I have a bad feeling that I think this EV tax credit, is actually going to through.
Even if it has been altered somewhat from the latest, it's starting to feel inevitable
that this will occur.
Really, even if it costs $50 billion a year, I think it will still go ahead.
A too big to fail campaign, that if US auto goes under, that transport as we know it will
end, or too many workers will lose their jobs, etc.
In Japan these are known as zombie corporations.
BUDGET In fact I thought this was nonsense and somewhat
dismissed it, and perhaps it might have just lasted a year or two until congress actually
calculates this is costing an absolute fortune every year, and they end it.
But perhaps I was being naive, perhaps the cronyism goes that deep.
I mean was saw how much a good payout can really get these days with the GFC, not to
mention the savings and loans bailout in the 80s.
The government just don't seem to care.
So perhaps we should wisen up a little here.
We are possibly being naive.
Legacy don't want to make electric, they just want to make profit.
In fact they don't want to make electric period.
Legacy need a one up over Tesla, but they can't do it in Tesla's arena, as they are
dying in the BEV industry, they don't have the demand, supply or profit, which are 3
very important elements when in business.
HOME TURF So instead legacy are moving it back to their
home turf.
Rather than trying to make fully electric cars, legacy are going to cheat, and keep
making ICE.
Except with one tiny little caveat, a minimum of a 7 kWh battery.
Aside from that, everything else is the same.
And in fact the manufacturing process is also very similar, something that they can actually
achieve, and likely even to volume production.
And that is what is now being pushed in the bill, just a 7 kWh battery required to receive
a $7,500 credit.
Along with other various caveats that eliminate the Chinese competition, and potentially some
the European, whilst also doing what they can to make sure Tesla reap as little of the
benefit as possible.
Legacy are bringing the game back in their own court.
In fact I love a quote from JP Morgan, "A man always has two reasons for doing anything:
a good reason and the real reason."
From the outside it might appear that the government are trying to convert domestic
vehicles to be better for the environment and our health, that is the good reason, and
how they sell it.
But behind the scenes, the real reason is just to have a chance against an industry
disruptor, and even if they fall, well they will have a massive cash pile of profit to
land on.
Politicians start with the real reason first, and then try and find all the good reasons
as to how they can sell it to the people.
HYBRIDS But hybrids?
And all hybrids, not just plug-ins.
Wow, I didn't think they would go that low.
And a $7,500 credit.
That is huge, I think in the previous bill it was less than half that, at $3500.
This would cost perhaps an addition of a minimum of $2500 additional cost of production per
vehicle.
So the cost if an ICE car was previously $30,000, the new cost is $32,500, if the 100% of the
cost was passed on to the consumer.
Except now the consumer can get $7500 off the car, so it now becomes $25,000.
And the consumer gets a more efficient hybrid car over a pure ICE car, so they also save
in fuel.
Thats a win for the consumer.
But a $25,000 hybrid, well that's going to be popular, in fact everyone is going to want
to get their EV discount, as they are indirectly paying for it, due to less government income.
End result, too much demand.
However, legacy autos can be sold at the market clearing price, or even higher, depending
on how good the salesman is.
If they have everyone wanting their cars, then they will simply charge more for them.
And we are not talking about a few thousand, but sometimes significantly higher.
However, it wasn't the car dealers than have been paying millions in cronyism, so why should
they benefit?
It's legacy autos, and legacy autos are the ones who want a payday here.
Therefore they are going to raise the prices of their vehicles.
And these vehicles, unlike their fully electric ones, well they may actually even carry a
profit.
Therefore every dollar they raise the price at this stage will be felt all the way in
the operating profits.
PRICE Therefore legacy are obviously going to raise
their prices, and absorb this supposed discount for the consumer as more profit for themselves.
Even just a $3,000 price rise would mean a massive amount of profit, depending on how
many hybrids they can actually produce.
And just think of the accompanying advertising campaigns, when legacy can actually produce
a decent profit on the sale of the car.
Any extra money legacy leave on the table will be absorbed by the stealerships, resulting
in what is likely very little actual discount for the end user.
Yet the overall intention is to allow affordable EVs for the masses.
Because EVs are just getting too expensive.
SUPPLY But as we are discovering with Tesla, demand
is only any good if it can actually be catered to, as in if there is a supply.
Well we know legacy can make ICE vehicles, although their supply has actually been a
little short lately.
Supposedly to do with semi conductors.
I am not sure if that is a temporary issue or not, but few semi conductor companies want
to supply legacy with their basic, small profit chips.
Their technology is so antiquated, legacy haven't kept up, and use old chips, which
are dying out.
Anyway, that may be rectified, I am not in the chip industry.
But you know what else goes into these hybrids.
Well they still use batteries.
And what is the number one constraint with EV growth, battery supply.
Now it might be different if 10% of your models are hybrid, but if you are pushing to 50%
or more, then that is still going to be a reasonable amount of batteries you might want.
If for example GM sold a million hybrids a year with 7 kWh batteries, then that comes
to 7 GWh of cells.
Alright that probably is reasonably doable.
FACTORIES But what if these factories legacy are building
are all earmarked for hybrids.
The battery and cell factories are going to make batteries for hybrids.
I mean that is a little scary to consider even, right?
CONSUMERS It is going to come down to the consumer level.
Despite all this cronyism, or flat out socialism, it is still a free market.
A democracy on what products you want to see.
We vote for all items we want businesses to produce for us.
We vote with our dollars.
If there is something we don't like, we dont vote for it, or buy it as some people call
it.
Instead we buy the competition.
Will consumers be smart enough to realize the benefits of fully electric over hybrid,
despite the massive advertising campaigns telling them otherwise.
At the end of the day, legacy still has to convince their customers hybrid is the future.
THE COMPETITION Remember though, the competition also have
7500 off, of which I mean the Model Y, which will quickly become the best selling vehicle
in the US, probably by 2024.
I repeat there is potentially a $52,500 Model Y available to American consumers.
With features that, ummm, yea, still not entirely sure about everything it even has yet.
But at $52,500, I know something it will have, a really long waiting list.
So inevitably the price of that might even recede all the way back to $60,000.
In other words Tesla might eat the entire credit themselves as profit.
Why?
Because the waiting list is already longer than they want.
Long waiting lists make forecasting difficult that far out with such a volatile economy.
Imagine if hyperinflation kicked in, and Tesla had to honor these low prices.
Oh you understand why Tesla Bitcoin now?
A hedge against hyperinflation.
Don't feel bad for the consumer getting ripped off out of their tax credit, there never was
a consumer tax credit.
It was for legacy autos all along.
And besides legacy stealerships are going to eat up everything legacy OEM leaves on
the table anyway.
Of course Tesla could end up selling something like 5 million vehicles in the US alone, maybe
sometime around 2025.
Maybe more.
If Tesla can get their production up.
Then Tesla's prices actually will drop.
Maybe the Model Y starting sub $50,000, after the credit.
Even with Legacy trying to offer an equivalent plugin-hybrid, with 50 miles of range, is
probably going to be about $40,000.
For 25% more money, its a big upgrade.
VERSIONS Right, not all of these legacy vehicles are
going to have this minimal 7 kWh hybrid version.
Some may have 20 kWh.
The Chevrolet Volt, Volt with a V, not Bolt with a B, was a GM plugin-hybrid that had
18 kWh and over 50 miles of range on battery.
They canned it though.
I would say that there may be all sorts of hybrids with different utility.
For example maybe GM will make a camaro that uses the electric motor to add torque and
power to get more performance.
SUMMARY The real question this comes down to, as far
as legacy are concerned, for them to have a chance here, is how well can they convince
their customers to buy hybrid.
I think this tax credit is coming, it will be interesting to see how it plays out, the
economics behind it are massive.
I would much rather be reporting on Tesla, but unfortunately it looks like they are going
to put this on my lap too.