An EV pullback in China could put a nasty kink in the entire plug-in chain
Profitable by when without Chinese sales?
Would a Chinese shift to hybrids slash plug-in forecasts and crush suppliers?
Here in my home state of California, a few solar companies are hot. Unfortunately, the hottest companies don’t produce solar technologies. Instead, they lease them to homeowners and businesses. Sounds great, except that many of these companies are using Chinese-made solar panels as US solar companies like Solyndra go bankrupt — taking half a billion in tax payer money with it.
While some are crying unfair Chinese business practices, probably with good reason, there is no doubt that the solar industry over the last few years produced far more solar panels than demand demanded.
And with China now scaling back its plug-in plans, one wonders if the battery industry isn’t heading for even far greater over-capacity problems than the solar industry.
Even before China announced that a major rewrite of plug-in plans was in the works, analysts had already predicted severe over-production in the battery space due to a plethora of players rushing into the space. The numbers just weren’t adding up. Which isn’t surprising.
We live in a time of frequent booms and busts. That’s just how markets and technologies work these days. There has to be losers because there just aren’t enough worms for everyone to be a big winner considering the costs of entry.
Fortunately, in a few years, many analysts believe that the solar market will work through this over-capacity and normalize. That’ll probably lead to another eventual boom and, of course, another eventual bust. That’s the cycle.
But the bubble hasn’t even yet hit the battery space, it’s still frothing, as companies like Nissan continue with their plans to invest $7 billion into the space – with $5 billion+ having already been spent before Chinese worries even began to perk up.
Yet, China was to be one of the key drivers of plug-in market penetration.
Now those plans could be pushed back many years. Maybe even a decade or longer. Consequently, does Nissan’s 10 percent by 2020 EV penetration forecast have any chance of succeeding without China?
If the battery industry was already set for a small bust in the next few years to shake out the weaker players and consolidate, is a much bigger bust now in order?
Certainly, such a bust won’t kill the battery industry, as batteries will be an integral part of the future of the auto industry. But such a pullback could significantly stall mainstream plug-in penetration potential. More alarming, since serious battery breakthroughs are still required in the battery space, such a bust could have a very negative impact upon battery R&D — the real key to the future of plug-in vehicles.
In my opinion, if automakers are completely confident in the future of the battery, they should start by building a solid foundation of hybrid cars to build upon, much as Toyota is doing with the Prius.
I know it’s a cliche, but it is usually much smarter to walk before you run, especially if you’re committed long term. Sure, it’s not as glamorous in the short term, but ask any serious runner and they’ll tell you it’s far more realistic in the long run.
there are about 30 options to restore solvency to SS and Medicare Part A.
http://www.cbo.gov/ftpdocs/115xx/doc11580/07-01-SSOptions_forWeb.pdf
and I agree with your comments but would add that Medicare Part A is funded from FICA while Medicare Part B (and C&D) are funded from income taxes and thus are direct subsidies from taxpayers.
we can put SS/Medicare Part A back on a sustainable basis with one or more of the 30 CBO options but fixing Part B (C&D) is going to be much more difficult and almost surely will result in serious increases in premiums and decreases in benefits.
I totally concur about the concerns about reducing the payroll tax… it’s going in the wrong direction… but perhaps the thinking is that it will force a quicker reform….
When it comes to FICA there is a lot of dis-information….
1. Very few folks even know that FICA and “payroll tax” are the same thing.
2. The dis-information that 40% of Americans don’t pay taxes, ignores the fact that 100% of Americans that earn a paycheck pay a payroll tax.
3. FICA payroll taxes have a ceiling. Every dollar above $125K is exempt from payroll tax (yet another tax break for the rich)
4. In reality, the bulk of funding for Medicare and Social Security comes from the poor and middle class.
“PAYROLL TAX CUTS”
I am not a proponent of the payroll tax cuts that were passed during the 2009 stimulus and the additional payroll taxes proposed in Obama’s job package, because they decrease the funding to Medicare and Social Security. Even though I am one of those who would get this tax break, I think it is a bad idea.
I have two suggestions to help balance the budget and solve the funding problem for Medicare and Social Security.
1. End these payroll tax cuts and restore FICA funding to normal levels
2. Remove the ceiling on payroll taxes above $125,000….
Do that and Medicare and Social Security are solvent for the next 100 years……
FICA taxes (and SS benefits) have changed MANY TIMES over the years – and those changes were made to explicitly keep it solvent and self-balancing.
this has happened continuously over 65 years and prior to now, it has never been a controversy.
the idea that SS was designed – never to change – and that in doing so – it proves that SS is “flawed” is a total myth,
just about any insurance that you have – changes in response to demographics and claim experience and for most of us we accept as normal the fact that our premiums change and/or benefits get changed.
they have to do that if they are going to stay solvent.
SS has to do the same thing for the same reasons.
I sometimes think half the country has taken a stupid pill and just totally accepts the right wing propaganda that is being spewed out.
the folks who attack SS – are opposed to the CONCEPT of mandatory payroll taxes but they use the fiscal argument as a proxy – using a dishonest narrative that asserts that SS is or will go bankrupt and nothing could be further from the truth.
we could have a debate on whether we should have payroll taxes but I’d point out that 173 out of 196 countries have some form of payroll tax and some form of Social Security and that the nations that have none – are 3rd world countries than no American would want to live in.
re: FICA – thanks Tom… there is so much propaganda flying around now days masquerading as facts that even folks who support SS believe them.
FICA brings in almost as much as income taxes but it cannot be spend on anything other than SS and Medicare Part A.
yes.. it’s true it won’t be enough to fully fund benefits unless changes are made…
but worst case, it still pays 75% of benefits and draws not one penny from general revenues to do it.
this is NOT the case with Medicare Part B which is in serious trouble… much more serious than SS and has unfunded liabilities 5 times as large.
I’d pay more in FICA if it meant that teenagers today would be able to collect Social Security fifty years from now.
Having a big old thunderstorm now so may get kicked off line but wanted to make a quick response to LarryG.
I forgot that FICA was funded differently – thank you for the reminder.
Indigo,
You continue to insist that the Volt is only for spoiled rich guys, I continue to insist that the Volt is affordable for a lot of middle-class Americans (Thanks to the tax break & gas savings).
The Volt may an actual cost of $40K, but it has an “effective cost” of $22K to $27K thanks to the tax break and gas savings.
Regardless of whether you label it a “welfare check”, the tax break is real money.
Today, a person shopping for a vehicle could buy a Volt or an SUV, and it would cost him about $32K out of pocket….
But…..The Volt also saves you $100-$200 a month compared to an SUV in gas costs. At 7.5% on a 5 year loan, a $100 monthly payment equals $5000. A $200 payment equals $10,000. That means an SUV that costs between $22K & $27K will have the same monthly expenses as a $40K Volt.
THIS IS WHY I CAN AFFORD A VOLT.
I currently spend $150/month in gas, but I’ll spend about $50 on gas & electricity in a Volt. For me, buying a Volt is like buying a $27K SUV. THAT is a price I (and a lot of other Americans) can afford….
Yes. The Volt is affordable for a lot of Americans…..Not just the rich.
I think all of us are going to have to take a haircut and would suggest in terms of proportionality that we use the percentages that were in place before the Bush tax cuts.
but I still think talking about tax credits when we are 1.5Trillion in the hole – regardless of how we decide what to do about it – is not smart because those tax cuts are being financed with loans from the Chinese…
Tom,
I am also of the opinion we should eliminate all gov’t tax credits.
But if we don’t……..
If we continue to pick and choose which tax credits stay and which ones go…… then I choose to keep the tax credits for plug-ins…
My grumpy 2 cents…..
As long as the rich get a tax break, I will not support “any more” government cuts. We have had trillions in cuts this year, but have not raised a penny by reducing the tax cuts that caused the deficit in the first place…
Republicans are unyielding on opinion to end their tax break for the rich, so I am unyielding on my opinion about government cuts.
When Republicans consider ending the tax break for the rich, and I will consider supporting more gov’t cuts.
We are not serious about debt as long as we continue to extend the Bush Tax Cuts….
I still am of the opinion, that I would rather give someone a tax break for buying an EV instead of giving someone a tax break simply because he is “rich”.
but SS is funded by FICA payroll taxes not income taxes and is not in major deficit despite the propaganda and if FICA fails to produce enough money for SS – by LAW – benefits must be reduced.
In other words – SS is self-balancing…and if no changes are made, benefits will automatically reduce to 75% of scheduled benefits and SS will not have any impact at all on the deficit (despite the propaganda that says otherwise).
Medicare Part B – yes… it’s using 210 billion a year in income taxes …which is about 1/5 of what DOD/Homeland security use.
any way you cut it though – a 1.5 trillion deficit SHOULD MEAN – NOT TAX CREDITS of any kind because they InCREASE our debt..
we cannot afford incentives right now …with a 1.5 trillion structural deficit and a 14 trillion debt.
A flat tax is a separate issue in my mind unless someone can demonstrate how it will balance the budget and buy down the debt.
Until then, it’s a distraction from the real issue which is that horrendous deficit that no one wants to pay for while we argue about tax policy.
we can argue about tax policy AFTER we make up our minds about HOW we’ll pay for the deficit.
until then.. my view is that we are not serious about our debt… because we’d rather argue about who pays and tax credits, and flat taxes rather than take responsibility for the debt we’ve already created and now refuse to pay for.
the advocacy for tax credits when we are this much in debt is bizarre… in my view.
if we do not get our debt under control.. tax credits for hybrids/plug-ins is going to be a joke.
just my grumpy 2 cents worth..
What ‘indigo’ says about the $7,500 being a welfare check is a little harsh but also has some truth to it. But then again so is Social Security, Medicare, Medicaid and almost any other government program that is not fully paid for.
What is not being talked about might be that Smurf pay a lot in Federal income taxes while someone like myself pays very little. There is a big difference between someone paying $20,000 in taxes and someone paying $2,000.
My personal preference would be that there would be no tax credits, rebates or any other incentive to encourage the purchase of a specific product. BUT, I do understand the need for these incentives when new technology is brought to market. We are going to be in a world of hurt when oil becomes more and more expensive. Anything that encourages individuals to use something else besides gasoline I believe is a good thing.
Oh and before I forget – Yes I also support a flat tax and of course I also support Term Limits for members of Congress. And of course I also would make sure that every member of Congress over the age of 65 is on Medicare.
Tom G.
But I agree with your earlier statement 100% when you said that we need more manufacturing of high-tech items in the United States.
Smurf: But the Volt doesn’t cost $32k. It costs $41k. People who buy a Volt get a $7,500 welfare check from the government. And that welfare check is paid for by people like me who can only afford a $20k car.
I think both Smurf and Indigo are correct.
We have spend millions and millions in loan guarantees and grants to build battery manufacturing facilities in Michigan. I do not mind supporting a new industry with my few tax dollars I pay – it’s a good thing. It cost so much today to start a company only the mega corporations and smaller companies supported by the government can afford something of this scale which has the potential to change the behavior of our society [from gas to electric].
It is also true that senior citizens living on social security are never going to buy a Volt. I shouldn’t say never – maybe in 10 or so years when the price will be competitive but that at best is an unknown.
Someone retired and living on a company retirement and some small IRA’s are also probably not going to be buy a Volt. If you have no taxable income you can’t take advantage of tax credits.
We all – someday – will probably be driving hybrid electric and/or all electric vehicles. My personal preference would have been for us to start out with hydraulic hybrids since they are much cheaper to build but that is not the path our government decided to take. And as of today I STILL don’t want to be PRESIDENT. I think the job would suck big time LOL. Have you ever noticed how every president turn grey.
Hogwash.
I ordered a Volt and our combined income is less than $100K.
$32,500 puts you in the same zipcode as a REGULAR SUV. The Plug in Prius will be even less. If you can afford a regular SUV, you can afford a Volt or Prius Plug in. The problem is that middle class Americans would still rather order an SUV than a hybrid or plugin.
This problem is not unique to the Volt. Honda Insight sales numbers are still very low, even though that vehicle is in full production and available in all 50 states.
The Volt has an edge though. There is still a waiting list for the Volt. Nobody is waiting to order an Insight, despite the lower cost. Volt sales numbers will surpass Insight sales in the coming months as GM begins to fill all their back orders…..
Does it even matter? Only folks making $150k+ can afford plug-in hybrids and that crowd is more likely to plunk down $70k on a luxury SUV that gets 6 MPG than buy a Volt.
This is why we need to manufacture our batteries HERE, in American battery plants……..