The Dangerous Dilemma Facing America’s Biggest Auto Companies

Today, the media vibes around electric vehicles are all bad. But if you lift up and take in the big picture, electric vehicles and hybrids are taking over the market. Gas-powered cars are as much in structural decline right now as the cable bundle in TV.

Today’s guest, Robinson Meyer, the founding executive editor of the climate media company Heatmap, says that while EV sales are much stronger than the media doom-and-gloom narratives, something else is happening that deserves our attention. America’s Big Three automakers—Ford, General Motors, and Stellantis (which owns Dodge, Chrysler, and Jeep)—are in big trouble. China’s electric vehicles are going to 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 EVs is being made in China.

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In the following excerpt, Derek and Robinson Meyer examine the three main electric vehicle subsidies in the Inflation Reduction Act and look at the rate of growth of American demand for EVs and hybrids.

Derek Thompson: So there are two questions that I’d like to attempt to answer today. The first question is something like: What’s really happening with electric vehicles in America? The media vibes are extremely gloomy, but some of the numbers are not nearly as gloomy.

And the second question I want to answer is: How screwed are the Big Three automakers, really, as they attempt to ford the river between the internal combustion engine paradigm that has dominated the auto market in America for the last 100-plus years and this new paradigm, the electric vehicle paradigm?

I think before we answer those questions, it’d be useful to do a quick reminder about the IRA, the strangely named Inflation Reduction Act, which, as many people know, is not so much an inflation reduction act but a subsidy bonanza for climate energy producers and consumers.

So Rob, get us caught up. What were the most important things that the IRA did, the policies and the laws that encouraged both carmakers to produce more electric vehicles and consumers to buy more?

Robinson Meyer: So there are really three subsidies in the IRA that people should know about, and I’m going to go through them in the order of most popular to least popular. But there’s also, I would say, least important to most important.

So the first subsidy, the one that you hear about the most, is the subsidy for just buying an electric car, an electric vehicle. And this applies to some plug-in hybrids too, but generally anything with a big battery that you’re going to use to drive the car around, if you meet certain criteria, if you build a battery here, if you mine or process certain key minerals here, you get up to $7,500 off the cost of the car. And since January 1, you get that directly as a discount at the moment of sale. It’s very easy.

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

The third subsidy, which is the most important and which consumers will never see, is entirely on the supply side. And this is a set of bonuses, of tax credits, that the government will pay out to manufacturers of electric vehicles. And not really electric vehicles per se, but all the components that go into making an electric vehicle. And they’re awarded based on, directly, you make this and you sell it, we give you money. So if you make a kilowatt-hour of a battery cell, you get $35. If you make a battery module in the U.S., you get $10. And what’s interesting is that winds up being a lot of money very quickly and extremely salient to carmakers in a way that has really flown under the radar, but it’s the most important part of this, arguably, I think, whole law.

Thompson: So U.S. clean energy policy is subsidizing the supply side. It’s subsidizing the demand side. I want to talk about both sides of the subsidy policy.

Let’s start with demand, because as I talked about in the open, there is just an extremely loud media narrative shouting about how EV sales are slowing, about how there’s a catastrophe in the EV market, that EV is running into a ditch. All the vehicle metaphors are being employed to characterize this slowdown.

Looking at the raw numbers, Rob, how would you characterize the growth of American demand for electric vehicles in the last few years?

Meyer: American demand for electric vehicles is rapidly growing, period. All of what we are fighting over, any of these articles that you may have seen, is actually a slowdown in the growth rate. But many more Americans bought EVs in 2023 than bought them in 2022. Many more Americans bought them in ’22 than ’21. More Americans will buy EVs this year than last year.

Everything that we’re fighting over and all the discussion topics are about the second derivative. Just to give a sense, in 2022, the growth rate for EV sales in the U.S. was 61 percent. In 2023, it was 32 percent.

However, in the background of all of this stuff, I would say two things. The first is that internal combustion engine cars, classic gasoline-powered cars, their sales peaked seven years ago. They’re done. We’re just fighting about how fast EVs are taking over.

And number two, last year we saw something really surprising, which is extremely rapid growth—in fact, growth that matched the EV growth rate—among plug-in hybrids and normal hybrids. So there seemingly are a lot of Americans who are going out, they want to buy an EV, they look at what’s available, they’re like, “Maybe not this year,” but then instead of buying a regular gas car, they’re going out and buying a plug-in hybrid or a conventional hybrid like a Prius. And that is actually really helpful too. That’s good in the climate story as well.

This excerpt was edited for clarity. Listen to the rest of the episode here and follow the Plain English feed on Spotify.

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

Subscribe: Spotify