Automakers Must Leverage Biden-Harris Administration Policies To Boost Affordable EV Production

Over the past two years, the Inflation Reduction Act (IRA) has created an automotive manufacturing renaissance, spurring the opening of dozens of new electric vehicle (EV) and battery manufacturing facilities and offering American automakers a path to global leadership.

However, instead of serving global consumers and meeting the climate moment, automakers have introduced a slew of large, heavy, expensive—and only occasionally electric—vehicles unsuited to the automotive transformation taking place around the world. Now, with Chinese automotive giants poised to establish North American manufacturing footholds, American automakers must innovate and invest in smaller and more affordable models or risk ceding global leadership—and even the domestic auto market—to foreign competitors.

Protecting and rebuilding the American auto industry

Through the IRA and the Infrastructure Investment and Jobs Act (IIJA), the Biden-Harris administration has taken unprecedented steps to safeguard the U.S. auto industry and grow U.S. battery and EV manufacturing. The IRA and IIJA offer significant federal incentives for EV manufacturing and adoption, including but not limited to: a tax credit of $45 per kilowatt-hour for battery manufacturing, a credit of 10 percent of the cost of production for critical mineral processing, another credit for 10 percent of the cost for electrode active material production, a credit of up to $7,500 for new EV purchases, and a credit of up to $1,000 for household EV charger installation or up to $100,000 for commercial charger installation. Over the past two years, automakers have been bullish about their expected savings as a result of these policies, with Ford expecting savings of more than $7 billion from 2023 to 2026 and Tesla expecting more than $1 billion in savings in 2023.

The influx of public investment resulted in a race to take advantage of the new incentives, with the number of battery facilities in the United States jumping from two in 2019 to more than 34 planned, under construction, and operational in 2024, supported by a surge in private investment. Two years after its passage, the IRA has made the U.S. EV industry the most invested in EV industry in the world on an individual country basis, with nearly $312 billion in expected private sector investment so far.

A failing U.S. automaker strategy

Unfortunately, many automakers took advantage of these federal incentives not to innovate and provide Americans with a new generation of affordable and clean vehicles, but instead to continue to make primarily large and expensive EVs alongside equally large, and more numerous, gasoline-powered models.

Prior to the passage of the IRA, the affordable starter car, with a manufacturer’s suggested retail price of below $25,000, was becoming an endangered species. Between 2017 and 2022, the number of affordable models declined from 36 to 10. This occurred to make room for automakers to produce more larger and expensive models, which, while selling at lower volumes, generate far higher per-vehicle profits. By 2023, the average transaction price for a new vehicle had reached more than $47,000, and, while this increase was driven by the COVID-19 pandemic, prices have only declined slightly since then.

Following the passage of the IRA, rather than fill this gap and bring more affordable EVs to the U.S. market, automakers have seemingly attempted to pursue their existing strategy of producing large, expensive, high-profit-margin vehicles over affordable, efficient, and accessible models. This is illustrated in the demise of the Chevrolet Bolt. The Bolt was first introduced in 2016 at a starting price of $37,500, which later dropped to $26,500—making it one of the most affordable EVs on the market. The Bolt’s affordability was rewarded, as it quickly became General Motors’ (GM) best-selling EV and one of the best-selling non-Tesla EVs on the market. However, rather than expand production, GM announced the cancellation of the Bolt in 2023, with the automaker retooling the manufacturing facility to make the substantially larger and less affordable EVs, the GMC Sierra and Chevrolet Silverado. Bolt sales peaked last year, before declining inventory inevitably brought them down. Since then, and following consumer outcry, GM has pledged to bring back the Bolt starting in 2025, albeit only in its larger and more expensive Bolt EUV configuration. While it appears that consumers have won out this time, the story of the Bolt is illustrative of habits that plague the industry. Automakers have often stated that consumers will dictate the pace of the EV transition, but this claim obfuscates automakers’ own role in that transition: making EVs, across all vehicle classes, that people actually want and can afford to buy.

In pursuing the above strategy, some automakers have also failed to support their workers, seeking profits and shareholder returns over the needs of their workers or long-term technological innovation. For example, Stellantis has continued to delay the reopening of its Belvidere, Illinois, facility—though the company states that it is still committed to opening—disregarding an agreement with the United Auto Workers to reopen the plant and convert it into an EV manufacturing plant. Tesla has also, at times via the utilization of tactics cited by the National Labor Relations Board as potentially unlawful or improper, opposed unionization. As of October 2023, Tesla employees made an average of $55 per hour in wages and benefits, compared with $66 to $71 per hour at the Big Three Detroit automakers—Ford, GM, and Stellantis—which are all unionized. Instead of returning profits to their workers or investing in research and development, some automakers have prioritized their shareholders instead. GM and Stellantis have both embarked on significant stock buybacks over recent years, with GM announcing $10 billion in buybacks in 2023 and another $6 billion in 2024. Stellantis approved plans to buy back $3 billion of stock in February 2024. Ford has also returned significant portions of its available cash to shareholders, rather than investing in further product development, allocating between 40 percent and 50 percent of free cash flow to dividends. Facing growing competition from foreign automakers, this money would be far better spent on research and development.

Foreign competition and tariffs

The lack of affordable, U.S.-made EVs is exactly why U.S. automakers panicked about Chinese automaker BYD’s plan to open a manufacturing facility in Mexico, with site selection expected to be complete by the end of the year. BYD now offers multiple EVs at or below $15,000 and has seen great success in export markets such as Brazil, where BYD accounted for slightly more than 40 percent of quarter one EV sales this year.

With the proposed manufacturing facility in Mexico, BYD’s affordable EVs could fill the void left by U.S. automakers, posing a major threat to American companies’ own market share. While unfortunate for U.S. automakers, a loss of market share could be catastrophic for the union workers they employ. Foreign automakers operating in the United States have traditionally taken advantage of antiunion laws in the South, dragging down autoworker wages across the country. Fortunately, recent union wins in these states may lessen the ease with which foreign and other automakers are able to hinder unions’ and workers’ rights.

In light of these very real concerns of unfair competition and cries from automakers for protection, the Biden-Harris administration took action to limit imports of Chinese-made EVs, batteries, battery components, and critical minerals by imposing significant tariffs. Tariffs under Section 301 of the Trade Act of 1974 on Chinese-made EVs and EV batteries will increase to 100 percent and 25 percent, respectively, in 2024. These tariffs buy automakers time but by no means can they be a cure for inaction on their part. Even subject to a 100 percent tariff, BYD’s Seagull, priced as low as $9,700 (69,800 yuan) in China, could retail in the United States for less than $25,000, a price point domestic automakers have yet to hit with their own EVs. U.S. automakers must utilize this time to double down on research and development while bringing to market affordable, high-quality EVs. The lesson should be clear for both U.S.-based automakers and Congress: In the race to remain competitive in the global automotive industry, a $25,000 EV is a necessity. Furthermore, in order to be a long-term boon to the U.S. economy, these affordable EVs must be made in the United States by a well-compensated, unionized workforce. The race for affordability must not be a race to the bottom on labor standards, in the United States or abroad.

Conclusion

The need for reasonably sized and more affordable EVs is not lost on domestic automakers. Jim Farley, CEO of Ford, noted in an interview with CNBC, “The first thing we have to do is really put all of our capital toward smaller, more affordable EVs. … We have to start to get back in love with smaller vehicles. It’s super important for our society and for EV adoption.”

For domestic automakers to succeed—both in serving the needs of American consumers and in maintaining, and even expanding, the U.S. auto industry as a source of middle-class growth—they must fully leverage IRA incentives and the temporary protection provided by the Biden-Harris administration. Public investments can achieve domestic adoption of a U.S.-made, union-built, affordable EV if they support an American industry that provides good jobs and meets high labor and environmental standards. The next Congress and administration should continue to work to ensure that these goals are met but for the time being the Biden-Harris administration has provided the tools; now, automakers must align their investments and engineering to build clean, American cars that their workers and the working class can afford to buy.

* Author’s calculations are based on data from the U.S. International Trade Commission DataWeb.