The EV industry feels very tumultuous right now. Perhaps that uneasy feeling can be blamed on how politicized it has become in a short amount of time, and now that the U.S. presidential election is right around the corner, certain taxpayer incentives have become the focal point of how policy could affect the shifting industry.
Welcome back to Critical Materials, your daily roundup for all things EV and automotive tech. Today, we're chatting about the implications that repealing tax credits could have on the industry, BYD's interest in Mexico, and Stellantis' very real brand problems. Let's jump in.
30%: Industry Fears Repealing IRA Is Like "Yanking The Rug Out From Underneath" of Suppliers
There's been a lot of talk about what could happen to EV incentives as a result of the November election. Republican candidate and former U.S. President Donald Trump has openly confirmed that EV tax credits created by the Inflation Reduction Act (IRA) are on his radar, referring to them as "not generally a very good thing." If elected, Trump may end certain EV incentives such as the $7,500 tax credit for new electric cars.
The biggest fear of consumers is losing the tax credit for their next EV purchase, but those in the industry are concerned about the broader picture: what could happen to the already weakened progress of electrification, and what does that mean for nearly $90 billion in unallocated investments? After all, EV incentives are driving tons of manufacturing for batteries, cars and more—it's not just tax credits for buyers.
Automotive News explains:
Companies have allocated $223 billion to EV-specific facilities and initiatives in the U.S. in recent years, according to an Aug. 13 report by Atlas Public Policy. About two-thirds of that came following passage of the bipartisan infrastructure law in November 2021, a trend accelerated by the Inflation Reduction Act of August 2022.
Those two laws, as well as the 2022 CHIPS and Science Act, represent a massive shift in U.S. industrial policy. They have spurred automakers, suppliers, battery makers and microchip manufacturers to develop a more robust regional supply chain for EVs and components — and to become less dependent on vehicles, parts and materials imported from China.
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The National Resources Defense Council, an environmental advocacy group, warned that $89 billion in investments companies have announced but not yet allocated to specific facilities could evaporate if the legislation is repealed.
Battery manufacturing accounts for about $133 billion of the allocated investment announcements in the U.S., with another $70 billion slated for EV manufacturing and $21 billion pledged for EV parts and critical minerals, according to Atlas.
A slurry of automakers have committed to creating EV assembly and battery plants in the U.S. necessary to further their plans to electrify their fleets. Ford, General Motors, and Rivian have committed the most resources to the lift so far, while Hyundai, Toyota, Volkswagen, LG, and SK have each committed at least $10 billion in investments.
Since the IRA began infusing funds into the move to EVs—$23 billion so far—the industry has seen rapid growth. In fact, the latest figures from the U.S. Department of Energy point to an increase in battery capacity production 10 times more than what was originally expected in 2021. The industry credits this to the IRA.
With EV demand slower than anticipated and the coming presidential election being a toss-up, automakers are playing it safe with their investments.
Targets for sales are being scaled back, as are ambitious plans for fleet-wide electrification. Instead, manufacturers like Hyundai are spending the money with lobbying groups to ensure their existing billions of dollars in EV stake won't be for nothing.
60%: BYD Is Still Sniffing For EV Plant Incentives In Mexico
Chinese automaker BYD, champion of the $11,500 electric car, has its eyes set on North America. The manufacturer already has a presence in Mexico and will soon launch in Canada, which means that setting up shop in North America might make a bit of sense. The added benefit? A potentially better position itself for penetration into the US. market—maybe.
The U.S. auto industry is scared of that, and so is the federal government. It's one of the reasons the government has upped tariffs of Chinese EVs from 25% up to a whopping 100% in order to shut out cheap imports with protectionist legislation aimed at protecting domestic automakers from "unfair subsidization." It even pressured the government of Mexico into refraining from granting incentives to Chinese automakers looking to set up shop south of the U.S. border.
That hasn't stopped BYD from looking for both space and incentives on the state-level, though.
Here's what Reuters has uncovered:
Chinese electric vehicle maker has narrowed its list of finalists for the location of a manufacturing plant in Mexico down to three states and is reviewing a range of proposed incentives from them, the firm's country head said on Wednesday.
Jorge Vallejo, BYD's Mexico director general, told Reuters the company was reviewing the latest proposals by the candidate states, which have offered "many benefits" including fiscal, land, management and preferential pricing incentives.
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BYD executives were hoping to meet with the team of Mexican President-elect Claudia Sheinbaum and the economy ministry in the "coming days" to share plans for the plant, Vallejo said.
The company would "specifically present the manufacturing and marketing scheme, and also to show what BYD can develop at a national level," Vallejo said.
BYD hasn't made it clear where it plans to set up shop just yet. It appears that the company is still looking for the perfect state that's willing to play ball, though it has narrowed down a list of locations centrally located in the country.
Reuters believes that this could point at either Nuevo Leon (home to a future Volvo plant and the location of Tesla's proposed Gigafactory Mexico) or central Puebla (which houses existing plants from Volkswagen and BMW).
Regardless of the location, BYD has stressed in the past that it has "no plans" to enter the U.S. market. It notes that this new plant will be used strictly for vehicles sold in Mexico. But it's hard to ignore that the location does give the automaker a plant close to America which could be used to quickly pivot if the time for a U.S. entry ever comes.
During a time when lawmakers see the foreign EV industry as disruptive, it may hit a little too close for comfort.
90%: Things Are "Starting To Come Apart" As Stellantis Rams Through EV Plans
Stellantis, like many automakers, is feeling the squeeze lately.
The problem is that the squeeze in North America is a real problem for Stellantis, especially since North American profits is basically feeding the group's brands in other markets. And if Stellantis isn't making money in America, it's lifeboat made of cash could sink.
CEO Carlos Tavares is taking some extreme cost-cutting measures across the company's portfolio. In fact, the CEO has even signaled that it could cut some under-performing brands as the automaker prepares to deal with "weak margins and high inventory" in the U.S.
"If [brands] don’t make money, we’ll shut them down," said Tavares last month. "We cannot afford to have brands that do not make money."
Recent internal measures appear to have led to a bit of a morale problem across Stellantis' various brands. Several high-ranking names have departed the company this year, including Chief Operating Officer Mark Stewart in January, Dodge and Ram lead Tim Kuniskis in May, and Jeep boss Jim Morrison in June. Meanwhile, the parent brand has been slammed by United Auto Workers President Shawn Fain over job cuts and alleged price gouging.
One example is the brand's high average transaction price. At $59,068, it's the highest out of Detroit's Big Three, which means that sticker shock could be sending both new and returning customers to competitors. As such, sales are slumping and profits are down 48% in the first half of 2024.
David Kudla, CEO of Mainstay Capital Management, says another reason could be the automaker's focus on EVs when it previously made a name for itself on V8s.
"I don’t think you need to be an auto analyst at J.P. Morgan for 10 years to know or to believe that maybe that’s not the best strategy," said Kudla, referring to the 2025 Ram 1500 dropping the V8 and offering the promise of an electric option. "And so I think that the concerns about understanding the American consumer and American demands is a valid one."
And while consumer focus is one topic, the other looks back to company culture.
"We don’t know for sure what’s been going on here," said Autoline host John McElroy. "The fact that they’ve lost so many top executives shows that it’s an unhappy situation. I’ve heard from people who work there that morale is bad, and it’s not a happy place to work."
McElroy described Stellantis as "starting to come apart," with a focus on cost-cutting and number-meeting measures leading to some issues within the company portfolio. And at the helm sits Tavares, who has landed in Detroit during his summer break to handle issues in person.
Tavares seems like a no-nonsense CEO. While I don't think he's squaring up with anybody in the parking lot of Saltillo Assembly Plant, I do think he's committed to bettering the company through it seems like Stellantis is suffering from a few areas: high prices, a shift in market conditions, and an unstable move towards electrification.
100%: Would You Still Buy An EV At Today's Prices Without A $7,500 Credit?
It's no secret that EVs are still more expensive than their gas counterparts. But man, some of them can get pretty expensive. The $7,500 EV tax credit has been a lifeline for many American consumers looking to get behind the wheel of a new EV but were otherwise priced out of it. Heck, even vehicles like the Kia EV9 that don't qualify for the EV tax credit are receiving manufacturer incentives in order to remain competitive.
Now that credit is being threatened and it's got would-be car buyers a bit worried about how the industry could look next year. If the tax credit is repealed, would you still consider buying a new EV, or how might your plans change? Let me know in the comments.
