Subsidy Driven Electric Cars Are Still Too Expensive

Electric and hybrid cars have become more popular over the last few years as advances in technology have helped give consumers more choices when it comes to purchasing an environmentally friendly vehicle. Consumers who are in the market to make an environmentally friendly purchase have been helped by federal and state subsidies which have helped to persuade those contemplating the purchase of a hybrid or all-electric vehicle to go out and make that purchase.

In a recent article for The American Kenneth P. Green, a resident scholar at the American Enterprise Institute wrote that “In order to promote sales of electric or partially electric vehicles (PEVs), federal and state subsidies have flourished.” While this point is extremely valid and makes sense for the consumer, the auto manufacturers and of course the environmentalists, he goes on to add that “All of these subsidies make for poor public policy. Subsidies subvert the efficient functioning of the market, which is our only effective mechanism for matching supply with demand.”

By stating that the subsidies ‘make for poor public policy’ Green is missing the bigger more important point that until the auto manufacturers lower the price of hybrids and PEVs, the state and federal subsidies are a big selling point for consumers who’d like to purchase a hybrid or PEV but just cannot afford it. Green then goes on to add that “Subsidies create a vehicle for government manipulation by special interests and campaign donors at the general public’s expense. Then poses the question – “Does anyone really think that environmental groups and the wind and ethanol industries were unaware of the potential windfall a Democratic Congress would bring?”

Green makes a valid point regarding manipulation by special interests and campaign donors but conveniently doesn’t mention the key role the oil industry plays in special interests and campaign donations to the GOP. Green does mention that high gasoline taxes mean there is a demand for fuel-efficient cars — and makes his most succinct point by declaring that “But only people in higher economic brackets can afford new cars; poorer people are left to drive less efficient vehicles and spend more on gasoline taxes.”

This poses the question – why do hybrid and PEVs cost so much? With most hybrids and PEVs costing around $10,000 more than their gas-powered counterparts one would be inclined to think the major auto manufacturers aren’t really interested in selling many hybrids and PEVs. This doesn’t make any sense. On the right the logical argument would be something along the lines of ‘free market enterprise works when there are no subsidies and the auto manufacturers should sell their gasoline and hybrid/PEVs side by side for the same price’. And those on the left, the environmental activists would argue that ‘the auto manufacturers purposefully keep the price of hybrids and PEVs high as they aren’t interested in the environment and their ‘cash cow’ gasoline cars will sell better.

There is of course another possibility, that the big auto manufacturers and the oil companies have some sort of ‘gentlemen’s agreement’ where both parties will be happier and more profitable if more gas guzzling cars are sold than hybrids and PEVs. In his article Green promotes the age-old conservative view that a free market economy benefits all, and that all subsidies are bad, nothing more than a waste of out hard-earned tax dollars. If you consider that the scarcity of oil is supposed to be an incentive for us to develop cleaner, greener motoring alternatives it’s odd that the price of gasoline continues to rise, and the cost of gas-powered cars are falling. As for the costs of hybrids and PEVs? Regardless of state and federal subsidies, they are simply too expensive and out of reach for the majority of people who aspire to own one in order to reduce their carbon footprint.