am fascinated by new technology such as that of electric cars. There is a special "feel" to driving one, especially at lower stop-and-go speeds. They don't vibrate like regular cars do, and they have that very pleasant instant torque that makes driving more relaxing in certain conditions. All reasons to consider an electric car, even without subsidies, at least for us eccentric types.
So let's say electric car subsidies - including ZEV credits and carpool lane access - went away. Would demand for electric cars decline by 50%? More? Less? There is no way of knowing, and we are not going to try to resolve it here.
When it comes to reducing electric car preferences, including fleet-mix mandates, Ford's (NYSE:F) CEO has been clear that it will lobby hard in favor of reducing the requirements to produce loss-making electric cars: here. You will find a more nuanced description of why Ford's CEO is saying this in this excellent article by Jay Cole at InsideEVs here. Pay particular attention to the additional nuance provided by the article's author in the comments section below this article. It contains a mathematical description of California's insanely complex and indeed Byzantine quantitative zero-emissions sales requirements between now and year 2025 that I have never seen explained this well anywhere else. I don't agree with all of the conclusions, but the numbers that describe what Ford has to do are important to understand and unavailable in any easily digestible form elsewhere.
General Motors (NYSE:GM) naturally must have similar concerns, even as it brings its own Chevrolet Bolt to market this month, where according to some unconfirmed source and calculation method it expects to be losing approximately $9,000 per car sold: here.
And if you don't think that Ford and GM managements have the ear of the incoming Trump administration, you have not been paying attention. The EPA (Environmental Protection Agency) and other government agencies will be stacked with people (here) who are highly skeptical of forcing struggling working folk in flyover country to subsidize rich leftists in San Francisco who buy Teslas in order to be driven to their private jet hangars. Bye, bye, electric car subsidies paying for muscle cars for multi-millionaires.
Until recently, I thought that was about as far as the Trump administration would go in terms of enacting policies that would reduce demand for electric cars.
It looks like I may have been too modest in my assumptions.
As it turns out, there is an even deeper argument that a Trump administration could use in order to not just reduce or eliminate electric car subsidies, but even tax or outright ban electric cars.
I recently watched an interview (here)with Tim Jackson, who is the EVP of Technologies at Tenneco (NYSE:TEN), a publicly held company. Tenneco supplies the auto industry with various things, but perhaps most prominently emissions control equipment. For example, Tenneco supplies the emissions control systems used on the Chevrolet Colorado and GMC Canyon diesel pickup trucks - some of GM's biggest success stories over the last year. This supplier relationship by Tenneco to GM is also described in the video interview referenced above.
More importantly for Tesla, however, in this interview, the Tenneco executive is asked about the prospects for so-called zero emissions vehicles, including electric cars. He responded as follows (starting at 14:42 in the video):
14:42 - "Frankly, I think the future looks bright. And I remind everyone that the battery-electric vehicle or the hydrogen fuel cell vehicle is chasing a moving target, and the moving target that it's chasing is a world of internal combustion that's far more efficient and far cleaner than it is today. You know, we are right in the middle of implementing the US Tier 3 emissions standards, and when we get done, a 2025 vehicle is going to - the fleet average, will be at what's called a BIN 30 level of emissions. That's about 90% cleaner than today. And I like to - one of my favorite sayings is, you know, we are already to the point if you're driving a 2017 vehicle in a city like Los Angeles or New York or Chicago, you're already helping clean the air of hydrocarbons as you're driving the vehicle because the emissions coming out the tailpipe are actually cleaner than the ambient background air that's going into the air filter. Well, by 2025 we are not only going to be doing it for hydrocarbons, we are going to be doing it for NOx and for particulate matter as well. So we're actually going to be cleaning the air as we drive the vehicle, and so if you're driving a battery-electric vehicle you're not helping clean the air."
So let's unpack this revolutionary statement.
What Tenneco's EVP is saying is that on some metric, a 2017 model year car already cleans the air as you run the engine. What's coming out tailpipe is cleaner than what enters the engine's air filter. On other pollution metrics, will have reached that point by 2025.
In other words, a gasoline car is - and/or will soon be - cleaner than zero. An electric car - assuming the electricity is fed with 100% renewables, the most favorable scenario to the EV case - is at zero, conceptually speaking. Less than zero beats zero emissions. Hence, an internal combustion engine is or will soon be cleaner than an electric car fed with renewables.
I can't evaluate the factual accuracy of how EVP of Technologies of the auto industry's leading emissions control supplier arrived at this seemingly startling conclusion. Maybe he's simply incorrect. I would certainly like to hear a healthy debate about it - which is the reason I'm publishing this article.
But let's say that he's even close to right. What does that imply for an incoming administration that's leery of subsidizing wasteful energy schemes?
What it means is this: If an electric car, even in a best-case scenario (grid fed with 100% renewables) and which is therefore 100% clean, is actually "worse" than a gasoline car that emits "less" than zero - actually cleaning the air as it runs - then why are we subsidizing electric cars?
Shouldn't we then actually tax electric cars higher than gasoline/diesel cars? In an extreme - but logical - interpretation, shouldn't electric cars be banned outright?
Consider that the current public debate is along the lines of the exact opposite: here. Basically, multiple cities (outside the U.S.) are planning to ban diesel cars. This is based on the performance of diesel cars from many years and decades ago and what Tenneco is saying is that the situation going forward will be exactly the reverse: By running an internal combustion engine, you're actually cleaning the air in the city. See the interview quote above!
Of course, I am not proposing to ban electric cars. As discussed above, one would like to see the major assumption in the Tenneco chief technologist's statement above be challenged, debated and confirmed, before suggesting anything as dramatic as that. Here is the thing though: Don't you think that a Trump administration will take a good look at this? And if it checks out, don't you think the new government and legislative majority would abolish all electric car subsidies as quickly as possible, and then at a minimum start to tax electric cars more than gasoline cars?
Tenneco and implications for Tesla: Somewhere between not good and disaster
If it's really the case, as Tenneco's chief technologist says, that internal combustion (gasoline and/or diesel) engine cars are now or will very soon be cleaner than even the best battery-electric scenario, companies who have put all of their eggs in the battery-electric basket need to prepare for legislative headwinds:
Subsidies: At best, dramatically reduced. More likely, abolished ASAP.
Penalties: Electric cars to be taxed more than gasoline cars, potentially banned outright.
Tesla emptied all its chambers in the third quarter of 2016 anticipating a Hillary Clinton win that may have yielded more subsidies, government loans or other legislative preferences. That would have papered over the bleak outlook for the fourth quarter of 2016 and all of 2017. Instead, the legislative cover for which Tesla had planned now looks like a potential legislative nightmare.
Disclosure: I am/we are short TSLA.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: At the time of submitting this article for publication, the author was short TSLA and long GM, F and FCAU. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.