“…expect the Obama mileage rules to be felt widely—in the steepening price of new cars, in reduced revenues for traditional auto companies and their workers, in growing wealth for Tesla founder Elon Musk. One place the rules won’t have meaningful impact is climate change. Tesla is a compliance company. Don’t take our word for it. Mr. O’Connell said if other makers don’t want to build electric cars, “they can buy credits from us, and we will invest in electric vehicles for them.”…

…In reality, Mr. O’Connell’s conspicuous plumping for tougher mileage mandates is about something else. Tesla seeks to foster a political mood favorable to the extension of the tax credit without, you know, actually publicly lobbying for a grotesquely regressive handout. Yet it’s easy to extrapolate that Tesla’s entire market capitalization of $34 billion is nothing but the discounted present value of its expected future subsidies. Tesla, like any business, doesn’t leave money on the table in its pricing. And the tax credit will become even more important, and a bigger part of Tesla’s implicit revenue, when it launches its $35,000 Model 3 for the mass market…..As for the Model S, Tesla’s big seller may be “compelling” to its customers but it’s also an absurd, anachronistic take on the electric automotive future it’s supposed to herald. Form eschews function: It apes the conventional sports car with a long, sweeping hood to conceal a powerful piston engine that isn’t there. It appeals to confused consumers who simultaneously want to display ostentation and green virtue.”, Holman W. Jenkins, Jr., “Tesla Is a Compliance Company”, The Wall Street Journal, August 8, 2015

Opinion

Tesla Is a Compliance Company

The electric-car maker’s entire business model is rapidly becoming a regulatory creation.

By Holman W. Jenkins, Jr.

Tesla’s $70,000 Model S is as much a “compliance” vehicle as the electric cars built by other auto makers. That’s one truth the audience didn’t hear from Diarmuid O’Connell, Tesla vice president of business development, who made a much-noted appearance at a Michigan automotive seminar this week.

Mr. O’Connell called on Washington to stiffen the already-stiff Obama fuel-mileage mandates. He criticized electric cars churned out by other car makers as mere “compliance vehicles” that are not “compelling” to consumers.

Electric cars, left to right, from Nissan, Tesla and Toyota at a news conference in Los Angeles, Dec. 13, 2013. Photo: Associated Press

Uh huh. The kettle speaks. Tesla benefits from a $7,500 buyers tax credit, and generates millions in revenues by selling emissions credits to other car makers under California’s zero-emissions-vehicle mandate and federal greenhouse rules.

Tesla is a compliance company. Don’t take our word for it. Mr. O’Connell said if other makers don’t want to build electric cars, “they can buy credits from us, and we will invest in electric vehicles for them.”

As for the Model S, Tesla’s big seller may be “compelling” to its customers but it’s also an absurd, anachronistic take on the electric automotive future it’s supposed to herald. Form eschews function: It apes the conventional sports car with a long, sweeping hood to conceal a powerful piston engine that isn’t there. It appeals to confused consumers who simultaneously want to display ostentation and green virtue.

Which brings us to Mr. O’Connell’s vocal support for increased mileage mandates. These, in theory, are a mixed bag for Tesla. They generate tradable credits but also pollute the market for electric cars with vehicles built and dumped at a loss. But the rules also prop up Tesla’s share price by making the company a potential acquisition target for a full-line auto maker looking to offset its pickups and SUVs.

In reality, Mr. O’Connell’s conspicuous plumping for tougher mileage mandates is about something else. Tesla seeks to foster a political mood favorable to the extension of the tax credit without, you know, actually publicly lobbying for a grotesquely regressive handout. Yet it’s easy to extrapolate that Tesla’s entire market capitalization of $34 billion is nothing but the discounted present value of its expected future subsidies. Tesla, like any business, doesn’t leave money on the table in its pricing. And the tax credit will become even more important, and a bigger part of Tesla’s implicit revenue, when it launches its $35,000 Model 3 for the mass market.

All this emerges right now because of the coming “midterm review” of the Obama 54.5 miles-per-gallon target for 2025, which seems increasingly problematic when gas is selling for $2.63 nationally.

An instant classic in the annals of central planning is a new report from the National Academy of Sciences, which congratulates the administration on its success so far and predicts continued success. Included is only a slight caveat: The Obama rules require auto makers to make plug-in green cars but don’t require consumers to buy them, and “there is evidence that consumers will not widely adopt technologies that interfere with driver experience, comfort or perceived utility even for large improvements in fuel economy.”

Weight reduction also is playing a bigger role than Team Obama anticipated, so “there could be a negative impact on safety due to variance in the distribution of the mass across the vehicle fleet.”

Speaking up as well are previously faceless myrmidons like Margo Oge, the recently retired chief of the Environmental Protection Agency’s fuel-mileage efforts, and Mary Nichols, head of California’s all-important Air Resources Board.

In interviews with the media, both exude confidence in Obama plans to sweep the gasoline engine into history’s trash heap but are imprecise about the benefits of doing so. Ms. Nichols drives an electric Honda Fit around Sacramento—where more than half of electric supply comes from fossil fuels. Ms. Oge, who drives a rechargeable Chevy Volt, is a habitué of D.C. and suburban Virginia, where 60% of the electricity is generated from carbon-emitting sources, predominantly coal.

But never mind: If every car in America were electric and recharged using only renewables, the impact would be less than 2% of global emissions. Even the new Obama power-plant rules, which would be far more consequential, would prevent only 0.03 degrees Celsius of warming by 2100 (and then only if climate models predicting substantial warming are right).

So expect the Obama mileage rules to be felt widely—in the steepening price of new cars, in reduced revenues for traditional auto companies and their workers, in growing wealth for Tesla founder Elon Musk. One place the rules won’t have meaningful impact is climate change.

Posted on August 12, 2015, in Postings. Bookmark the permalink. Leave a comment.

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