- At the heart of capitalism is creative destruction.
- Joseph Schempeter
He called it...
Capitalism makes for innovation, but the creation of new destroys the old. A quick example is the cassette wiping out the 8-track. Now, we have electric vehicles. As they develop, the days of the combustion engine is on the horizon. However, in the near-term, gasoline will still have a strong demand. Sales is demand. Although electric vehicle sales as a percentage of demand is small, things are looking better for the EVs.
Chinese Are No Fools
When ideas are circulating, the Chinese Communists are quick to react. We can see that in the two biggest alternative energy sectors, windmills and solar. China put money and investment at a far greater level than the West, especially the US. They dominate the market. One might even see the apoptosis of capitalism and democracy being replaced by socialism. However, governing under socialism kills human rights and freedom. There is more to human happiness and fulfilment than economic success. Our founders chose wisely. With that said, one aspect of a change within the auto sector is resales. There are more pre-owned vehicles sold than new ones every year.
What Is Happening...
It is not just the new models with better batteries that is selling, but the used market is looking extremely strong. Consumers are finding deals that are to good to refuse. For example, in 2024 a new Mustang Mach-E GT sold around $55,000. Last month, locations offered the same model for around $33,000. When customers find opportunities like this, the pull to change from combustion is too great.
With the above example, there are still obstacles. The big one is the tax credit of $7K is ending. Many dealerships used the tax break and put the advantage into leasing. This will create a problem down the road because as many as 250,000 EVs will come into the resale market. This could ultimately benefit consumers as EV prices will sink on used models. The buyers are working the Schempeter theory without even knowing about the Austrian economist. The second obstacle is President Trump. He backs oil. He has three more years in office. Unless a miracle happens with his "old" ally, Musk, there will be no stimulus for electric.
With that said, according to Cox Automotive, the reselling in the two different styles is closing. EVs are gradually winning over the public. However, one concern to piercing the 50% barrier is the worry within buyers that as technology expands, the resale value will shrink, dramatically.
The average price of a used EV is around $34,600 and gas models will run about $33,900. Of course, different models and features react differently with depreciation. Sales executives see used EVs outselling used gas powered models as they take optimism in data that has EV sales rising by 34% in the first half of this year.
Then, we read this data point from China. In the last quarter, China sold more EVs that all the car sales for the entire year in the US. If there ever was any doubt that China is the number one economy in the world, reread the last sentence. It is not the value put in price, but the actual number of sold items. Our economy has the lie of inflationary pricing to conclude the value of the GDP. I realized this aspect in the observation of movie lines for a show and the pricing value of the picture with people buying a ticket. The error is the actual number of tickets sold. More people attended the showing of "StarWars" than any of the budget, record pricing of the latest action flick. The cost to see the sci/fi classic was from $2 to $3 bucks. Today, the cost to see the make-believe is $10 to $12 bucks. There are no lines in small, multi screen theaters. Back in the day, we had beatiful, large, one-screen building. There were lines around the block and the theater held 5x as many people. This is the lie from our two poltical parties and the Federal Reserve. Then, we extend this aspect to the stock market. This is the latest...
Friday Close
JPM posted this point. The S&P 500 had a PE ratio of 22.8. This is the highest in this century. It gets even more scary by using the CAPE Shiller ratio. It reads 37.97. The only time it was higher was before it crashed in 1999 turning into 2000. It was 44. We believe that demand and growth are not the same due to pricing. We want to see units sold. We want to see better paying jobs and most of all, social mobility. Oh, by the way, we would love to see a balanced budget or even Congress submitting a budget? All we get is ego and hypotocy of our two corrupt political parties. When the Democrats were in power, the Republicans would not subport the debt ceiling to keep government active. The Dems said, the spending measures were voted and passed. This is wrong. Now, they do exactly as the Republicans did because the ball is in the other court. Peace.
