Global MFG - Jul 28, 2022
U.S. Senate Preps More Money for Auto IndustryMatt Posky | The Truth About Cars
U.S. Senate Preps More Money for Auto Industry
Senate Democrats have settled on how to funnel more money into the automotive sector using all-electric vehicles and environmentalism. Majority Leader Chuck Schumer and West Virginia's Joe Manchin have reportedly agreed on a proposal that would expand the $7,500 tax credit for EVs while also introducing a new $4,000 subsidy for used models.
But that's just to kick things off. The legislative package is likewise said to include $369 billion that's been earmarked for climate and energy spending. For automakers, that means massive financial help from the government whenever they want to convert their existing factories into the kind that build all-electric vehicles. Though it may not be limited to EVs, as the updated language now makes fuel cell vehicles similarly eligible for the proposed industry subsidization.
With the Biden administration signaling that it will do whatever it takes to electrify American roadways, it's not all that surprising to see allied politicians pushing for expanded tax breaks. The original $7,500 tax credit was implemented in 2010 as a way to help spur EV adoption rates while the technology was in its infancy using a quota system designed to keep things equal among the individual automakers. The theory was that, if the price of EVs were artificially lowered via tax breaks, more people would buy them.
Tesla was the first company to reach this cap and has been pretty clear that it doesn't want to see things changed. Elon Musk derided any plan to expand or reset the credits as unfair, as it did not put all automakers on even financial footing. He also came down hard on earlier proposals that additional funding could be set aside for union-built cars, finding an unlikely ally in the Toyota Motor Corp (which had also reached the 200,000-vehicle cap, along with General Motors). However, most manufacturers haven't cried foul at the latest draft because it basically guarantees they'll all be getting free money from the government by doing what they already said they would — building more EVs.
Now clinging to the broader definition of "clean cars," the updated tax credits come with a few stipulations. Firstly, they cannot be used on combustion vehicles. Second, the eligible cars must be built with minerals that are extracted and/or processed in a nation where the US has an existing free trade agreement. According to Bloomberg, a "large percentage" of the vehicle's components also need to have been manufactured or assembled within North America.
That provides a decent amount of leeway for automakers and provides some ammunition for those claiming that this is little more than a payout for an industry that still managed to enjoy healthy profits despite their supply chain woes. In fact, critics have noted that the industry's two main drives for swapping to EVs are avoiding regulatory penalties and reducing overhead. Electric cars typically take far fewer hands to build, meaning car companies don't have to pay for quite so much manpower.
Ford has recently been hinting that its big push into electrification will come with sizable layoffs, though it's not the first or last business you'll be hearing that from. That's assuming you're following the industry closely, of course. Regular folks are just fed boilerplate lines about environmentalism because it's ultimately more palatable than asserting that corporate executives believe a broader profit margin can be achieved with more EVs and fewer employees. Meanwhile, politicians have attempted to downplay the matter by chanting that the transition will result in new, better-paying jobs.
"[This package] doubles down on supporting American workers, and puts us in the driver’s seat to win the global clean energy race,” Senator Debbie Stabenow, a Michigan Democrat who has long supported the auto industry, said via Twitter.
As you might have guessed, your author is fairly dubious about our collective need for expanded EV tax credits as this already beleaguered world is tossed into another brutal recession. But this is also where there Senate's updated proposal starts making a little more sense to me. After over a decade of criticism that the $7,500 credit was effectively just a discount for wealthy people to purchase high-end electric vehicles, someone had the good sense to address it.
The new deal pitches adding caps based on the suggested retail price of eligible vehicles. Limits would be set at $55,000 for new passenger cars and $80,000 for electrified pickups and SUVs. Credits would be similarly capped to an income level of $150,000 for a single filing taxpayer and $300,000 for joint filers. While this does address complaints that it's just rich people benefiting from the tax breaks, it kind of runs counter to the premise that nationwide electrification is all about the environment by prioritizing what will undoubtedly be heavier and less-efficient vehicles.
Considering Sen. Joe Manchin — who considers himself a moderate Democrat — had previously said that the continued subsidization of electric vehicles was ludicrous, it's kind of amazing some common ground was reached within Congress. But, now that he and Chuck Schumer have announced they've come to terms, it's likely that the scaled-back version of Build Back Better (which includes $433 billion in spending for climate change programs, drug pricing reforms, health care provisions, and over $300 billion in tax increases) this is attached to will pass with a majority of democrats in Congress.
Industry-backed trade groups are already on board and arguably helped decide what form the proposed legislation would take. But Republicans don't seem interested in the slightest, saying that the additional spending would continue hampering the U.S. economy by worsening inflation. Though they probably won't be the group that determines whether the new budgetary bill passes or not — at least not directly. With the Senate only needing a simple majority to pass this baby, Sen. Kyrsten Sinema (D-AZ) is likely to become the deciding vote. Her approval would mean Vice President Kamala Harris could pass the bill onto the House of Representatives which is likely to vote yay.