EVs and the Free Market

BYD, the Chinese car manufacturer in which Buffett invested, may introduce a Plug-in Hybrid EV next year at a price that is $12,000 below that of a Volt.

Meanwhile, the administration is clamoring for extra subsidies designed to produce one million PHEVs on the road by 2015.

The sum of government giveaways will add substantially to the national debt. The administration wants the government to give a $7,500 rebate to buyers of EVs and PHEVs. If this was applied to all 1 million cars, it would add $7.5 billion to the national debt.

Add subsidies for installing chargers, and the debt grows even more unmanageable.

Meanwhile, BYD is demonstrating that market forces could be the best way to get EVs and PHEVs into the hands of drivers – if they want them.

Fred Smith, CEO of FedEx, who benefitted from the free market system, is clamoring for government support for EVs and PHEVs. He cites oil as a national security issue, but overlooks that we have an abundant supply of natural gas that could be used to power our vehicles.

There is no question that oil is a national security issue, so why isn’t Smith pushing for more drilling and oil production in the United States and the Gulf of Mexico?

With turmoil in the Middle East we could see oil prices soar, now, not twenty years from now, which is the soonest that EVs and PHEVs could possibly have a large impact on our use of oil for transportation.

Government subsidies won’t significantly reduce the amount of time it will take to get 100 million EVs and PHEVs on the road, because it will take twenty or more years to replace most of the existing 237 million gasoline-powered light vehicles on the road in the US today.

If action is required to confront oil shortages, we should take action now that has a meaningful impact on our usage and production of gasoline.

If not, then we should let market forces determine whether EVs and PHEVs are the best alternative for America.

BYD may prove that market forces are more powerful than government subsidies, assuming Americans want EVs or PHEVs, and assuming that BYD isn’t another YUGO. The market will quickly determine whether it is a YUGO or a real competitor to the Volt etc.

Market forces should be allowed to determine how many EVs and PHEVs Americans will buy.

An action we can take now to offset turmoil in the Middle East is to lift government restrictions and produce more oil in the US.

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