Even as auto sales are clearly showing signs of a slowdown for the first time since the global financial crisis, California State Legislature passed a measure that will further dent the auto business come Jan 1, 2019. This is despite the fact that, on Tuesday this week, voters rejected a measure to undo recent increases to state fuel taxes and vehicle registration fees, protecting billions of dollars in funding for road maintenance and other transportation projects.

How does the State repay the favor? By mandating that come  Jan. 1, 2019 the owners of as many as 220,000 low- and zero-emission vehicles that have the white and green clean-air decals will no longer be allowed to drive solo in the diamond lanes. Drivers who received their clean-air stickers before 2017 will have to buy new vehicles to qualify for the program and, upon purchase, will be given a red decal – the only decal that qualifies the vehicle to be used in the carpool lane. And, if you happen to be wealthy enough to buy another car to enjoy the carpool lane, you are out of luck. If you earn above a certain amount, you won’t be eligible for the stickers at all.

The rational for imposing this measure is as convoluted as the measure itself. The justification is that decal program was designed to get more clean-air vehicles on state roadways. But it also clogged the lanes, sometimes to the point of gridlock. And so, instead of going after the 1 in 4 vehicles that are in diamond lanes illegally or constructing more lanes from the gas tax to alleviate the traffic, the measure will remove the existing electric cars that have been operating legally in the diamond lane.

Future Wealth’s View

In the last eight years, car sales have grown by an average of 5% per year, but in 2018 that rate is expected to slow to a mere 1.8% over 2017. The slowdown has largely be attributed the shift to global uncertainty over Trump’s trade policies, which is raising prices on raw materials, and creating new barriers to the import and export of vehicles.

In the middle of the trade war, the auto companies are trying to push buyers to purchase new electric cars and SUVs. In California, where commutes are getting longer and longer for those who live in the San Francisco Bay Area or Los Angeles Area, it makes perfect sense to buy a new electric vehicle to take advantage of the carpool lane and obviate the need for gas. Until the Legislature passed this measure that has both auto companies and consumers scratching their heads. Pity the Tesla owners who paid ~$100,000 for their electric cars and now have to be stuck in the non-carpool lanes come Jan 1, 2019. Buying a new Tesla will not solve their problem either, ‘coz they likely earn too much to qualify to ride in the carpool lane. What a royal, ill-conceived mess!

This also partly explains why Ford went and bought a electric scooter start up paying a high premium this week. The other electric scooter companies – Lime and Bird Rides Inc. have a valuation of ~$1 – $2 billion on a business that charges $3 a ride and has completed only about 10 million rides. Suffice to say that this scooter business will end when the government begin requiring that electric scooters need to be registered to share the road or the sidewalk.

Bottom Line: We simply don’t see a good investment thesis in any of the companies in the automobile sector.