As the NYT and many others have pointed out, billions in automotive investment is being driven, at least in part, by “pressure from government officials” (i.e., EV/battery subsidies and regulatory restrictions on ICE cars). But traditional automakers are currently losing money on the transition—“Ford said in July that its electric vehicle business would lose $4.5 billion this year”—while Tesla, which has lower costs, a smaller workforce, and no ICE transition to deal with, simply isn’t. As already noted, other rivals have lower costs too, which is a big reason why all automakers are taking their subsidies and setting up shop outside of union strongholds.
Meanwhile, American consumers remain hesitant about fully embracing EVs, thanks to “range anxiety” and a lack of adequate charging infrastructure—something Energy Secretary Jennifer Granholm hilariously discovered herself during a recent promotional tour. Domestic inventories are swelling, and—as discussed—profitability is under pressure. Thus, Axios reported last month, “The EV transition will likely be longer and bumpier than many experts predicted—which explains why some automakers are hedging their bets, cutting prices and recalibrating their strategies.” In fact, just this week these issues—along with politics and (maybe) the UAW negotiations—pushed Ford to mothball a massive new battery plant in Michigan.
So, thanks to a fast—maybe too fast—subsidy-and-mandate-fueled EV rollout timeline, you have nervous car companies plowing cash into a not-quite-ready EV market and facing off against a nervous unionized workforce (and leadership) that wants to maintain, if not expand, a shrinking slice of the pie. It’s a recipe for a major conflict with no winners, and that appears to be what’s in the baking (heh). Adding insult to injury, the mess also appears to have made the Biden administration nervous about 2024: According to CNN, they’re providing as much as $15 billion in additional subsidies for automakers to convert old plants into “advanced vehicle” facilities—subsidies that the UAW had a hand in crafting and which were reportedly intended by the White House to win the union’s 2024 endorsement.
Gross cronyism aside, none of this is smart and good for the U.S. industry’s long-term competitiveness.
Forgetting History
How this all works out is anyone’s guess, but it sure sounds familiar, and not in a good way. For starters, costly, inflexible labor contracts—weighed down by especially generous benefits, pensions, and other things negotiated during boom years—were one of the main things that doomed Detroit automakers (and necessitated a government bailout) during the Great Recession: