In the theoretical world of economics when inputs are reduced for a company they will benefit from lower marginal costs and thus increase their production (Note: Inputs = Costs such as labor, rents, wages, taxes, etc.). It should also be noted that companies will typically produce at levels intended to meet demand and also build the required infrastructures to accommodate such production levels. However, this is not always the case.
Case in point: The Chevy Volt. The Chevy Volt is an electronic car from General Motors (GM). Based upon perceived demand for the Volt the US Government, along with local government entities in Michigan, helped reduce the inputs for a plant operated by LG Chem (South Korea). These governmental grants and tax breaks were intended to help make the production less expensive for the batteries of the Volt.
In 2010, the US Government gave a grant of $150 million to LG Chem to build the battery manufacturing facility. This was in addition to local tax breaks of $50 million in property taxes over the next 15 years and $2.5 million a year in business tax reductions. So, how much has the reduction of inputs help increase the production levels of Chevy Volt batteries at the LG Chem plant? Answer: ZERO.
Why then if inputs where so drastically reduced by government subsidies has production remained flat lined? The simple answer: There is no real demand in the market right now for these electric vehicles. Some have even claimed that the technology now to store energy in batteries for these cars is no more effective than that of 100 years ago. Demand is so low that now after 2 years of setting up the facility and testing production that each employee receives a one week furlough each month (paid via Unemployment Benefits).
So, can anything be done to increase demand for these electric cars? Well, the government is offering to help consumers reduce the purchase price for the Volt, and other electric cars, via Federal and State tax rebates. These rebates can combine to be as much as $12,500 off of the MSRP of over $40,000 when one purchases a new electric car. With many of these rebates originating in 2010 and many still existing today the demand has not really changed for the cars.
It seems like the government entities are doing all they can to increase the demand of these cars. They are willing to invest heavily in reducing the inputs of essential parts for manufacturing, thus making production costs as seemingly low as possible, and also offering consumers money, in the form of tax rebates, to purchase them.
Regardless of governmental intervention and incentives to both producers and consumers the demand is just not there. It appears, at this point, no matter how much the government wants to create demand for the Volt that the principle of Consumer Sovereignty is the real driving force in the lack of demand.