Why a Tesla Costs More Than a Model T

Published August 8, 2023
ford model t assembly line

Henry Ford’s use of a moving assembly line finally made it possible for average working Americans to own cars. Automobiles were toys for the rich, but in 1920 Ford lowered the price of a new Model T to $260, about $3,500 in current dollars. Try buying a new car today for $3,500.

What caused the price of cars to skyrocket, far beyond the rate of inflation? Other consumer products have not similarly spiked. In 1920 a new radio, the latest consumer craze, cost about $150. Cumulative inflation since then has been 1425 percent, so that radio should now cost $2,288. But Amazon sells new radios with better sound for $30. In 1950 a new 14-inch TV, the new fad, cost $160, over $2,000 in 2023 dollars. Yet Best Buy sells a 43-inch TV for only $270.

Scores of consumer products have gone down in real dollars as technology improved, while the price of cars has gone through the roof. Even though Ford upgraded to the latest technology with its Model A, by 1930 the car still sold for $650, less than half the average Americans’ annual income. Adjusted for inflation, such an everyday car would now cost $11,875. But Kelley Blue Book shows the average car today sells for $49,388 – an 7600 percent increase. And the government is hell-bent on forcing everyone to switch to electric vehicles, which now average $66,000 – more than the average American’s total annual income.

A recent MotorTrend article, entitled “We can live with the government’s push for electric cars,” began by asserting that car buyers survived earlier mandates. “Back in the early 1970s, MotorTrend spilled a lot of ink railing against federally mandated emissions and fuel economy standards. We argued government mandates would drive up car prices…” Apparently, we’re supposed to chuckle at silly 1970s thinking, but it wasn’t silly – it is exactly what happened.

Government mandates are the primary reason car prices spiked so sharply compared to other products. Most mandates were safety-related, beginning in the 1960s when the Department of Transportation began requiring seat belts, padded dashboards, safety glass, head rests, and collapsible steering columns. Later mandates focused on car body and chassis design. Auto makers added entire divisions of safety engineers, accountants, and report writers as governments regulated everything from crash test dummy design to years-long testing requirements. More recent mandates required disc brakes, electronic stability control systems, tire inflation monitoring, computer systems, and backup cameras. And technology that prevents starting the engine while impaired is now required, starting in 2026.

All those mandates increased the cost of making cars, but they pale in comparison to emission requirements that started with EPA in 1970. The agency began by banning leaded gasoline, requiring a complete redesign of

decades-old engine technology. California’s catalytic converter requirement soon became national policy, and EPA has since added requirements for computer technology, fuel injection, exhaust systems, onboard diagnostics, and much more. EPA itself estimates that emission equipment manufacturing now employs 65,000 people and sells over $26 billion annually. That has resulted in major declines in auto fatalities since the 1960s, and especially the incredible achievement in cleaning up air pollution since the 1970s. But don’t be under any delusion about why car prices are so much higher these days.

Nor is there any relief in sight. With full support of the U.S. government, the auto workers union is now demanding double-digit pay raises and a four-day work week. Who will pay? Car buyers, obviously.

Meanwhile, the government continues piling on more high-cost mandates. The National Highway Traffic Safety Administration (NHTSA) now proposes stricter emission standards, this time not to reduce auto emissions, but to eliminate them. The new “CAFE (corporate average fuel economy) Standards” will require a “2% per year improvement in fuel efficiency for passenger cars, and a 4% per year improvement for light trucks… reaching an average fleet fuel economy of 58 miles per gallon by 2032.” That’s more aggressive than California’s gas vehicle ban, which doesn’t take effect until 2035. A Heritage Foundation analysis concludes that the mandate will increase average car prices by another $7,200 per vehicle.

CAFE standards are designed to put the burden on auto makers, rather than car buyers. The mileage goals apply to corporations, so that the mileage across their entire line of vehicles must average a specified per-gallon number, or fines are imposed. The Energy Department (DOE) rates vehicle mileage, which also has a major impact. For example, DOE has previously rated Ford’s electric pickup at 237 mpg, but now proposes to reduce that rating to 67 mpg, with similar reductions for other electric vehicle ratings. That would require auto makers to produce far more electric vehicles to lower their average, or face stiff fines. GM estimates that those penalties could top $300 billion, adding another $4,300 to the cost of vehicles.

Even then, these new gas mileage goals are not possible with existing engines, as the agency’s own chief, Ann Carlson, admits – but that isn’t her real objective, anyway. The goal is to require a nationwide conversion to electric vehicles. These CAFE rules will effectively do just that.

That’s about neither safety nor pollution. It’s about fundamental transformation of the American economy – not NHTSA’s job. Before her current appointment, as a UCLA professor, Carlson helped lead the California plan to ban gas-powered vehicles. She said it is “impossible” to achieve climate goals without “moving away from the internal combustion engine.”

That’s more than what her agency disingenuously calls “updating fuel economy standards.” It is a plan to make electric vehicles mandatory, and the cost of driving – for the first time since Henry Ford – prohibitive for average working Americans.