This is the twenty-second in our series on “the ABCs of the AJP”
The single largest expenditure in President Biden’s original proposal for his American Jobs Plan is a $174 billion investment to promote electric vehicles (EVs). This considerable sum reflects the fact that increasing the number of EVs on the road in the United States would advance a number of key administration priorities, as described below.
- First, it would meaningfully address climate change. The transportation sector generates 29% of U.S. greenhouse gas emissions, and emissions from passenger cars and medium and heavy-duty trucks account for 82% of that figure. Even when taking into account the processes used to generate the electricity used to power them, EVs have lower lifecycle emissions than fossil fueled engines.
- Second, it brings the potential of reliable, well-paying, union jobs for American workers. The auto industry and its supply chain have long been drivers of the country’s economy. As we have previously discussed, increased domestic EV production can productively engage tens of thousands of workers, in addition to helping ensure that the industry remains a technological leader going forward.
- Third, it will assist the United States as it attempts to out-compete China. China sold approximately 1 million more EVs into its domestic market than the U.S. did into its own in 2020. The Chinese EV market has benefitted from decade-long policy intervention to encourage growth, and through the AJP President Biden is poised to respond in kind.
Even before the AJP was proposed, American automakers had been making EV commitments, and sales had been projected to grow. GM, for example announced its intention to sell only zero-emission passenger cars by 2035, while Ford introduced an electric version of its iconic Mustang and has announced plans to electrify the F-150, which has been the country’s most popular vehicle for decades. Tesla, whose sales consist entirely of EVs, hit a number of impressive milestones in 2020, including delivering nearly 500,000 vehicles worldwide and joining the S&P 500
But EVs still face challenges that are delaying widespread adoption: EVs made up only about 2% of new car sales in the U.S. in 2020. Despite considerable advances in cost competitiveness, EVs have not yet reached price parity with comparable internal combustion engine vehicles, a fact largely driven by the expense of producing the large batteries needed to power them. EV charging infrastructure is also lacking, and presents a chicken-and-egg problem: Investors are unwilling to fund charging stations until EV sales increase, but consumers are hesitant to purchase vehicles if there isn’t enough infrastructure for them to refuel. Although any jurisdiction seeking to transition to EVs must confront these issues, the U.S. has lagged behind other countries in terms of EV market share, again suggesting the benefits of proactive government intervention to encourage growth.
Enter the AJP, which would use diverse mechanisms to spur the American EV market:
- To address cost concerns, the plan proposes point of sale rebates and tax incentives for consumers.
- To expand necessary infrastructure, the plan seeks to establish grant and incentive programs for state, local, and private entities, with the goal of building 500,000 charging stations by 2030.
- To assist industry, the plan seeks to boost the entire EV domestic supply chain, beginning with critical raw materials like lithium and cobalt, all the way through improvements to American factories to make parts and the batteries themselves.
- The plan would also use the procurement power of the federal government to electrify the entire 645,000 vehicle federal vehicle fleet, further driving demand for EVs, including vocational and heavy duty vehicles.
- Finally, the plan would allocate research and development funds to developing the next generation of EV technology, to further drive down price and reduce reliance on raw materials.
This multi-pronged strategy reflects the “whole-of-government” approach that the President has articulated for dealing with the climate crisis. While all of these proposals and even more may ultimately be needed to spur the transition to EVs, the Bipartisan Infrastructure Framework announced last week includes only $7.5 billion for EV infrastructure, which the Administration says “will accomplish the President’s goal of building 500,000 EV chargers;” but it includes none of the AJP’s proposed $100 billion in EV subsidies.
Precisely because so much remains uncertain and so many different policy levers are available to affect the EV market, interested parties should carefully track how much of the AJP’s originally proposed $174 billion in EV funding will ultimately be enacted as part of any bipartisan deal or budget reconciliation package.