Are The Wrong Americans Buying Electric Vehicles?

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Are the wrong Americans buying electric cars? Well, yes. But also no. Between electric car superusers and EV hoarders, some households that have more than one electric car in the driveway may be driving up the price of EVs for the average Joe, while keeping electric-only miles lower than they could be.

In a recent article at Bloomberg, the author informs us that the wrong Americans are buying electric cars (paywall). I think he makes some great points and points out some real problems, but some of the arguments are a little off and it’s a situation that will probably correct itself over the next few years.

The core argument is very valid. For an EV to have real impact, it needs to replace gas-powered miles. The sooner it can rack up those miles, the sooner it will have saved more emissions than the extra emissions it took to build the EV over gas-powered alternatives. But, when people buy extra EVs to collect them, the second, third, and fourth (or more) EV isn’t replacing nearly as many gas-powered miles as the first car did.

They have the numbers to back this, too. From the article:

“In a recent Bloomberg survey of EV drivers, 14% of respondents said they owned more than one battery-powered vehicle, and 6% of those surveyed had three or more. That doubling-down dynamic is clear in sales data, too. Some 26% of EV buyers in the second quarter either traded their used electric car for a new one or simply added another to their garage, according to Edmunds. Another 9% of recent EV buyers were already driving a hybrid.”

The end result is that the super users and the “hoarders” end up buying EVs that ideally would have gone to another household that didn’t have any EVs yet. This both increases the environmental impact of the individual EVs and keeps more miles powered by gas. They point out that as a household has more vehicles, the third vehicle gets driven a lot less than the second one, and so on. So, a household with three EVs or more likely has a lot of “parked carbon” that isn’t doing the world saving it was supposed to do.

The article isn’t all environmental doom and gloom, though. They do point out that price is a big factor in more cars going to wealthier American driveways, and that prices are slowly coming down. They also point out that households where the first and second EV do all of the driving and gas-powered cars were replaced end up meeting that environmental break-even point. This happens even faster if you can charge the EV from home solar.

At the end, they give a fairly solid piece of advice in a quote from an expert, explaining that EVs are most environmentally impactful when they’re driven “into the ground.”

Where The Article Falls Short

One thing I think the article missed out on is its treatment of trade-ins. Their theory is that if an EV driver trades in an EV for another EV, they’re not replacing gas-powered miles at that point. But, I think that’s an overly individualistic perspective.

If trade-ins were crushed and melted, this idea would hold up, but the life of a traded-in car continues. The dealer goes on to sell the car to somebody else, and the vehicle is highly likely to replace somebody else’s gas-powered miles. Under normal market conditions (not the 2021-22 chip shortage-driven used car prices), the vehicle’s first owner eats a lot of depreciation, and this results in a car that’s a lot more affordable for the second owner.

So, trading in EVs every 2-3 years may be a bad call for one’s finances, but as long as the car continues serving people who’d otherwise be burning gas, it really doesn’t matter who owns the thing. In fact, putting more used EVs on the market may be better for overall EV adoption (when used car prices go back to normal).

One Thing That May Be Worse Than They Think

Anybody who’s taken even high school economics knows that prices are driven by supply and demand. If there’s lots of demand with low supply, prices will go up. If there’s plentiful supply and not much demand, prices go down.

The problem arises here when demand stays high (especially earlier this year when gas prices were at record highs), while a few people keep buying the EVs to fill their driveways and maybe put a couple of them on the street. The buying by wealthier people doesn’t only keep the expensive EVs expensive, but it also drove up the price of theoretically affordable EVs in 2022.

On the expensive luxury side, it doesn’t take much knowledge of Tesla to see why prices are not only staying high, but have gone up. After all, why would a company with a months or even years’ long backlog of orders consider lowering prices? The $35k Model 3? That came, but it sure went in a hurry. There’s supposedly a $25k robotaxi coming, but that’s a little hard to believe when there’s nothing happening from the company even in the $30s.

Other manufacturers (especially GM) are getting better at filling in below Tesla, but that’s even more problematic. With the “hoarders” collecting up a significant portion of the new car market in the $40k-60k range, people who would normally buy those vehicles were happy to find cars that were around $30k MSRP (like the Bolt EV, EUV). But, dealers jacked the prices up to take advantage of the shortages, leaving the prices unaffordable to people usually shopping in the $20s and $30s.

So, the weird nerds who collect Teslas aren’t just driving the price of Teslas and other mid-to-high market EVs aren’t just affecting other relatively wealthy people. The effects ripple down the market, driving up the price of EVs for everyone.

The Wrong Approach To Fixing This Problem

While it may be tempting to think that calling for government to ration EVs or calling for automakers to only sell EVs to people who don’t already have one would solve all of this, there are always unintended consequences. Limiting EV purchases could end up chasing people away from EVs, for example. Or, people who have a great reason for that third or fourth EV, like buying one for a kid going to college, would end up out in the cold.

The article suggests incentivizing driving EVs instead of only incentivizing buying them. Rationing EVs doesn’t make sense, but only providing tax credits to vehicles that are going to be driven would improve the situation. But, how that could be done will have to wait for another article.