Warren Buffett Bets on the Fossil-Fuel Highway
A sucker is born every minute, and Warren Buffett just proved it. He agreed to spend an undisclosed sum of his shareholders’ money to buy a controlling stake in Pilot Flying J, the truck-stop chain that sells food, coffee and diesel fuel to truckers. After all, aren’t truckers about to be replaced by robots, and diesel by battery power?
The sucker in this scenario, we add, is anyone who believed such futuristic forecasts in the first place.
Said Mr. Buffett this week on Bloomberg TV: “Who knows when driverless trucks are going to come along and what level of penetration they have?” He might have added that Bloomberg itself has been a key offender in overhyping vehicle advances. It won lots of play for its estimate in July that electric cars would overtake gasoline cars in affordability by 2025. Little mentioned was the fine print: Its forecast depends on regulators being willing to pile on enough taxes and mandates to cancel out the superior cost-effectiveness of gas-powered cars.
A growing irony goes almost completely unnoticed. China, the U.K. and France now talk of banning the internal combustion engine as soon as 2030. Jerry Brown, California’s 79-year-old, term-limited governor, is pressing his state regulators to set a similarly aggressive date to burnish his green legacy.
In the meantime, to prove they’re making progress, they’ve all adopted the same interim strategy: They mandate that car makers sell a set number of electric cars in return for being allowed to sell gasoline-powered cars. Fiat admits to losing $20,000 on every electric vehicle it sells in Europe. General Motors loses $9,000 on every Chevy Bolt. Even Tesla is partly sustained by selling zero-emissions credits to conventional car companies that actually make money (unlike Tesla).
The implication is worth pausing over: In banning gasoline-powered cars, then, California and other jurisdictions would be banning the very product whose profits allow electric cars to exist in the marketplace today.
This story has ripples and ripples. Ford fired its CEO, Mark Fields, in May when electric- and autonomous-car hype failed to loft Ford’s stock the way it had Tesla’s. He was replaced by Jim Hackett, manager of Ford’s futuristic mobility division. Mr. Hackett this week announced his own strategy and, lo, Ford will double-down on gas-powered SUVs and pickups.
Ford’s stock price is indeed up on Mr. Hackett’s watch—because of expectations that lots of Houstonians will be replacing their flood-damaged pickups.
China is at a different point in its policy cycle. It also has additional motives. It wants to shift air pollution from the vehicle tailpipe to the coal smokestack in hopes of making its cities more livable, and it wants to shift its dependence from imported oil to domestic coal.
But the paradox remains: Electric cars in China will be “compliance vehicles” sustained by booming sales of gas-powered cars.
What about robotic drivers, presumably the other flaw in Mr. Buffett’s Flying J purchase? Autonomous trucks are already used in ports and mines, and may be licensed eventually to operate on America’s limited-access, tightly-regulated interstate highways if the public and politicians will allow it.
But such long-haul journeys (over 1,000 miles) account for only 21% of truck trips. If a wider array of goods can be profitably shipped long distances thanks to automation, it will mean more trucks and drivers navigating urban and suburban roads and regional highways, not to mention more workers to serve as warehouse hands, dispatchers, etc.
The Journal, leaning against the wind, recently showed how Amazon and e-commerce were associated with increased overall employment. The panic about displaced truck drivers is likely to prove even more badly overstated. On present trends, robots in the U.S. won’t be putting people out of work. They will be making up for a labor shortage. Truck drivers have been in short supply for more than a decade.
The world’s politicians are not stupid, but neither are they necessarily interested in sound, coherent long-term policy. There are other carrots and sticks operating on them. Electric cars certainly have their uses and will find a place in the world’s garages. Look at the expanding array of vehicle types—from SUVs to minivans to sports cars and crossovers and pickups—that Americans already own. Today’s average U.S household has more cars than licensed drivers.
But put aside the dream of electric cars soon taking over, which has always depended on wizardly management by politicians who can’t manage anything. Gasoline- and diesel-powered cars will remain the vehicles of choice for many uses for decades to come. And Mr. Buffett (and his heirs) will be plying their drivers with pancakes, coffee and fill-ups.
Appeared in the October 7, 2017, print edition as ‘Buffett Bets on the Fossil-Fuel Highway.’