In “Liberation Day for Gasoline-Powered Vehicles,” Wall Road Journal, Might 22, 2025 (print version), the Journal editors make a powerful case for eliminating the California authorities’s mandate that requires an growing quantity, yr by yr, within the share of auto makers’ gross sales that should be “zero-emission autos.” For the yr 2026, that quantity should be 35 p.c. In 2023, I wrote about why we gained’t come shut and why it’s good that we gained’t.
Alongside the way in which, although, the Journal editors make a primary worth concept mistake. They write:
Auto makers warn the quotas would drive them to provide fewer gasoline automobiles. Costs would nearly definitely rise to offset their EV losses.
No. They’re proper concerning the impact on costs of gasoline-powered automobiles, however they’re fallacious concerning the causation. Revenue-maximizing corporations don’t sometimes increase costs in a single phase to offset losses in one other. The rationale: if elevating costs in that phase will increase income, then they’d already be doing it.
However, they would increase costs on gas-powered autos. The reason being not that dong so would enhance income to offset losses elsewhere. Since they’re already on the profit-maximizing worth, elevating costs of gas-powered automobiles additional would cut back income. So why would they increase them? To scale back gross sales. There are two methods of hitting the share goal: scale back costs artificially on zero-emission autos to extend gross sales of these autos and lift costs artificially on gas-powered automobiles to scale back gross sales of these autos. They might do each.
In 1985, I wrote concerning the distorting results on the combination of automobiles bought, when auto corporations had been figuring easy methods to adjust to the Company Common Gasoline Economic system (CAFE) laws. These laws required every firm to satisfy a stringent common gas economic system normal for all their automobiles bought in a given mannequin yr. To hit their targets, the businesses wanted to promote extra small automobiles and fewer giant automobiles. I believed I had been extra express concerning the pricing implications than I used to be. In any case, the way in which to take action was to cost their excessive mpg automobiles beneath the profit-maximizing worth and to cost their low mpg automobiles above the profit-maximizing worth. The identical factor is happening now for zero-emission autos and gasoline-powered autos.
A little bit worth concept goes a great distance.
