Biden goes to Detroit to celebrate EVs, but few would qualify for US$7,500 tax credit

By BLOOMBERG | 15 September 2022

DETROIT: There’s a flashy electric car at seemingly every turn of the Detroit auto show.

Much harder to find is a model that will actually qualify for new consumer incentives.

Fewer than a dozen of the EV and plug-in hybrid models among the hundreds of vehicles on display at the industry confab Wednesday would be eligible for tax credits of as much as US$7,500, according to an analysis by Bloomberg.

The perks, recently signed into law, are seen as essential to getting the average carbuyer to consider going electric.

That isn’t stopping President Joe Biden and a parade of fellow politicians from swinging through town to celebrate the passage of the Inflation Reduction Act, a sweeping set of changes designed in part to spur investment in domestic EV production.

The legislation marked a victory for Biden and the Democrats’ agenda, even as the auto industry complained that stringent sourcing and assembly requirements would disqualify most current vehicles.

"That US$7,500 will be critical for more price-sensitive consumers,” said Jessica Caldwell, executive director of insights for automotive researcher

"The affluent early EV adopters buying Teslas today are a bit of a different demographic than the average Americans who will be needed to get to that 100% electrification level that the president and industry is aiming for.”

The average price of a new electric vehicle in the US reached nearly US$62,000 in August, up 7.8% from a year earlier and US$15,000 more than the average price of new vehicles overall, according to Edmunds.

At those luxury prices, EVs have accounted for fewer than one-in-20 US auto sales so far this year, according to Edmunds.

The disconnect between policy and reality reflects the challenges facing the industry, as old-school automakers try to fend off upstarts, reshape their supply chains and figure out how to adapt to rapidly changing consumer tastes.

EV adoption is accelerating even as prices remain out of reach for most carbuyers and supply constraints make many models hard to find.

"Demand for these transformative vehicles continues to ramp up,” John Bozzella, chief executive officer of the Alliance for automotive Innovation, said in a statement.

"Getting the right public policies in place as quickly and smartly as possible is going to be necessary to take this market from 6% to 15, 25 and eventually 50% by the end of the decade.”

Fading star

A symbol of the changing industry is the auto show itself.

The event, formally known as the North American International auto Show, was once a must for automakers on the global circuit, drawing top CEOs and dozens of major brands to the 723,000-square-foot exhibition space in downtown Detroit.

But its star has dimmed in recent years amid competition from events like CES in Las Vegas, as well as a three-year hiatus due to the pandemic.

And automakers have increasingly turned to avenues such as social media and pop-up events to debut their new models.

The industry’s biggest name when it comes to EVs — Tesla Inc. — hasn’t had a floor-show booth in Detroit since 2015, and other absentees range from buzzy startups (Rivian automotive Inc.) to major international brands (Nissan Motor Co.)

In fact, no major Asian or European carmaker plans to hold a press conference.

Organisers moved it to September this year from its former early January spot on the calendar in the hopes of drawing more visitors and allowing it to incorporate an outdoors element.

The show has expanded beyond cars and trucks to showcase an "air mobility” element displaying hover boards, jet suits and electric vertical take-off and landing, or eVTOL, aircraft, according to its website.

It will also feature exhibits with life-sized dinosaurs, a mobile gaming arcade and a 61-foot-high rubber duck that the show calls the world’s largest.

Ducks and dinosaurs notwithstanding, Biden’s presence — along with names such as Transportation Secretary Pete Buttigieg — could give the show a much-needed boost.

A self-described "car guy” who has revelled in test-driving vehicles such as Ford’s F-150 Lightning, Biden plans to discuss the growth in EV manufacturing in the US when he appears Wednesday at the auto show.

The recent legislation included rules requiring North American assembly for EVs to qualify for tax credits.

Other changes include a requirement that batteries use raw materials sourced from countries with which the US has free-trade agreements.

The president also plans to announce the approval of the first US$900 million in Bipartisan Infrastructure Law funding to build EV chargers, according to a White House official.

The construction will cover over 85,000km of highway across 35 states.

To help consumers, the Biden administration published a list of 24 vehicles that it says are likely to meet the bill’s requirement for "final assembly” in North America.

Another 10 models made by Tesla and General Motors Co. will become eligible next year when a prior cap on EV credits per manufacturer will lift.

Ford Motor Co.’s large display in the middle of the show floor included Mustang Mach-E and Ford F-150 Lightning models, EVs that qualify for the subsidy.

The word "electrify” was plastered all over.

But the Ford section also devoted substantial space to the gas-guzzling Bronco, complete with a giant ramp festooned with the bucking horse logo.

‘Give and take’

The new legislation knocked out about 70% of the 72 models that previously qualified for tax credits, according to an analysis conducted by the Alliance for automotive Innovation.

"That’s how Washington, D.C., works. You have to give and take to get something over the finish line,” said Andres Hoyos, vice president of the Zero Emission Transportation Association.

He added that building a domestic supply chain will ultimately create more jobs in the US — accomplishing another aim of the administration.

The numbers aren’t likely to change quickly, given the industry’s heavy reliance on Asia for batteries and raw materials, and the many other supply challenges facing manufacturers.

"A shift to US production is an ideal goal,” said Caldwell, the Edmunds analyst.

But "meeting these guidelines amidst ongoing inventory shortages is a tall task for automakers.”