Economist Writing Every Day

The rise of large pickup trucks and SUVs in the US is generally tied to the implicit subsidy borne of their exemption from Corporate Average Fuel Economy (CAFE) standards. The seemingly ever-growing scale of these vehicles has produced a perfect example of negative externalities in the form of increased risk to other drivers, cyclists, and pedestrians (yes, a pedestrian is in danger from any vehicle, but the decreased maneuverability from greater carriage remains relevant).

This particular negative externality is not wholly uninternalized by large truck drivers, however. They pay higher premiums to the insurance companies that must cover the payouts to negligent and catastrophic loss of life when their customers are found at fault in collisions. Without the internalizing of these externalities through civil cases, trucks would likely be even larger and more dangerous.

Which brings me to the Cybertruck. I don’t care for it as a vehicle for a variety of reasons, but I similarly don’t care for Lamborghinis. My tastes are irrelevant. What is relevant is that it is made out of 30-times cold-rolled steel, a design choice I believe reflects its ambition to appeal as a sort of post-apocalyptic survivor’s vehicle that can literally physically dominate other vehicles.

This is likely to be a very, very expensive choice.

It will probably take a while for the insurance market to internalize the externality, but as the number of Cybertrucks on the street increase, so will the number of collisions and, in turn, fatalities. Fatal accidents are high variance, high cost events that loom large in the vision of insurers. The actuaries will crunch the numbers and premiums will increase. And not just because of short term increases in fatalities. Insurance companies are in the forecasting business as well. If they anticipate that courts may respond to a vehicle whose makeup makes it a disproportionate threat to others on the road by tilting the scales of fault towards their drivers, then its entirely possible that there remains no feasible premium that remains profitable. There’s a reason Jackie Chan can’t get life insurance.

What happens when a $90k, 6,800 pound steel battering ram requires that it’s drivers be self-insured? What happens in states that don’t allow drivers to self-insure? Even if there remains a small number of companies that offer “exotic” vehicle insurance, the premiums will turn push prospective ownership further up the demand curve, turning the Cybertruck into the kind of road oddity you see every few years. I have seen a Lotus Exos exactly once.

It won’t be liberals that kill the Cybertruck. Hell, if they manage to repeal the CAFE exemption it’ll be the single biggest boost a giant EV truck could hope for. No, it’s going to be the market that kills the Cybertruck.