As energy companies and other industry associations ask the U.S. Supreme Court to end California's ability to use their market leverage to dictate terms to the U.S. auto market, new research indicates that electric car sales targets and subsidies, such as those in place in California, could short-circuit economic markets and lead to the slow destruction of the automobile industry.
Ross McKitrick, a professor of economics at the University of Guelph in the Canadian province of Ontario, recently authored a peer-reviewed paper published by the Canadian Journal of Economics. The research concludes that EV subsidies provided to Canadian auto consumers and a mandate requiring all new “light-duty” vehicles to be EVs by 2035 – which mirrors California’s targets – will lead to permanent auto-industry financial losses in Canada.
“The fundamental problem is that EVs cost more to make and operate than most consumers are willing to pay,” McKitrick said in a recent opinion article. “In a 2016 submission to the Quebec government, which was then considering an EV mandate of its own, the Canadian Vehicle Manufacturing Association warned that its members were then losing between $12,000 and $20,000 per EV sold.”
In California, the state Air Resources Board passed a rule in 2022 saying that all new cars and light trucks sold in the state by 2035 must be zero-emission vehicles. The board justified the new regulation based on the need to fight climate change and improve the overall health of Californians by cutting smog-causing air pollution.
“From 2026 through 2040 the regulation will result in cumulative avoided health impacts worth nearly $13 billion, including 1,290 fewer cardiopulmonary deaths, 460 fewer hospital admissions for cardiovascular or respiratory illness, and 650 fewer emergency room visits for asthma,” the board claimed after the new rule was approved.
But the state’s EV policies have also led to litigation to get them overturned. Energy firms, those in the ethanol industry and professional associations petitioned the U.S. Supreme Court last month to block the state’s rules. In their petition, the companies claim California has exploited its unique abilities to set air pollution regulations and its economic heft to sidestep federal authority and set more stringent emissions standards for the country than the federal government would allow. They say this has enabled California to "operate as a quasi-federal regulator on global climate change."
McKitrick told the Southern California Record in an email that one section of his academic paper examined the impact on car pricing once the EV targets were phased in.
“I showed that car companies will hike the prices of gasoline cars as part of their response to the mandate, so people won't be able to avoid the cost of EV rules by sticking with gas cars,” he said. “This part of the analysis applies to customers in California as much as elsewhere.”
The resulting higher cost of all vehicles will reduce auto industry revenues and sales overall, according to McKitrick.
“In the second part of the paper I estimated the likely result for the automakers in Canada and concluded they would be put into a permanent loss situation by the early 2030s unless there is a dramatic drop in EV production costs,” he said.
Similar impacts would happen in auto-producing U.S. states, including Michigan and Tennessee, according to McKitrick.
“However the negative macroeconomic impacts of destroying a major sector like automobile manufacturing would spill over everywhere including California,” he said.
Although some aspects of EV production, such as batteries, are becoming less expensive, the metals needed for electric motors are not declining in cost, while the cost of electricity is rising, according to McKitrick’s opinion article.
“A large part of our economy is organized around making and using gasoline-powered cars,” he said. “It should not be surprising that the government outlawing them would have harsh and far-reaching economic consequences.”
In California, the fiscal programs approved by the Legislature and Gov. Gavin Newsom provide up to $9,500 to low-income drivers who trade in their older vehicles for a cleaner alternative; up to $7,000 for low-income drivers who buy or lease an EV; and up to $5,000 to low-income drivers for down-payment assistance on a zero-emission vehicle.
At the federal level, tax credits up to $7,500 are available to consumers who purchase new EVs.
California regulators claim that despite the higher cost of EVs, consumers will see financial benefits through the transition to cleaner vehicles, including a purported 40% drop in maintenance costs and 50% reduction in fuel costs.