The Electric Vehicle Race to the Bottom

Electric vehicles are good, but these massive subsidy deals are a problem.

Photo credit: City of St. Pete

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Electric vehicles are having a bit of a moment in Washington, D.C. The Biden administration’s infrastructure bill, which was signed into law last month, and its proposed Build Back Better plan both include hefty investments in electric vehicle technology and consumer subsidies. Elon Musk, of Tesla fame, is out there yelling about those consumer subsidies because his company isn’t eligible for them (even though he’s made a living off government funds).

Also, the Canadians are mad.

But underneath all of that federal action, there’s an electric vehicles arms race happening at the state and local level that could prove hugely problematic for taxpayers and local communities. Automakers new and old have evidently learned that touting electric vehicles is the way to receive large amounts of public funding.

For example, Ford recently received $884 million from Tennessee and something in the realm of $300 million from Kentucky for electric vehicle and battery facilities. Seeing Ford head south led Michigan lawmakers at the state and local level to panic and smash through new incentive programs that total $1.5 billion and are aimed at a General Motors electric vehicle plant, among other projects. Illinois approved its own set of electric vehicle manufacturing incentives a few weeks ago. And Georgia is reportedly going to announce a massive deal with Rivian, an electric truck maker that is backed by Amazon and has only delivered a few dozen trucks, later this week. I’m sure there are others too that are either in the works or I simply missed.

Now, to be clear, transitioning to electric vehicles is good, and I’m broadly sympathetic to the argument that the federal government has a national interest in helping that transition along for environmental and national security reasons. I don’t really have a problem with consumer subsidies for electric vehicles, though they are very much, as of right now, subsidies for richer folks who want to virtue-signal with their vehicle. But OK, less fossil fuel consumption and less air pollution are good. Also, building out charging infrastructure with federal dollars seems worthwhile.

My concern is that the arms race amongst states to provide supply-side incentives — i.e., paying the corporations that are making the vehicles for the jobs and investment they’ll supposedly create, as opposed to demand-side consumer incentives — is going to become a big race to the bottom, with some unsavory characters thrown in as a bonus.

We’ve already seen a version of this with Tesla, wherein a bunch of states and communities made large deals based on Tesla’s supposed plans and didn’t get what they were promised, because Musk is a huckster. And yet that didn’t stop Austin, Texas, from riding in and making a new deal with Tesla, or loads of states from asking Musk to move there when California was literally trying to save the lives of workers at one of his plants by shutting it down during the pandemic.

Even if the so-called legacy automakers don’t have that same stink about them, so many subsidies flowing so quickly and with so little political opposition — in part because many folks on the left like electric vehicles — sends a distinct signal: Economic hostage-taking around electric vehicles will be rewarded, even as the automakers admit that incentives are not dictating where they put these new facilities.

Case in point, Michigan is approving new corporate handouts in response to Ford choosing to build elsewhere, even though Ford said “the primary consideration was finding locations with competitive energy rates.”

The theory behind government subsidizing an industry is to provide it support until a market exists and it can survive on its own, at which point the support is withdrawn. I don’t believe that’s what will happen here: Electric vehicle manufacturers new and old will threaten to shift production around the country in exchange for incentives until we’re all riding in hovercraft or whatever. After all, it’s not like the ubiquitousness of internal combustion engine vehicles led to automakers being denied subsidies, even as they famously took advantage of communities such as Lordstown, Ohio. (For the record, GM leads the pack, followed by Ford, in terms of most subsidized.)

Car consumers are also very fickle, with tastes that swerve wildly depending on economic conditions and gas prices. Remember when trucks were out during the Great Recession, until they weren’t anymore? Betting on a particular type of vehicle sets a community up for heartbreak as consumer sentiments change and corporate executives respond — and there are things outside of those corporations’ control too, like the semiconductor shortage that is shuttering auto plants across the country.

It’s far better to tailor your local economy to be generally good for workers and businesses, particularly smaller, local ones, than to become a company town dependent on a big plant that makes a particular thing and whose owner can constantly come back to the pot for more public funds. And yet we’re going to get a bunch of the latter thanks to the rush to subsidize electric vehicles.

Now, again, if the choice is between states and localities subsidizing electric vehicles, or say, more Amazon warehouses, then sure, bring on the cars. But that’s not the choice. And the cycle that looks like its going to happen here is going to cost a lot of communities a lot of money.

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SHAMELESS SELF-PROMOTION: Delaware Rep. John Kowalko and I wrote a piece for the Delaware News-Journal about how Delaware (and any other state, to be honest) can rein in Amazon’s power. Read it here.

I also spoke with Mark Scheer at the Investigative Post about what a new NFL stadium would do for the Buffalo economy. I’m sure you can guess: Very little! Read the piece here.

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ONE MORE THING: The Kansas City city council gave Fidelity Security Life Insurance $7.5 million in property tax breaks to move a mile. Yes, a mile. The Kansas City Star has a good piece here outlining the rest of this absurdity and the one city council member, Ryana Parks-Shaw, who voted the right way.

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Thanks again!

— Pat Garofalo