Tesla’s latest announcement was big. The electric carmaker said it planned a modification that would give its autos the ability to accelerate faster than cars that cost two to three times more and keep up with those that cost 10 to 20 times more. I made the supposition that if you squint, you can see the beginning of the end for gasoline-powered internal combustion engines. They won’t go away for a while, but they have a credible challenger in electric battery-powered vehicles.
Let’s assume that I am correct. Play this out and at some point in the future, sales of gasoline-powered automobiles will peak and begin to fall. This has enormous ramifications for the U.S. transportation grid and economy, as well as anyone investing in energy or transportation.
We now pay for the maintenance and construction of our interstate highway system through the Highway Trust fund.
The fund is financed by a gasoline tax that has been stuck in a time warp. The last time the tax was increased was in 1993, to 18.4 cents a gallon. But now the fund is starved of funding because the tax wasn’t indexed to inflation.
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A never-ending series of emergency measures and short-term fixes have kept the fund afloat until now, but even the Senate’s proposed three-year agreement will be a challenge to get through the House, which is only looking to extend federal highway spending to December.
This brings us back to the rise of electric-battery vehicles. If I am right and half of all cars sold in the U.S. and Europe by 2035 will be either plug-ins or hybrid-electric, then the demand for gasoline is going to start falling. Even the most skeptical observer of the industry knows that gasoline sales are not likely to continue rising during the next century.
Can anyone legitimately make the case that gasoline sales are not going to peak within the next five decades? It isn’t even a huge stretch to imagine a plateau beginning as soon as 2025.
Which brings us back to the issue of road maintenance: If my speculation is correct, then at some point in the future gasoline sales won’t even have the potential to fund road maintenance.
The window is beginning to close on refinancing America’s debt at historically low interest rates. Make me your all-powerful king and I will float a $5 trillion, 50-year bond offering to rebuild the entire transportation infrastructure. But short of that, doubling the gas tax to 37 cents and indexing it to inflation will keep roads functional and allow for efficient transportation of goods around the nation.
Of all the taxes we love to hate, the gasoline tax is the most innocuous. It isn’t even a true tax, but a usage fee: the more you drive the more you pay for the cost of the roads.
The U.S. highway system, once the envy of the world, has become a national embarrassment. It’s past time to change that.
Barry Ritholtz is a columnist for Bloomberg View.