The Consequences of Cars Spending Much More Time in the Garage
Tesla’s has an army of writers and influencers who, for various reasons, do their best to prop up this disappointing company in the face of perpetual bad news. Back in 2019 Tesla announced the closure of most of their retail stores in the face of imminent bankruptcy. This group of dishonest cheerleaders said that this was just another genius stroke by Musk. Musk later backtracked on the full store closure plan after getting an emergency loan. But did you hear a peep from the cheerleaders on how Musk made a mistake or Tesla looked close to collapsing? If that doesn’t show the hypocrisy of the media I don’t know what will.
And don’t get me started on the faux-profits of 2020. Neither I or the S&P 500 are fooled. Let’s just say that if Tesla’s profits were real Etsy wouldn’t have gotten in ahead of them in 2020.
This group of Musk’s groupies likes to say that anyone who is pessimistic about Tesla’s future just doesn’t understand what the future brings. Only, they have it backwards. It is they who don’t understand the future. The future is definitely changing how people live and work. But it’s all negative for Tesla.
I’ve been thinking a lot about what is going on in the world and how that is going to affect the automobile industry in the future. It’s kind of scary. In the short-term, the auto industry has gained a net benefit due to people having more time for online shopping and getting stimulus checks in the mail. But those were “pull-forward sales”. Meaning that the customer was planning to buy sometime in the next year anyway but pulled the trigger early due to favorable circumstances.
But long-term, there are going to be some major social shifts happening which will drive down automobile sales.
"We're recovering, but to a different economy," Powell said during a virtual panel discussion at the European Central Bank's Forum on Central Banking.
The pandemic has accelerated existing trends in the economy and society, including the increasing use of technology, telework and automation, he said. This will have lasting effects on how people live and work.
While technological advances are generally positive for societies over the long term, Powell said, on a short-term basis they create disruption, and as the market adjusts to the new normal the pain isn't shared evenly. —Federal Reserve Chairman Jerome Powell 11/12/20
Fed Chairman Powell is right, the economy is changing. Hundreds of thousands or perhaps millions of office workers haven’t set foot in the office since March of 2020. Personally, I don’t know when I’ll be back in my corporate office. And when I do, it’s not going to be like before, it will be in the office 50% of the time at most. My company has already cancelled the lease on one of their two office buildings in my city. This is anecdotal but it’s happening all across the country.
I worked as a financial analyst for the Batesville Casket Company for a while. One of the things that I learned while working there was that there was a direct correlation between average miles travelled per year and national death rates. Meaning that the more people drove, the more caskets we needed to make due to traffic accident deaths. All things being equal, when unemployment was high, our sales were likely to be down because less people were on the roads driving to work.
But average miles driven per year is down drastically in 2020 because people are working from home. And due to new corporate willingness to allow people to work from home part time going forward, the average annual miles driven is likely to stay down in the foreseeable future. When we look back on the data in a few years, we’ll see that 2019 was the peak year for average miles driven per year.
This means at least a couple of negative trends for automobile makers:
Dual-Income Multi-Car households – It’s probable that many dual-car households will decide that they don’t need two new cars. Covid has ushered in a new environment where flexibility working from home is the norm. If neither, or only one person, is driving to an office every morning, are two car payments necessary? Many couples will say “No”.
Car Replacement Cycles Will Get Longer – The average annual miles driven also predicts car replacement cycles. We’re in a new environment where people working from home may get to the end of their 5 year loan to find that their vehicle only has 30,000 miles or less. Without the daily commute they won’t rack up 100,000 in 5 years like in the old days. People who’ve gotten to the end of their loans to find that they still have a car with under 30,000 miles are going to feel like they’ve just hit the jackpot.
Green Policies – This last one is ironic for Musk since he’s built his house of cards upon it. But in 2020, it’s not gone unnoticed by many environmental activists that the greenest cars are the ones that stay in the garage. If people don’t drive there is no burning of fossil fuels, there is less traffic, and there are less deaths. In the short-term, green activists are advocating for alternative fuel vehicles. But in the long-term, they will shift their efforts to financially penalizing car ownership altogether. Ultimately, green activists are anti-car.
To be fair, these trends impact all auto manufacturers. But they hit Tesla especially hard because unlike the other automakers, Tesla is fighting for sales in a much smaller arena. As Car & Driver magazine points out in their November issue, the EV market is poised to be small for a very long time. Tesla is relegated to a niche market that is shrinking. And getting more crowded.
The kind of car a person purchases is impacted by a variety of reasons. But one of the reasons that people are willing to splurge on an expensive car is a mental bargain that they make with themselves. If a person has a long commute and is going to spend a lot of time in that car at least twice per day, they can justify buying that luxury or sports car. But what happens if these people are no longer spending large chunks of their day behind the driving wheel? Maybe that addition to the house or swimming pool is a better place to put that money?
Tesla is on the wrong side of history. They are trying to disrupt an industry that is already being disrupted by COVID-19. People are going to buy less cars in the future and they’re going to replace them less frequently. Tesla is fighting for a bigger slice of shrinking pie.
Yes, there is one group of people oblivious to how the future is going to impact Tesla. It’s people who think that Tesla has nothing but unending growth ahead of it.
This group of Musk’s groupies likes to say that anyone who is pessimistic about Tesla’s future just doesn’t understand what the future brings. Only, they have it backwards. It is they who don’t understand the future. The future is definitely changing how people live and work. But it’s all negative for Tesla.
I’ve been thinking a lot about what is going on in the world and how that is going to affect the automobile industry in the future. It’s kind of scary. In the short-term, the auto industry has gained a net benefit due to people having more time for online shopping and getting stimulus checks in the mail. But those were “pull-forward sales”. Meaning that the customer was planning to buy sometime in the next year anyway but pulled the trigger early due to favorable circumstances.
But long-term, there are going to be some major social shifts happening which will drive down automobile sales.
"We're recovering, but to a different economy," Powell said during a virtual panel discussion at the European Central Bank's Forum on Central Banking.
The pandemic has accelerated existing trends in the economy and society, including the increasing use of technology, telework and automation, he said. This will have lasting effects on how people live and work.
While technological advances are generally positive for societies over the long term, Powell said, on a short-term basis they create disruption, and as the market adjusts to the new normal the pain isn't shared evenly. —Federal Reserve Chairman Jerome Powell 11/12/20
Fed Chairman Powell is right, the economy is changing. Hundreds of thousands or perhaps millions of office workers haven’t set foot in the office since March of 2020. Personally, I don’t know when I’ll be back in my corporate office. And when I do, it’s not going to be like before, it will be in the office 50% of the time at most. My company has already cancelled the lease on one of their two office buildings in my city. This is anecdotal but it’s happening all across the country.
I worked as a financial analyst for the Batesville Casket Company for a while. One of the things that I learned while working there was that there was a direct correlation between average miles travelled per year and national death rates. Meaning that the more people drove, the more caskets we needed to make due to traffic accident deaths. All things being equal, when unemployment was high, our sales were likely to be down because less people were on the roads driving to work.
But average miles driven per year is down drastically in 2020 because people are working from home. And due to new corporate willingness to allow people to work from home part time going forward, the average annual miles driven is likely to stay down in the foreseeable future. When we look back on the data in a few years, we’ll see that 2019 was the peak year for average miles driven per year.
This means at least a couple of negative trends for automobile makers:
Dual-Income Multi-Car households – It’s probable that many dual-car households will decide that they don’t need two new cars. Covid has ushered in a new environment where flexibility working from home is the norm. If neither, or only one person, is driving to an office every morning, are two car payments necessary? Many couples will say “No”.
Car Replacement Cycles Will Get Longer – The average annual miles driven also predicts car replacement cycles. We’re in a new environment where people working from home may get to the end of their 5 year loan to find that their vehicle only has 30,000 miles or less. Without the daily commute they won’t rack up 100,000 in 5 years like in the old days. People who’ve gotten to the end of their loans to find that they still have a car with under 30,000 miles are going to feel like they’ve just hit the jackpot.
Green Policies – This last one is ironic for Musk since he’s built his house of cards upon it. But in 2020, it’s not gone unnoticed by many environmental activists that the greenest cars are the ones that stay in the garage. If people don’t drive there is no burning of fossil fuels, there is less traffic, and there are less deaths. In the short-term, green activists are advocating for alternative fuel vehicles. But in the long-term, they will shift their efforts to financially penalizing car ownership altogether. Ultimately, green activists are anti-car.
To be fair, these trends impact all auto manufacturers. But they hit Tesla especially hard because unlike the other automakers, Tesla is fighting for sales in a much smaller arena. As Car & Driver magazine points out in their November issue, the EV market is poised to be small for a very long time. Tesla is relegated to a niche market that is shrinking. And getting more crowded.
The kind of car a person purchases is impacted by a variety of reasons. But one of the reasons that people are willing to splurge on an expensive car is a mental bargain that they make with themselves. If a person has a long commute and is going to spend a lot of time in that car at least twice per day, they can justify buying that luxury or sports car. But what happens if these people are no longer spending large chunks of their day behind the driving wheel? Maybe that addition to the house or swimming pool is a better place to put that money?
Tesla is on the wrong side of history. They are trying to disrupt an industry that is already being disrupted by COVID-19. People are going to buy less cars in the future and they’re going to replace them less frequently. Tesla is fighting for a bigger slice of shrinking pie.
Yes, there is one group of people oblivious to how the future is going to impact Tesla. It’s people who think that Tesla has nothing but unending growth ahead of it.
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