When Supply Exceeds Demand

  • July 11, 2023

Interesting news on the EV front.

Unlike the bodies that never stacked up like cordwood during the “pandemic,” they are piling up. There is a pushing three months’ worth inventory of EVs – and there are only five months left in this year. It is probable that many 2023 model year EVs will not have been sold by the time it is 2024 – and it is possible there will be so many 2024s stacked up by then that dealers will be paying people to take the unsold (and rapidly depreciating) 2023s that are taking up space off their lots.

The reason for this problem is the putting of the supply horse ahead of the demand cart. It is of course normally the reverse. Demand for a thing prompts whoever sells it to supply more of it, to meet the increasing demand. But it is different with EVs. The “demand” signal is coming from the government – federal and state – via regulations that effectively require so-and-so-many EVs to made (and put on offer) but which the government isn’t buying.

We are expected to buy what the government demands.

The problem there is at least two-fold. First, most EVs are too expensive for most people to be able to afford – which renders economically irrelevant whether most people want an EV. Most people want many things they cannot afford – and so do not possess them. It is why most people do not own a private airplane, though it is likely true that most people would love to have one.

It is absurd to believe that $50,000 cars – electric or not – will ever become mass-market cars.  For $50,000-plus cars – electric or not – are luxury cars and there are only so many people who can afford to buy a luxury car, electric or not.

The second problem is people do not have to buy EVs as there are still much more affordable alternatives to them, including the non-electric cars they already have. Evidence accrues in the form of the ever-increasing age of the average car in daily use – now around 12 years old – that millions of people either don’t want a new car or cannot afford one.

Electric or not.

Ordinarily, excess supply wold result in decreasing the supply of whatever it is that’s not selling. This would tend to lower the price of glutted-up inventory, thereby increasing demand and restoring the proper balance.

But this situation isn’t ordinary.

The government does not care whether there is sufficient market demand for EVs to justify increasing the supply of them. Because it does not care about the market. It is the antithesis of the market. It therefore insists the supply of EVs be increased – even in the face of obviously waning demand.

There are a couple of interesting things that are likely to happen as a result.

The first is that EVs are apt to become even more expensive – and so, even less affordable. This sounds paradoxical – and ordinarily would be, if there were an operative market. But because of government, the price will go up rather than down because government-mandated increases in the supply of EVs will drive up artificial demand for the batteries that power EVs – and batteries are the chief reason why EVs are expensive. And the raw materials needed to make EV batteries aren’t getting cheaper. Ergo, artificially induced, government-created demand for more EVs means more demand for EV batteries, which drives up the cost of the materials needed to make them, resulting in higher-priced EVs.

This will cause further decreases in demand for EVs – as higher prices will inevitably result in fewer people being able to buy one.

By the beginning of next year, there might be a six month supply of unsold EVs cluttering up dealership lots – leaving that much less space available to park the next batch of EVs produced for which there is little demand.

All of these parked EVs will need to be plugged in, too. EVs lose charge when they are just sitting. Just like a regular car’s 12 volt starter battery. If you leave the latter sitting for three or four months, it may not start when you try to start it. But you can always jump start it. You can’t do that with an EV. And – unlike a regular car’s 12 volt starter battery, which can be replaced for about $120 if you neglected to take proper care of it by leaving it sitting for months without keeping it hooked up to a battery tender – leaving an EV’s battery unplugged for months could mean having to replace it for a lot more than $120.

So, these idled – so to speak – EVs will have to be kept plugged in while they wait for buyers that might never come. Will the dealers get to write-ff their electric bills for this? And what about the wastage? And the “emissions”? After all, tens of thousands (possibly hundreds of thousands) of idled EVs plugged in for weeks/months will draw a lot of electricity from the grid – and cause the “emission” of “carbon” without anyone even driving the things.

All of this might have been avoided if the government hadn’t gotten into the business of demanding supply, Soviet Five-Year-Plan style. There might even be a market for EVs – if they cost less than a typical economy car. Which they would have, if the market had been allowed to operate – because there would have been a market incentive to offer cars that cost less (and so offered value) to people who wanted to spend less on a car. Such EVs would have been small – and as light as possible, in order to be as efficient as possible. They would not have been quick – but that is beside the point if the object is keeping costs down.

Instead, government-demanded EVs meet almost no one’s needs – and are much more expensive than the non-electric alternatives.

Expect a government solution for this government-mandated problem. It will likely take the form of eliminating the alternatives to government-demanded EVs, as by applying extortionate fees and costs for owning one that isn’t.

But that still won’t solve the problem of increasing the supply of that for which there isn’t congruent demand.

. . .

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