The dangerous dilemma facing America’s largest auto companies

These days, the media vibes surrounding electric vehicles are all bad. But when you take in the bigger picture, electric vehicles and hybrids are taking over the market. Gas-powered cars are currently in as much structural decline as the cable bundle on television.

Today’s guest, Robinson Meyer, the founder and editor-in-chief of the climate media company Heatmap, says that while electric car sales are far stronger than the doom and gloom stories in the media, something else is happening that deserves our attention. America’s three major automakers – Ford, General Motors and Stellantis (which owns Dodge, Chrysler and Jeep) – are in big trouble. China’s electric vehicles will hit Detroit “like a wrecking ball,” he says. Joe Biden wants America’s green electric future to be made in America. But right now, the future of electric cars is made in China.

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In the following excerpt, Derek and Robinson Meyer examine the three top electric vehicle subsidies in the world Inflation Reduction Act and look at the growth rate of US demand for electric cars and hybrids.

Derek Thompson: So there are two questions I want to try to answer today. The first question is something like: what is really happening with electric vehicles in America? The atmosphere in the media is extremely gloomy, but some figures are not nearly as gloomy.

And the second question I want to answer is: Just how screwed are the Big Three automakers as they try to ford the river between the internal combustion engine paradigm that has dominated the American auto market for the last hundred-plus years and this new paradigm, the paradigm of electric vehicles?

I think it would be helpful, before we answer those questions, to briefly consider the IRA, the oddly named Inflation Reduction Act, which, as many people know, is not so much an inflation reduction law as it is a subsidy bonanza for the climate. energy producers and consumers.

So Rob, make sure we’re there. What were the most important things the IRA did: policies and laws that encouraged both automakers to produce more electric vehicles and consumers to buy more?

Robinson Meijer: So there are actually three subsidies in the IRA that people should be aware of, and I’m going to go through them in order from most popular to least popular. But there’s also, I would say, the least important to the most important.

So the first subsidy, the one you hear about the most, is the subsidy for just buying an electric car, an electric vehicle. And that also applies to some plug-in hybrids, but in general to anything with a large battery that you are going to drive a car with, if you meet certain criteria, if you build a battery here, if you process certain mines or processes key minerals here , you’ll get up to $7,500 off the cost of the car. And since January 1, you will receive this immediately as a discount at the time of sale. It’s very easy.

The second subsidy, which I think is more powerful, is a $7,500 subsidy for leasing an electric car.

The third subsidy, which is the most important and which consumers will never see, concerns entirely the supply side. And this is a series of bonuses, tax breaks, that the government will pay to electric vehicle manufacturers. And not necessarily electric vehicles, but all the components needed to make an electric vehicle. And they are awarded on the basis of: you make this and you sell it, we give you money. So if you make a kilowatt hour from a battery cell, you get $35. If you make a battery module in the US, you get $10. And what’s interesting is that it becomes a lot of money very quickly and is extremely noticeable to automakers in a way that has really gone under the radar, but it’s the most important part of this, perhaps, I think, the whole law.

Thompson: So US clean energy policy subsidizes the supply side. It subsidizes the demand side. I want to talk about both sides of subsidy policy.

Let’s start with the question, because as I have discussed publicly, there is an extremely loud narrative in the media screaming about how EV sales are slowing, about how there is a catastrophe in the EV market, that EV in ends up in a ditch. All vehicle metaphors are used to characterize this deceleration.

Looking at the raw numbers, Rob, how would you characterize the growth in US demand for electric vehicles in recent years?

Meijer: US demand for electric vehicles is growing rapidly, period. Everything we’re fighting for, all these articles you may have seen, is actually a slowdown in the rate of growth. But many more Americans bought electric vehicles in 2023 than in 2022. Many more Americans bought them in ’22 than in ’21. More Americans will buy electric vehicles this year than last year.

Everything we fight about and all the topics of discussion are about the second derivative. To give an idea, in 2022 the growth rate for electric vehicle sales in the US was 61 percent. In 2023 this was 32 percent.

However, in the background of all this, I would like to say two things. The first is that sales of internal combustion engine cars and conventional petrol cars peaked seven years ago. They are ready. We’re just debating the speed at which EVs will take over.

And number two, last year we saw something very surprising, which was extremely rapid growth – in fact, growth that matched the growth rate of electric cars – among plug-in hybrids and normal hybrids. So there are apparently a lot of Americans who are going out, they want to buy an electric car, they look at what’s available, they say, “Maybe not this year,” but then instead of buying a regular gasoline car, ‘We’re going out and buy a plug-in hybrid or a conventional hybrid such as a Prius. And that is actually very useful. That is also good in the climate story.

This excerpt has been edited for clarity. Listen to the rest of the episode here and follow the Normal English feed on Spotify.

Host: Derek Thompson
Guest: Robinson Meyer
Producer: Devon Manze

Subscribe: Spotify

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