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How to Help Tesla and Taxpayers

Policies aimed at reducing auto emissions in California and 10 other states are having a troubling set of unintended consequences, according to a recent editorial at Bloomberg View. Editors point out that the “zero-emissions” credits program ends up amounting to a subsidy for electric carmaker Tesla Motors of up to $30,000 per car sold, penalizing the buyers of nonelectric vehicles who end up underwriting the purchase of someone else’s $100,000 Model S. In addition, electric cars may not even be much “greener” than their nonelectric counterparts, when one considers the time of day these cars are charged as well as the source of the electricity—in many parts of the country, exchanging a conventional vehicle for an electric one means trading a gasoline-powered car for one powered by coal.

The Bloomberg editors, unfortunately, suggest solving the problem with two even worse policies: stricter fuel economy standards and a carbon tax. Perhaps if they had read this post by my colleague Richard Morrison, they might also consider a free market approach to the auto industry. Richard suggests treating Tesla fairly by ending both the apparent war against their retail strategy of selling directly to consumers (or owning their own dealerships), as well as eliminating the huge tax subsidies being offered by states like Nevada and New York. If Tesla makes cars that are as awesome as they are made out to be, then surely the company will find consumers who want to drive them—without having to pick their neighbors’ pockets.