Why does one need to present strong evidence that prices will rise by $7500 when the demand curve suddenly shifts right by $7500 due to government intervention? Surely this is just Econ 101.
2. Manufacturing costs do not increase when subsidies are introduced. EVs, as a result, have higher profit margins. Therefore, this will result in enticing more firms to enter a more lucrative market, resulting in more EV sales, which really, isn’t that the goal of subsidies in the first place?
Look at how long it took Tesla to build the Shanghai gigafactory: About two years--and literally everyone who knew anything about auto manufacturing said it would be literally impossible to make that timeline when Tesla announced it in the beginning. People made jokes about it. Oh look at that! Elon Musk is lying again! Hurhurhur.
I mean, why do you think the Model S had zero competition for over 7 years? The first 2 years I understand--everyone thought EVs were a dead market. But why did Mercedes, BMW, Audi, et. al. wait the other 5 years (while Tesla was absolutely destroying their market share in the US) to bring out a competitive product?
Was it because they're a bunch of dumb-dumbs?
Or was it maybe because it takes many years to design a complex product like an EV and build a factory to build the car?
How will they do that? Every one of them is production-constrained right now.
> Manufacturing costs do not increase when subsidies are introduced. EVs, as a result, have higher profit margins.
Now you're getting it!
> Therefore, this will result in enticing more firms to enter a more lucrative market, resulting in more EV sales, which really, isn’t that the goal of subsidies in the first place?
Sure, but it takes 5-10 years to design a new EV and spin up a plant. Will the subsidies still exist by then? (Probably not, because we are in the exponential phase of the EV adoption curve, so the subsidy will quickly become unsustainable).
In any case, EV prices have been dropping over recent years, and I haven't seen a $7500 bump in prices, just in more people being willing to go for a nicer vehicle instead.
If people want 100 units of something, and 5 competing manufacturers can only produce 90 units total (and can only expand to, say, 110 units in a "short" timeframe), offering subsidies doesn't reduce the price.
If the government creates a demand shock, it doesn't matter how much competition exists in the market. They don't need to collude for prices to go up.
Look at what happened to toilet paper during Covid. Were Walmart, Amazon, McMaster and Grainger all colluding on toilet paper prices? Or was there a demand shock?
> In any case, EV prices have been dropping over recent years, and I haven't seen a $7500 bump in prices, just in more people being willing to go for a nicer vehicle instead.
All car prices have been dropping because we're getting past the Covid supply shocks. And if you go back farther, EV price drops are mostly the result of introducing new less-luxurious models (the current base Model 3 still costs more than the first RWD Model 3, and it has been decontented--missing features like parking sensors).
It has precedent too, solar panel incentives, home building incentives etc. When government grants show up, vendors can take it into account if they want. If enough of them do, the market price has changed and so everyone can put their prices up. They are in a market that is not racing their prices to the bottom to drive demand so it works out.
I don't know about Ford, but most other major companies are only "losing" money because they have started a new vehicle platform and need a year or two to get the development costs back. Compared to previous CE platforms they are actually doing much much better.