A Pig In A Poke

Lately, I have written a lot about unintended consequences. An investment background taught me always to remember what could go wrong. Balancing factors affecting the present and the future provides not only a gauge if a move is going well but when your assumptions are incorrect. Focusing only on rewards ignores the risk-reward ratio.

 The earlier you admit when you’re wrong, the less you lose. Let your successes run on the right calls and cut losses short when you’re wrong. Being human, we will be wrong sometimes. It’s how we handle it that determines overall success. 

Two disparate things have such apparent unintended consequences, and we need to discuss them before we do significant harm—first, the rush to impose electric cars. The second is the Fox-Dominion settlement. 

While many of the same drawbacks exist in the government’s headlong push into solar and wind power, autos occupy a special place in our lives. The second-largest purchase for most of us, we have a more intimate relationship with our cars. Few know what we pay per kilowatt of electricity, but we see the gas price.

Under the proposed Environmental Protection Agency rules could require 67% of all new vehicles sold in 2032 to be all-electric. This rule is industrial policy run amok. Even if you think the actions we take here in the U.S. will have a meaningful effect on the earth’s temperature (and it won’t), this action has a real possibility of being a costly boondoggle.

Electric vehicles (E.V.s) are competitive with gas-powered ones only when you get a substantial government subsidy and run it for many years. Even this computation may be off when you figure out E.V. battery life.

There are few used EVs on the market, none old, so the resale values have been decent. The ownership cost of a vehicle not only includes use and upkeep costs but what it’s worth when you sell. All these new EVS we buy from here on will hit the resale market in the 2030s. What will that look like?

There’s a good chance people will be looking to buy hydrogen-powered vehicles by then. While hydrogen is more expensive, it can power trucks, trains, planes, and ships, and electric batteries can’t.

The weight, range, refuel times and diminished weather performance preclude the electric battery model from heavy-duty commercial use. You can hold down the loss of battery loss of power if you don’t use the heater. Try that on a ten-degree below zero days in Bismark, N.D.

Looking at all the cars on the road, one might conclude our passenger cars are the primary source of carbon dioxide emissions; they account for only 6% of the total as opposed to 14% for commercial vehicles. Rather than sitting idle for long stretches, these are in constant use. If we are to make real progress, we will drop their emissions, and that likely means hydrogen. 

Liquid hydrogen works similarly to gasoline as we pipe, ship, store, and fill up the same way. The only thing emitted is water vapor. Because trucks have to go everywhere, all the time, pumps will be readily available as gas is today.

For all these reasons, major players are investing in hydrogen. With all this investment, the costs will likely fall with innovative ideas. Intermittent energy sources such as wind and solar are better suited to hydrogen production because they produce the cheapest electricity when the sun shines. The same is true when the wind blows. 

Electricity is the highest cost for producing hydrogen. Rather than wasting the electricity or storing it in limited-capacity expensive batteries, use it to make and use hydrogen.

Fusion is attracting a lot of attention. This cheap, safe, and clean energy source may be closer than we thought. Cheap electricity favors hydrogen production. A.I. speeds up everything. Because it is always working, fusion can produce cheap hydrogen when not powering cities.

Of course, the miles covered with windmills and solar panels will be monuments to misinvestment. The problem with government industrial policy is they allocate resources to what we think at the moment is best rather than letting the market dictate course corrections. The American way is to identify needs and let the market find the best way to fill them. 

The rationale behind a lower E.V. cost only after several years rests on resale value and fuel cost savings. It would help if you drove many miles for it to work in your favor. However, driving long distances is hardly an E.V.s strong suit.

With its aging battery, your expensive trade-in may face a market dominated by accessible clean hydrogen vehicles. Millions of E.V. buyers may suffer the same fate. The government may have subsidized your purchase, but it’s unlikely to bale you out. It may have run out of credit by then. In any case, poor battery performance in cold areas restricts the market. 

Near-zero interest rates for many years left them out of the cost comparisons. Now with inflation, the rates are up. E.V.s cost $10 to $20 thousand more than gas-powered cars. With compounding, $15,000 will earn you more than $3,375 using the 4.5% C.D.s offered today. None of the cost comparisons include the opportunity cost or what money could make if not spent on the E.V. comparisons. This cost further upends any value benefit of E.V.s if there ever was any. Buyer beware. If you finance, it could cost you even more. America has an excellent chance of being stuck with bushels of lemons.

I advise prospective car buyers to ignore the hype, resist virtue signaling, and stick with gas until the market, not the government, reveals the future.

When the market directed its economy, China grew by leaps and bounds. As the government controls more, growth slows. If government direction had led to success, the USSR would’ve won the cold war. Why would anybody believe in bureaucrats catering to special interests capable of doing the right thing? 

Next, I’ll tackle Fox’s defamation case settlement, not so unforeseen problems. 

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