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The U.S. Is Losing the Global EVs Manufacturing Race

Phil Covington headshotWords by Phil Covington
Investment & Markets
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If you were asked to list the top three electric vehicle (EV) manufacturers, Tesla would most likely come to mind first, along with perhaps Chevrolet and Nissan after that—two out of three of those being U.S. companies.

Of these, Tesla is the only pure-play EV manufacturer, fully committed to electrification while shunning all other power trains. With the introduction of the Model 3, which is being produced at higher volumes than the company’s previous models, Tesla is now churning out approximately 5,600 vehicles per week, Bloomberg recently reported. At this rate, the company can claim to have joined the ranks as a mass-market automaker selling across global markets.

Seemingly then, America’s firm foothold in EV production should bode well for the future. However, an article published this week in Forbes indicates that the United States is in fact already losing the manufacturing battle when it comes to electric cars. Instead, China is increasingly dominating, accountable for 40 percent of the global production of electric vehicles as compared with 20 percent made by U.S.-based companies.

Yet again, China is surpassing the U.S. in manufacturing—this time with EVs

The author of the Forbes article, Paul Bledsoe, a partner of an energy and climate change consultancy, warns that EV manufacturing in the U.S. is in danger of going the same way as solar panel manufacturing—which has declined substantially in recent years. Once an important new and burgeoning industry in America, U.S. solar panel manufacturers have lost ground, also to China.

True, the comparison of the EV industry with solar panel manufacturing may have its limits. Solar panels are effectively electronic devices, a manufacturing discipline where China already has a huge advantage, whereas auto-making has been a dominant industry in the U.S. for well over a century. As such, the U.S. should benefit from its leading competence and experience in building cars. Still, manufacturers like China’s BYD are already major players in hybrids and battery electric vehicles, so there’s no room for complacency.

Bledsoe asserts that government policy will be necessary to keep EV manufacturing vital in America. But how likely is this when it appears the current administration’s position is not so much complacent about losing ground to China but rather, disinterested? The Donald Trump administration’s recent budget proposal wants to end federal tax credits for purchasing electric vehicles, while at the same time, the administration announced this week it wants to speed up gas and petroleum pipeline building. As a matter of setting priorities, though today’s global vehicle fleet remains predominantly gasoline- and diesel-powered, the rest of the world, including China, is moving on.

EVs still show promise of revitalizing American manufacturing 

Indeed, it’s important that the U.S. government and automakers understand EVs’ long-term business potential. We recently reported that the consulting firm Accenture projects that by 2040 EVs will overtake sales of conventionally-powered vehicles worldwide, providing an opportunity for utilities to unlock $2 trillion in market potential globally by developing the necessary infrastructure and associated e-mobility services.

However, though there is a strong business case for vehicle electrification, Bledsoe suggests that the U.S. Congress should do more to provide appropriate incentives to build momentum and keep the country in a leadership position. At the moment, the federal tax credit of $7,500 per vehicle helps narrow the price differential between conventionally powered cars and EVs, but Bledsoe points out this policy has tended to favor the well-heeled.

A rethink of federal EV tax credits could incentivize all consumers

Instead, Bledsoe suggests that the tax credits should be higher for less expensive EVs, and become lower as vehicles venture further into the luxury category. This makes sense. For example, wealthy drivers can afford a $100,000-plus, well-equipped Tesla Model S, irrespective of the tax credit, so the credit is less important in stimulating sales. Instead, the federal government should offer a smaller tax credit to wealthy buyers while offering a larger credit where tax incentives would really get consumers to consider switching to an electric car at the lower end of the market, where cars are also sold at much higher volumes.

But is there an appetite to do this? Perhaps not, but it’s not a totally lost cause either. While the Trump administration has suggested tax credits should go away altogether, there’s encouraging news from Congress. Reuters reported this week that bipartisan legislation was introduced on Wednesday to expand the vehicle tax credit, so a possible move in the right direction is afoot.

The way this tax credit currently works is that the available $7,500 tax credit is allocated with a cap on the total number of units sold per manufacturer. Once a manufacturer reaches sales of 200,000 EVs, that credit diminishes and eventually falls to zero. Already, Tesla and Chevrolet have hit this number. The bipartisan bill seeks to increase the cap to 400,000 vehicles per manufacturer, which would reinstate a level playing field to Tesla and Chevrolet, at a time when other established car manufacturers from overseas are entering the EV fray here in the U.S.

The bill is often called the Driving America Forward Act, but it doesn’t have a sliding tax credit scale necessary to attract more buyers at the bottom end of the market, as Bledsoe urges.

New legislation, but with the same tactics

Instead, the legislation extends rather evenly the opportunity to boost sales for manufacturers which have committed billions of dollars in order to meet global emissions reduction requirements. Importantly too, at least in spirit, it shows not all lawmakers are turning their backs on electric cars in America.

Of course, you can make the argument that governments should not be picking technology winners and should therefore not be in the business of giving EVs tax credits at all. Instead, they could put a price on carbon and let the consequent rise in the cost of fossil fuels drive market opportunities to innovate—in turn, letting the most successful competitors to the internal combustion engine rise to the top.

However, you can counter that EVs have already established themselves as the most likely technology to succeed the internal combustion engine and that other industrial nations are already forging ahead. 60 percent of cars sold in Norway are now EVs. As it’s becoming clear that EVs are already the future, and if the U.S. wants to remain a strong player and compete with China—not to mention upcoming competition from Germany and elsewhere—a supportive government policy that incentivizes the adoption of EVs is necessary to keep American automakers competitive.

Image credit: General Motors

Phil Covington headshotPhil Covington

Phil Covington holds an MBA in Sustainable Management from Presidio Graduate School. In the past, he spent 16 years in the freight transportation and logistics industry. Today, Phil's writing focuses on transportation, forestry, technology and matters of sustainability in business.

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