The Daily - Biden’s Electric Car Problem

Episode Date: November 16, 2023

A little over a year ago, at President Biden’s urging, congressional democrats passed a sweeping plan to supercharge the production and sale of electric vehicles.Jim Tankersley, who covers economic policy for The Times, explains whether the law is actually working.Guest: Jim Tankersley, an economic policy correspondent for The New York Times.Background reading: President Biden’s 2022 climate act spurred big investments in U.S. battery factories, but it has not similarly boosted E.V. sales.Growth is brisk but slower than expected, causing automakers to question their multibillion-dollar investments in new factories and raising doubts about the effectiveness of federal incentives.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday.

From The New York Times, I'm Michael Barbaro. This is The Daily. A little over a year ago, at President Biden's urging, congressional Democrats passed a sweeping plan to supercharge the production and sale of electric vehicles. Today, my colleague, Jim Tankersley, reports on whether the law is actually working. It's Thursday, November 16th. accountability journalism, you've been trying to understand whether President Biden's signature climate bill is doing what it was designed to do. So tell us what you found. I found a lot. So the climate bill, which you might recall, was called the Inflation Reduction Act. The Inflation Reduction Act invests $369 billion to take the most aggressive action ever, ever, ever, ever in confronting the

climate crisis. It's the biggest climate investment in American history. And one of the centerpieces of that climate investment was to try to accelerate America's transition from what we might think of as regular gas guzzling automobiles to electric vehicles. American auto companies, along with American labor, are committing their treasure and their talent, billions of dollars in investment to make electric vehicles and battery and electric charging stations all across America. Made in America. All of it made in America. And what a team of colleagues and I set out to find was, is that happening? Has the transition really been helped along by all of the tax credits in

this bill and in the Biden agenda that are meant to push EVs forward? Got it. And just in short, what's the answer to that question? So the short answer is the law is trying to do two things at once. It's trying to have more electric cars and trucks made in America. And on that, we can say unquestionably, it's a success. But it's also trying to get more Americans to buy electric vehicles. And on that, not so much, at least not yet. And that, of course, feels important because if you can't convince Americans to walk into a car dealership and buy an EV, then what's the point of developing a system for manufacturing them in the country? So let's start, though, by focusing on how this law is working in getting EVs made in America.

So the law includes what are very powerful investment incentives for what is truly every step along the path of manufacturing an electric vehicle. Like starting from pulling the most important materials for an EV out of the ground and ending with recycling those materials once a battery has lived its full life and needs to be returned to something else. So start with the very beginning once a battery has lived its full life and needs to be returned to something else. So start with the very beginning, this battery, and walk us through how the incentive touch almost every point of the process. Right. So there is a mining component to the Inflation Reduction Act. It is a tax credit for companies that pull out of the ground in the

United States certain critical minerals that are used in the making of electric car batteries. And if you do that mining here, you get a production tax credit, which reduces your taxes and makes the project more attractive. The White House, for example, loves to tout a lithium mine in Nevada as an example of the sort of activity that's being encouraged by these incentives. Okay, what's the next touchpoint? So then you have the processing of those materials to be turned into batteries. And there you see a bunch of other investment across the country, including in North and South Carolina.

Again, because there are tax credits that incentivize companies to set up mineral processing facilities to turn those raw materials into what you need to make batteries. And of course, that means there are new jobs in the Carolinas as well. Exactly. And by the way, we're talking about billions of dollars of investment that otherwise probably wouldn't be happening if not for the fact that the Inflation Reduction Act passed. Okay, so those are the batteries. How does this bill incentivize the rest of putting together an electric vehicle? Well, we've got one more step on batteries, which is that you actually have to go to a plant now with the refined materials. And here is something where we've seen a really big boom of investment activity across the South. A lot of foreign automakers have announced plans to do their own battery making facilities in the United States

that will create the batteries that then will go into their electric cars and trucks. So this is pretty fascinating because just in the creation of a battery, this one component of an electric car, you're saying this bill has generated an entire ecosystem of businesses in a year. Yes, totally. And it's really interesting. Some of that ecosystem is where you might expect it, where auto plants already are, like in Michigan.

But other parts of this investment are like entirely new ecosystems, like in the Mountain West, which are interesting because it sort of shows the power of these incentives to break out of the traditional economic pathways that the auto industry has been in. And then we come to sort of the final piece of manufacturing an electric vehicle, which is the actual assembly plant. And here again, the law encourages investment by companies in doing that assembly, taking the battery and the rest of the car components, putting it all together and rolling it off to head to a dealer lot here in the United States. And again, it appears to be working. So for example, Hyundai, the Korean automaker, is going to do its first U.S. electric vehicle plant in Georgia. A company called Scout,

which used to make cars in the 60s and 70s. Now they're coming back with EVs, and they're going to assemble them in South Carolina. You're basically seeing an EV supply chain grow out of almost nothing in the United States. This feels like a really powerful reminder, Jim, that tax breaks, which we often joke about and sometimes we malign, have this tremendous force in our economy. And here, government tax breaks are fundamentally transforming an industry. Yeah, the tax breaks were designed in this case to change the economics and the calculation that a company might make of where you want to build an electric vehicle. And they are very powerful, but they're not working alone here. They're not the only reason we're seeing this investment. There's a second part of the law that is really encouraging

companies to spend money now to ramp up their electric vehicle sourcing and production in America. And that is tied to the question of how do you get more people to buy these cars? Well, what is it exactly? The law creates a $7,500 tax credit for most people to buy an electric vehicle. It's a lot of money. It's a lot of money. It's a lot of money. It can definitely reshape a buyer's decision when you're comparing, you know,

a Chevy Bolt versus a Toyota Camry. But there's a catch. To qualify for the credit, a car or truck has to meet certain requirements for how much of it is made and assembled in America. That's why there's so much money being poured into changing the EV supply chain so quickly. Because if you're an automaker

and you want your vehicle to be able to get that big advantage of the government just throwing money at customers to buy an EV, you have to meet those made in America requirements, which means you need to be investing. And the requirements get tougher every year. So you need to keep building out your supply chain so you can keep meeting the requirements.

It's sort of a long-term strategy with the goal being you have to keep qualifying for the full $7,500 benefit. This year is the first year those requirements actually started. And that was pretty fast. The law just passed in 2022. So a lot of cars were just sort of left out in the

cold. They didn't qualify for the full credit because their automakers hadn't had time to build up their supply chains. That means that customers weren't able to get the $7,500 each either. And so that's sort of why the law right now is doing a lot less to incentivize people buying EVs than it is to incentivize companies investing in making EVs. We'll be right back. Jim, just before the break, you said that this law isn't doing enough to get consumers to buy electric vehicles despite this $7,500 tax credit. Even if the law leaves some EV car makers out in the cold, like you said, I have to imagine it still does apply to plenty of EVs. So walk us through this kind of complicated dynamic. Okay.

First off, electric vehicles at the moment tend to be pretty expensive in the United States, which is why if you want to get people to buy more of them, the government is offering them money. That's a pretty straightforward calculation. But they're also getting increasingly popular. This year, the country appears to be on track to buy about 1 million electric vehicles for the first time. That's a big deal. But it's still not very much in the context of the overall car market. Like, it's less than one out of every 10 cars and trucks sold in the United States is an EV. And Biden wants that to be significantly higher.

And I think when we talk about the incentives not yet working to supercharge that buying market, the easiest way to look at it is that the rate of increase in EV sales actually went down last year after the law was passed. It's obviously still growing, but when you talk to car dealers, they mention a few obstacles that a lot of potential EV buyers still face when trying to decide between an EV or a conventional car. Like what? Cost is the big one. They say it's still too expensive, and particularly if the car doesn't qualify for the tax credit, which a lot of models don't,

then it just doesn't pencil out for them compared to a cheaper alternative. What if it does, though? Is that still a problem, the cost of a car, even with a $7,500 tax credit? Well, you can really make a difference. Once you factor in the $7,500 credit, dealers will tell you that removes a significant barrier for a lot of buyers. But it's not everything.

People still have other concerns, too. They're still worried about, can I charge this car often enough and easily enough to get where I want to go? Something that people call range anxiety. Like, oh, I want to take road trips. Are there enough chargers along the highway for me to be able to do that and fuel up, you know, like I can with a gas station with a conventional car? And right now, the government is racing to build out an infrastructure of chargers to expand on the one that's already

in the United States. But it's just not big enough yet for a lot of people to feel comfortable. So those two issues, affordability and range anxiety, combine to make a difficult calculation for a lot of buyers. But when you talk to the dealers, affordability is the big one they come back to. They really say that if people have an incentive this new world, not enough EVs were going to qualify for that difficult-to-qualify-for $7,500 tax credit, and therefore a lot of Americans just couldn't get over the hump, couldn't get to buying an EV. I think the best way to think about this is the people who wrote the law, and that includes some very key senators like Joe Manchin of West Virginia, who was not in a rush to get a bunch of people into EVs, but very much was in a rush to get more manufacturing in the United States, were really trying to do these two things at once. people to buy more electric cars and trucks. And two, they wanted those electric cars and trucks to be built and sourced in the United States. And so by balancing those competing interests, you were almost inevitably going to have this transition period where the buyer side incentive

is just not as powerful as it could be once all of the production incentives work their magic and get a full electric vehicle supply chain in America that allows more cars to qualify for the credit. You're saying there was always going to be a trade-off, either manufacturing was going to be favored or consumer purchasing, and in this case, it ended up being manufacturing. Yeah, if what you really wanted to do was say, listen, no matter what, we want as many Americans

possible buying and driving electric vehicles right away. We don't care where they're made. You do a very different sort of shape of the law than what they did. And you might have a lot more people buying EVs today than what you actually see in the data. Now, interestingly, the Treasury Department did issue a ruling late last year that kind of gave some buyers a workaround and probably made the numbers look better than they otherwise would have. It's complicated, so I'll boil it down to basically just say the department is allowing people who lease an electric vehicle to recoup as much as $7,500, that full tax credit,

off the cost of their lease, even if the car they are leasing doesn't qualify for the credit because it's not assembled in America. It's essentially a workaround. So a lot of people ended up getting EVs that way this year. If you look at independent auto dealers, about half of them this year have been leased as opposed to bought. So what should we make of that? The number of people willing to lease an EV to get that incentive? Well, it's an unusually large share of auto shoppers who are choosing to lease over buying. So what that tells us is it's probably people who would not otherwise be leasing, but are responding to this workaround ability to get the full tax credit.

Got it. You know, in listening to all of this, Jim, I guess I'm a little bit confused why exactly we're supposed to care that sales, actually purchases of, not just leases of, EVs in this first year are lackluster. This is, as you have said, a long-term investment and a long-term transition that's envisioned

by these investments. So what is the big deal if, in just one year, sales are a little bit disappointing? Well, there are definitely people inside the administration who say exactly what you just said. We don't need to worry about this. But there are people I talk to who worry a lot about it for a couple of big reasons. The first is every car you put on the road stays there for a while. People own cars for a long time, or they sell them as used cars, and the life cycle of a car is a decade or more easily. And so every time you put a conventional gasoline car on the market, on the road, it's going to stay there and it's going to continue to emit fossil fuel emissions, which contribute to the warming of the planet. Put a different way,

every time you don't sell an EV, you've missed an opportunity to fight climate change. Right. And so, sure, in that scenario, if what you care about very, very most here is reducing emissions, you want as many EVs on the road as possible, as soon as possible. And in that sense, this law encouraged people to make the unenvironmentally friendly decision to buy the gas-guzzling car versus the EV. By restricting which cars qualify for the credit, the law made it easier for a lot of buyers to choose a lower-cost conventional car than would have been the case if every EV got the credit, for sure. Got it. But, Michael, the other reason people worry about getting EV

sales, you know, on a rocket-paced trajectory and not just a steady climb is because they worry about what could happen in the next presidential election. If President Biden loses, either to Donald Trump or any other of the Republican candidates who are running right now in the primary, it is very likely Republicans will try

to overturn basically all of Biden's efforts to promote EVs. I've watched all of the Republican debates, and when EVs come up, they are mocked. The candidates talk about them being uneconomic. And we're subsidizing the cars, not every car. We're subsidizing electric vehicles. And they want to reverse these tax credits. These subsidies are not working. We also need to take... They would like to reverse the regulations that Biden's EPA is putting in place to encourage more EVs.

They need two-thirds less workers to build an electric car. Joe Biden, this strike is at Joe Biden's feet. Joe Biden, this strike is at Joe Biden's feet. So there's this sense that the Biden-EV moment could be fragile, as fragile as the next election is. Right. This maniacal push for all electric cars is killing the United States, killing Michigan. And I think we should probably establish clearly the frontrunner in the Republican field, Donald Trump, is outright hostile to electric vehicles. They say you want electric vehicles, we'll give it to you when the damn things don't go far enough and they're too expensive. And has made very clear that he would not encourage people to buy them, and in fact that he would encourage people to buy traditional gas-powered cars.

traditional gas-powered cars. Yes, and we saw when President Trump was in office that he leaned on the automakers, the American automakers, not to transition to EVs. So if you're a person who really cares, for climate reasons, about getting more EVs on the road, gee, you'd much rather they take hold in the market faster

and have people demanding them more such that they could survive the loss of that support should a Republican take the Oval Office in the next election. But to me, isn't there a version of everything you just talked about where even if Biden loses and a Republican who's hostile to EVs wins, guts this law, removes these incentives, that all the investments you talked about, which are big and represent billions of dollars, represent a cake that's pretty well baked and that this is not really derailable,

that people are too invested in this change? The hope among EV advocates is that this industry will become so quickly and so deeply rooted in the United States that no one is going to be able to reverse that progress from inside the Oval Office. That if consumers drive EVs, buy EVs, they like them. That if regulators in states like California succeed in pushing automakers to make more EVs. They'll just continue down the path no matter what the federal government does. But the real hope here for EV advocates

goes back to the first part of this whole equation that made in America supply chain. And it's about jobs. Because a lot of these jobs are going to be created in red Republican areas. And there is this big expectation among the Democrats and their supporters who sponsored this bill

that if you build enough battery plants in Georgia and Tennessee and you put enough people to work in critical mineral mines or in assembly plants, then that will become its own sort of economic gravity and will be difficult for Congress to reverse. And perhaps it will be its own sort of economic gravity and will be difficult for Congress to reverse. And perhaps it will be its own kind of political gravity

because what you're outlining is a world where so many, not just Democratic voters, but Republican voters, independent voters, become invested in the economy of electric vehicles that they might not want any future president to make it harder for those cars to get into the hands of consumers. Everybody could, in theory, become more and more invested in this

because the economy is more and more invested in it, and people's jobs are more and more invested in it. Yeah, the simplest way to think about this is a potential congressional vote to reverse these tax incentives. In a world in which that was an actual live option on the table? Well, the hope among Democrats is that you have enough Republicans from these districts that are getting battery incentives that they will have to vote no because they'll be getting pressure from the companies creating jobs in their districts, from the workers working at those

plants. And, you know, it's this sort of idea that, yeah, you can vote along party lines, but it's very difficult to vote against the economic interests of your district. And if you can make enough of the district's economic interests aligned with EVs, then maybe you've got something. And so this is, for some people, why the complicated design of the law was the right way to go. was the right way to go. If all you did was shower subsidies on the people buying electric cars, you might make some consumers happy. But if you tie those subsidies

to this complicated series of tax incentives to create production and jobs in America, well, then that might become its own sort of sustainable ecosystem, both economically and politically. Well, Jim, thank you very much. Thank you. We'll be right back.

Here's what else you need to know today. On Wednesday, Israel and Hamas appeared to be closing in on a deal to release a group of Israeli hostages taken by Hamas on October 7th, according to both Israeli taken by Hamas on October 7, according to both Israeli officials and Hamas. Under the proposed deal, Hamas would release 50 Israeli women and children in return for the release of 50 Palestinian women and children being held in Israeli prisons. The deal, which is being negotiated by officials from Qatar, Egypt, and the U.S., would also include a so-called humanitarian pause in fighting that could last for several days.

But despite the movement toward a deal, Israeli Prime Minister Benjamin Netanyahu must first present the proposal to his government for a vote. And the Times reports that some hardliners in Netanyahu's government, who do not want to make any deal with Hamas, may seek to block it. Today's episode was produced by Claire Tennesketter and Michael Simon-Johnson. It was edited by Lexi Diao with help from Mark George, contains original music by Diane Wong and Marion Lozano,

and was engineered by Alyssa Moxley. Our theme music is by Jim Brunberg and Ben Lansford of Wonderly. That's it for The Daily. I'm Michael Barbaro. See you tomorrow.