The Department of Energy announced recently that it was planning to offer a low-cost federal loan of up to $9.2 billion to a joint venture between Ford Motor Co. and South Korea’s SK Innovation to build three electric vehicle (EV) battery factories in Tennessee and Kentucky, with the project expected to create 5,000 construction jobs and 7,500 manufacturing jobs.
In 2021, Ford and SK announced they would jointly invest $11.4 billion to build an F-150 EV assembly plant and three battery manufacturing facilities. Interestingly, United Auto Workers President Shawn Fain called the DOE loan to Ford a massive “giveaway” with “no consideration for wages, working conditions, union rights or retirement security.” The UAW has not yet endorsed President Biden for re-election, citing his EV priorities as a major union concern.
This is the third loan awarded from the DOE’s Advanced Technology Vehicles Manufacturing program under the Biden administration, a $25 billion fund created by Congress during the George W. Bush administration, with $40 billion in expanded loan authority added in with the passage of the Inflation Reduction Act of 2022. In 2009, Ford received a $5.9 billion loan (since repaid) from the AVTM program to renovate its factories and improve vehicle energy efficiency.
Yet, low-cost loans are only part of government incentives and subsidies focused on the U.S. automotive industry — a component of the Biden administration’s “clean energy” national agenda. In this case, the administration’s goal is to expand American EV manufacturing to challenge China, which controls 79 percent (2021) of global lithium ion battery production. Also, Biden wants 50 percent of all light vehicle sales in the United States to be EV by 2030. To this end, the passage of the $430 billion Inflation Reduction Act of 2022 renewed and expanded funding for the federal EV tax credit through 2032 for qualified drivers looking to buy an EV whose final assembly occurs in North America.
Individuals who are eligible for the EV tax credit, those who do not exceed specific income thresholds, can receive a non-refundable tax credit between $3,750 and $7,500 per vehicle purchase, depending on whether their battery minerals, their battery components, or both meet the Department of Treasury’s domestic battery content rules. Presently, there are 23 EV’s that qualify for EV tax credits in 2023 and 2024. In addition, there are 11 state governments that offer incentives that apply to a wider (than the federal program) range of EVs and plug-in hybrids and do not have the limiting manufacturing requirements of the federal EV tax credit program.
Adam Thierer, resident senior fellow of technology and innovation policy at R Street Institute, argues that “targeted and directed efforts to plan for specific future industrial outputs and outcomes is at the heart of a proper understanding of industrial policy.”
The U.S. automotive industry is no stranger to recent industrial policy intervention by the federal government. The present availability of government loans to incentivize EV battery production, and the availability of consumer federal and state tax credit incentives for EV vehicle purchases, is reflective of when the U.S. government spent $80 billion to rescue General Motors, Chrysler and their auto-part suppliers during this nation’s 2007-09 financial crisis. The regulatory disincentives offered by the Biden administration to the automotive industry to rapidly move to production of EV vehicles include increasing the Environmental Protection Agency’s SAFE mileage standards for gasoline-driven vehicles to 40 miles per gallon (versus the existing 32 miles per gallon SAFE standard) in mileage year 2026, and is an agency industrial policy tool to help reach a 17 percent EV market share by mileage year 2026.
The auto industry will need to avail itself of all the public-sector assistance it can to reach broader acceptance levels from American consumers who have yet to purchase an EV. For example, the results of the J.D. Power 2023 U.S. Electric Vehicle Consideration Study found that only 26 percent of U.S. shoppers say they are “very likely” to consider purchasing an EV, up from 24 percent a year ago.
While the EV market in the U.S. broke records in 2022, estimated at 918,500 EVs sold, this 65 percent annual increase represents only 5.8 percent of all new U.S. cars sales (although an increase from 3.1 percent in 2021). This revealing consumer purchasing data, in spite of an EV automotive sector industrial policy, translates to a significant challenge for the administration to accomplish its goal of EVs reaching 17 percent of market share by 2026.
