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Ars Technica tells the sad story: Ford will lose $3 billion on electric vehicles in 2023, it says.
There's no doubt that Ford is embracing electrification. It was first to market with an electric pickup truck for the US market, and a darn good one at that. It has a solid midsize electric crossover that's becoming more and more common on the road, even if it does still upset the occasional Mustangophile. And there's an electric Transit van for the trades. But its electric vehicle division will lose $3 billion this year as it continues to build new factories and buy raw materials.
I wonder if there's another four-letter English verb that has so many different shades of meaning than lose. Merriam-Webster lists twelve definitions for the transitive and three for the intransitive.
Giving many opportunities for cheap linguistic amusement:
"Oh, man, I lost my lunch."
"Dude, no you didn't. It's right here on the bathroom floor."
Anyway, one of those definitions applies to Ford's $3 billion loss, and it's not the same one that applies to losing the keys to your F-150. ("I swear I had them right here in my hand!")
Fortunately, WSJ editorialists, probable native English speakers, explain Why Ford Can Afford to Lose Billions on EVs.
Ford attributes the losses to the growing pains of what is says is a start-up business in the venerable company. The auto maker said it still expects to earn between $9 billion and $11 billion in operating profit this year, though that’s owing to the sales of its traditional gas-powered vehicles. Its gas-guzzling F-Series pickup trucks are especially popular and profitable. Fossil fuels are essentially underwriting Ford’s green business, much as they do in the electric-power industry.
Ford said it will keep investing in EVs and expects to reach an operating-profit margin of 8% by the end of 2026. That will require dramatic changes in consumer tastes as well as whatever efficiencies Ford can engineer in its production process.
Ford can sustain losses on EVs in part because it is benefiting, directly or indirectly, from subsidies up and down the EV supply, production and service chain: battery production, sales to consumers, charging stations and more. The entire point of last year’s Inflation Reduction Act is to make EV production too big to fail. If consumers don’t want to buy EVs, for whatever reason, the government will keep subsidizing or mandating EVs until they do.
I get the EV appeal, I really do. But I'm also pretty sure the electrons they use won't be reliably sourced from zero-carbon emitters anytime soon.
Peter Suderman notes upcoming woes: Biden's 'Economic Plan' Is Industrial Policy That Will Be Terrible For Everyone.
A sitting U.S. president called it the "eighth wonder of the world." It was a massive factory, to be sited in Mount Pleasant, Wisconsin, that would make high-end LCD panels. The price tag would come to about $10 billion; local taxpayers would kick in about $4 billion in subsidies over a decade. In return, Wisconsinites were promised 13,000 good-paying jobs and a boost to the state's economy of about $3.4 billion annually.
In a groundbreaking speech at the new factory, the president singled out a union member he said the new plant would help. He said the facility would be built with American concrete and steel. And it heralded a return to manufacturing in the United States. "We're also reclaiming our country's proud manufacturing legacy," the president said, insisting on the importance of protecting domestic steel mills. "We need that for purposes of defense. We need that for purposes of legacy. We're restoring America's industrial might."
Yet three years after the speech, the facility still wasn't completed. The company, Chinese manufacturing giant Foxconn, admitted it would never create 13,000 jobs; the total would be closer to 1,450. State officials recovered billions in subsidies and put the company on what amounted to a performance plan, where it would receive far less government backing, and only on proof of results.
The village of Mount Pleasant, however, would not make a full recovery. To make way for the facility, developers had bulldozed dozens of homes, some of which were taken via eminent domain. At the end of 2022, having spent some hundreds of millions on land and infrastructure for the never-built factory, the municipality was left with debts larger than the entirety of its operating budget, a representative for a community watchdog told Wisconsin Public Radio. The eighth wonder of the world turned out to be little more than dashed dreams, demolished homes, and empty public coffers.
That "sitting U.S. president" was, of course, Donald Trump. "Industrial policy" is one of those bad ideas that keeps failing to deliver on promises, but politicians love the up-front photo ops it provides.
Veronique de Rugy updates Robert Higgs: Government Grows on Crisis.
Economist Robert Higgs is well known for his work on the “ratchet effect.” As he explained in Crisis and Leviathan, governments expand during crises. But, when a crisis ends, the size and scope of government doesn’t revert to where it was prior to it.
I’ll add to this analysis the snowball effect. I think people can guess what it means. “Bad policy begets worse policy.” Put the two effects together and you can see how we ended up in the mess we are in today.
During the Great Recession, the Federal Reserve engaged in a major policy shift that deployed new tactics seen as necessary at the time. We became familiar with terms such as “Fed tools” and “quantitative easing.” Yet when the crisis ended, the Federal Reserve kept its permanently enlarged balance sheet in part by replacing the mortgages that people paid off with Treasuries. Rates also stayed low because of Fed policy and because of the market, which grew too afraid to lend to anyone who wasn’t “safe” (the safest borrowers, of course, are governments or entities backstopped by governments). Inflation never came, and we got used to the growth in the Federal Reserve’s influence on the economy.
I hate to be a doomsayer. I still have the 35-year-old book pictured at right on my shelf. It's a reminder that doomsaying is always in style. And yet, my streets remained blood-free.
But, geez, things seem worse now
Here are some numbers, thanks to Cato's Chris Edwards: Federal Spending Up 40 Percent Since 2019.
Federal spending jumped from $4.45 trillion in 2019 to $6.21 trillion in 2023, according to the Congressional Budget Office. That is a 40 percent increase in four years. The pandemic supercharged the federal budget, and spending and deficits are expected to continue rising unless policymakers pursue major reforms.
What is all the new spending since 2019? The answer is surprising […]. The main drivers of the recent increases have not been the largest three programs—Social Security, Medicare, and defense—but rather rapid growth in numerous other programs. […] The largest increases have been nondefense discretionary, Medicaid, veterans, food stamps, health tax credits, welfare, school food programs, and interest.
Tables with even more numbers at the link. One eye-catching stat: "Net interest" went from $376 billion in FY2019 to $640 billion in FY2023, a 70% increase. It turns out that putting all that past spending on the taxpayer credit card is pretty expensive.