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Posted on EVANNEX on January 08, 2022, by Charles Morris

The Biden administration has proposed a number of initiatives to promote transport electrification and clean energy. Three of these are specifically targeted at the auto industry: a reboot of the federal tax credits for EV purchases; a major investment in EV charging infrastructure; and a new set of fuel economy standards. Which of these three programs is the most important, which are most likely to be implemented, and what are the effects of each one likely to be for Tesla drivers in particular?

Above: Tesla Model Y (Twitter: Tesla Greater China)

Before proceeding further, let’s note that it’s always a risky business to make predictions about government programs. They are always extremely complex, they usually undergo major revisions between the proposal and policy stages, and their real-world effects typically unfold over the course of years, if not decades. The pontification and punditry that follows are based on our best understanding of these proposals as they stand at the current moment.

FEDERAL EV TAX CREDITS 2.0

President Biden’s Build Back Better plan includes a revamping of the system of federal tax credits for EV purchases. The proposed system improves on the existing tax credit in several ways: It would apparently replace the tax credit (which benefits only high-income taxpayers) with a cash rebate; it includes an incentive for buyers of used EVs; and it eliminates the automaker-specific cap that has ended the credits for Tesla and GM, perversely punishing them for being early movers on electrification.

However, there’s one provision of the proposal that’s not popular with Tesla fans—an extra sweetener for vehicles assembled by union labor. Currently, the only automakers that would be eligible for the extra credit would be Ford, GM and Stellantis—all other automakers’ US plants are non-union shops. Tesla CEO Elon Musk, as is his wont, has used some provocative language in opposing the credit, allying himself with oil-company shills such as Joe Manchin (D-Fossil Fuel Industry), who probably don’t want to see any federal support for EVs at all.

Some believe that, while supporting unions may be a worthy goal, it has nothing to do with promoting EVs. Others counter that it has everything to do with bringing unions on board with electrification. A counter-productive “EVs-versus-jobs” narrative is taking shape (encouraged by the oil industry) not only in the US, but also in more union-friendly Germany and Japan. Some Tesla skeptics have found a new theme—portraying EVs as job-killers—so, while union-bashing may be politically popular in places like Texas, it’s probably not in the long-term best interests of the EV industry.

Despite Mr. Musk’s indignation, whether the UAW gets tossed a bone or not is arguably a non-issue for Tesla. It’s hard to see how the amount of the rebate would matter much to a company that’s currently selling every car it can build, and has been regularly raising prices, with no rebates in play.

And Tesla buyers are not what you could call price-sensitive. For those who can afford to invest $45,000+ in a new car, another $4,500 one way or the other is unlikely to affect their purchase decision (although, they may have to pass on a set of premium wheels or a red paint job). No one who’s test-driven a Tesla is likely to bolt for a Chevy Bolt just because it’s a few grand cheaper.

Furthermore, the whole debate, as contentious and entertaining as it has been, is probably moot. As of this writing, Build Back Better is dead in the water, shot down just before Christmas by Manchin. A rebooted EV tax credit may yet pass in some form, but it will almost certainly be less generous than originally envisioned.

BILLIONS FOR NEW CHARGING INFRASTRUCTURE

The Biden administration’s Electric Vehicle Charging Action Plan is a part of the Bipartisan Infrastructure Law, which was signed into law in November, so it’s a done deal (hopefully). However, it isn’t quite the game-changer that we’ve been reading about in some of the credulous media.

The bill establishes two separate programs, and two separate pots of money. The Charging and Fueling Infrastructure grant program will provide $2.5 billion in competitive grants, which can be invested in public EV charging, or in hydrogen, propane or natural gas fueling stations. Much of this money could end up being spent on projects that aren’t directly related to EV charging, and a certain amount will probably end up in the coffers of the oil industry.

The National Electric Vehicle Formula Program will provide $5 billion in “formula funding” for states to use “to build a national charging network.” The wild card here is how much discretion state governments will have as to how to use the funds. Lawmakers in less EV-friendly states will surely find ways to steer some of the loot to pet projects, or to use the federal money to justify reducing state spending on existing EV initiatives. The good news is that support for EVs doesn’t neatly divide along partisan lines, at least at the state level. Some red states have made investments in public charging in the past.

Above: Inside the White House push for EV charging infrastructure funding (YouTube: KRIS 6 News)

Could some of this money be used to fund Tesla Superchargers? It’s not inconceivable if Tesla follows through with making Superchargers accessible to other automakers’ EVs in the US market. In the past, Tesla has co-located Superchargers with other chargers in publicly-financed projects.

Make no mistake, $7.5 billion is a large pot of money—but, spread out over 50 states, it won’t allow the federal government to corner the charging market (and that’s probably a good thing). For comparison, consider some other large-scale infrastructure initiatives. Electrify America was established in 2016 with a budget of $2 billion to invest over 10 years. Last November, European charging network IONITY announced that it would invest an additional €700 million (about $792 million) to expand its network.

Over the last few years, state governments and electric utilities have announced numerous charging initiatives with price tags in the hundreds of millions. The Edison Electric Institute, a utility trade group, recently reported that its members have invested a collective $3 billion in various electromobility-related projects. Volvo, Daimler and the Traton Group just announced a new joint venture that will invest €500 million to build a high-power public charging network for heavy-duty trucks and coaches in Europe.

FUEL ECONOMY STANDARDS FOR THE FUTURE

In December, the EPA finalized a set of new auto emissions standards, which the New York Times calls “the most significant climate action taken to date by the Biden administration, and [the] highest level ever set for fuel economy.”

The new rules, which apply to model years 2023 through 2026, will require automakers to produce passenger cars and light trucks with average fuel economy of 55 mpg by 2026. Today’s average figure is 38 mpg. The regulations that the Obama administration enacted in 2012 (and that the Trump administration attempted to water down) would have mandated an average of roughly 51 mpg by 2025.

Of the three major EV initiatives we’re discussing here, this is by far the most significant. Unlike the other two, it requires action. Offering a rebate on EVs and making charging stations available would be helpful, but if consumers don’t have a good selection of affordable EVs to buy, they won’t take advantage of rebates or chargers. The demand-side incentives have to be accompanied by supply-side incentives, and that’s where fuel economy standards come in.

Stringent fuel economy standards are designed to force automakers to produce EVs, whether they want to or not. No gas vehicle achieves, or ever will achieve, anything approaching 55 mpg. (The most efficient [non-hybrid] gas-burner on the US market, the Mitsubishi Mirage, gets 39 mpg, and the Ford F-150 gets about 20.) This means that, in order to meet the standards, automakers will have to sell substantial numbers of EVs to offset their popular gas-guzzlers (and/or buy emissions credits from Tesla).

Unlike the rebates and the infrastructure investment, the EPA standards take effect immediately. Automakers have already designed the cars they’ll be selling for model year 2023, and their lineups for 2024 and beyond, which will have to include more EVs and/or hybrids, are on the drawing boards. None of this is a surprise to the men (and one woman) in the corner offices—they’ve known since November 2020 that tougher EPA regs were on the way, and the recent wave of new investment in EV development, battery plants and sources of raw materials is surely a direct result.

Unlike the rebates and the infrastructure investment, the EPA rules will be difficult for anti-EV forces to undo. Unless some unforeseen miracle takes place, the Republicans may retake the House, and possibly increase their de facto majority in the Senate, in November, and reversing President Biden’s climate initiatives will be one of their top priorities.

However, as the Trump administration learned, rewriting federal regulations is a long and complex process—they had four years to do it, but the clock ran out on them. Even if a future Republican president were to take some radical step, such as abolishing the EPA altogether (or having the Supreme Court take away its authority), by 2024 automakers will be well on their way to meeting the new standards, and will hopefully have little stomach for throwing the process into turmoil once again.

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Written by: Charles Morris

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