California's Mysterious War on Gasoline Cars

NEW YORK (TheStreet) -- California will soon have the country's highest state income tax rateat 13.3% and red tape for almost every kind of business is stranglingprofitability.

The high level of government spending, record pay andretirement benefits for government bureaucrats make Greece lookconservative and California is spinning in the direction of thebiggest bankruptcy of all time. Unemployment is among the country'shighest, despite the world's best farm land, Hollywood and SiliconValley.

With this trainwreck of an economic calamity, why do peoplevoluntarily still choose to live in California? The answer is theunbeatable fresh air, the flawless climate, the best weather in theworld. I call this "air/climate/weather."

In California you don'tneed to be worth $10 million to feel rich -- you only need a parkbench and the open sky. There is no money in the world that can buythis air/climate/weather. You could be Donald Trump, but if you'reliving in New York, you're poorer than the poorest Californian when itcomes to the air/climate/weather experience.

Some will argue that California's signature industries -- Hollywoodand Silicon Valley -- are the main attractions for living inCalifornia. This explanation, however, doesn't really answer thequestion of why those industries in turn are in California to beginwith. If California didn't have the country's -- and the world's --best air/climate/weather, chances are that those industries would dowhat their employees would do: swiftly locate themselves to placeswith lower taxes, less red tape and no looming state bankruptcy.

With this as a background, please consider California's obsession toeliminate most regular gasoline cars from the sales column. Accordingto the state government, over the next decade or so, the sale ofregular gasoline cars will be curtailed in favor of "zero emissions"vehicles, such as electric cars and hydrogen fuel cell cars.

In order to achieve this goal, the California government is forcingauto makers to produce and sell increasing quantities of currentlyprimarily electric cars. These quantities have been modest untilrecently, but over the next couple of years, these required sales ofvarious classes of electric cars ramps up materially: 1.5 million ofthem by 2025.

This poses an obvious market problem: Imagine that thegovernment mandated that for each restaurant McDonald's opens, itneeds to also open five vegan restaurants where only tofu and ricecakes are served. Furthermore, for every beef burger sold, they wouldalso need to sell five rice cake and tofu salads. How would you likethat? How would McDonald's like that?

In California today, the people who are deciding what cars willbe sold are no longer buyers and sellers on the free market, butgovernment bureaucrats who dictate the sales mix.

The question nobody seems to be asking is the underlying logic of thegovernment's plan to force people into buying cars they don't want.The California government says it is doing this to improve theair/climate/weather. But the air/climate/weather is where Californiaexcels! Basically, you don't need to fix a problem that doesn't existto begin with.

If there were the slightest problem with the air/climate/weather inCalifornia that needed to be fixed, believe me, people would be longgone from this state. There sure isn't any other reason to live inCalifornia.

This is not to say that I in any way dislike electric cars. On thecontrary, I'm probably one of the most ardent electric car fans in theworld. There are plenty of good reasons to buy an electric car. Forexample:

1. Electric cars are quiet. This is an environmental benefit if Iever saw (heard) one. Noise pollution is real and obvious to everyonewho isn't legally deaf.

2. Electric cars drive well. They are smoother, powerful and allowfor mostly one-pedal driving. Basically, it's a premium driveexperience.

3. Electric cars may have lower maintenance expense. Fewer moving parts mean less breakdowns and cost to service, as there are no timingbelts, no spark plugs, no oil changes and so forth.

In other words, I highly recommend electric cars -- whether the pureones, or the extended-range hybrids such as GM's ( GM) Chevrolet Volt, Ford ( F)C-Max Energi or Toyota ( TM) Prius Plug-In. I think that with time, theyare likely to take over the marketplace on the merits -- quiet, smoothand low maintenance performance.

However, pure electric cars also have a number ofdrawbacks causing many consumers to wait. Basically, the technology -- batteries -- is expensive in relationto the range and recharging time. People are also cautious withrespect to performance in extreme temperatures and battery longevity.

The extended-range hybrids eliminate essentially all drawbacks exceptfor cost. The added weight and the space the battery/electriccomponents occupy also are minus points.

Therefore, my prediction is that in a free market the sale of pure EVsas well as plug-in hybrids will likely increase over time. Newtechnology takes time, even if people like it. During its first yearor two, the iPhone was not a raging success either -- and automobiletechnology typically takes much longer than computing technology to beadopted by consumers.

Take Toyota, for example. It is now selling the excellent PriusPlug-In as a "lighter" alternative to the Chevrolet Volt and FordC-Max Energi. But that was not enough for California's regulatorywhip!

Toyota also had to start selling pure EVs. It contracted with Teslato engineer a special all-electric version of the now-outgoing 2012model RAV4, and sell 2,600 units in California 2012-14. This is afantastic automobile, and I highly recommend affluent Californiacitizens get one.

However, if you consider the development cost forthis low-volume production run, it would suggest that Toyota is losinga lot of money on each of these cars, currently priced around $50,000pre-state and federal tax incentives.

In addition, Toyota engineered the Scion iQ EV, which is a marvel ofa tiny city car, but in the end realized that it would not sell, even inCalifornia. Only 90 were built. Given the cost to engineer this fineautomobile, I don't even dare speculate about the amount Toyota had towrite off.

The list goes on: Fiat and Honda are also selling or leasing electriccars for California, probably at a big loss per car. Only becausesomeone thinks that California's biggest problem is itsair/climate/weather. It is so totally counter-intuitive that it givesme a headache.

The California bureaucrats would point to some chart showing that theair quality in Los Angeles is sometimes bad. Really? If so, why dopeople volunteer to live there? Why do people keep visiting? And whyshould alleged bad air/climate/weather in LA impact someone's carpurchase if you live somewhere else in California and you will neverdrive to LA?

Bottom line: The attempt by California's government bureaucrats to force people into buying certain types of cars because of an allegedproblem with California's air/climate/weather is totallycounterintuitive. It also raises costs for the auto makers, who inthe end of course have to pass these costs to the consumer.

Themessage to Sacramento should be: Stop trying to fix a problem that soobviously doesn't exist.

At the time of publication, the author had no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

More from Opinion

Apple Needs to Figure Out Its Self-Driving Vehicle Strategy

Apple Needs to Figure Out Its Self-Driving Vehicle Strategy

Throwback Thursday: Tesla, Chip Stocks, TheStreet's Picks

Throwback Thursday: Tesla, Chip Stocks, TheStreet's Picks

12 Stocks That Our Writers and Their Sources Recommend You Buy Here

12 Stocks That Our Writers and Their Sources Recommend You Buy Here

Musk Goes on Unoriginal Media Tirade

Musk Goes on Unoriginal Media Tirade

What's Happening in Video Games This Week: On the Road to E3

What's Happening in Video Games This Week: On the Road to E3