Electric Vehicles, Jobs, and China

An enormous amount of money is beginning to be ploughed into electric vehicle (EV) plants across the U.S., quite a bit of it in the Southeast, in what is becoming known as the battery belt.

NPR:

The think tank Atlas Public Policy recently tallied all the announced projects located in the United States, as part of research supported by an automaker trade alliance, and provided updated numbers to NPR in December. All told, the group counted more than $128 billion of announced investments into electric vehicle plants, battery plants and battery recycling.

An announced project is not the same as a project that is under way (let alone completed), but according to one Atlas analyst, these plants will create 150,000 direct jobs, and the amount of investment is expected to increase further (most of the projects were announced before the Inflation Reduction Act was passed). To get some idea of scale, around 1 million American workers are currently employed in motor-vehicle and parts manufacturing.

Part of the reason for the jump in investment in the U.S. is that companies are trying to move away from parts manufactured in China. As NPR notes, China currently hosts as much as 90 percent of global production of some key components for batteries. Switching to a build-up of production in the U.S. may well have economic benefits, ranging from job creation to bolstering the U.S. presence in what may become the dominant part of the auto sector.

But in choosing between relying on Chinese production and establishing a production facility here or in a reliably friendly country with secure supply lines to the U.S., strategic considerations should also be taken into consideration. China, after all, is emerging as, at least arguably, the most formidable geopolitical competitor that the U.S. has ever faced, and China is more enemy than friend. Under the circumstances, for the U.S. to be dependent on China for anything more significant than plastic toys is nuts. Second, the reality of Chinese strategic ambitions and its adoption of an essentially fascist economic model means that it can no longer be seen as a reliable place for any Western, but above all, American company, to source supplies or, even more so, locate operations. Any American capital put to work there is potentially a hostage of sorts. Third, the U.S. needs to get on with a broader economic disengagement — a conscious uncoupling, as Gwyneth Paltrow would put it — from China. That will take time, but doing business with China is not something the U.S. should continue. Well, apart from those plastic toys.

One thing for any remaining budget hawks to watch. NPR:

Nearly $14 billion in state and local subsidies went to electric vehicle plants and battery factories this year, according to the subsidy watchdog group Good Jobs First, which has criticized both the size of the subsidies and the lack of transparency around them.

Hmmm.

Meanwhile, on the other side of the jobs ledger. Bloomberg:

Stellantis NV  [the company formed by the merger of France’s Peugeot with Fiat Chrysler] may idle additional car manufacturing plants as it grapples with higher inflation on top of the cost of electrifying its lineup, Chief Executive Officer Carlos Tavares said.

“If we don’t optimize our cost structure, we cannot absorb the additional cost of electrification,” which risks leading to elevated car prices and a shrinking market, Tavares told reporters in Las Vegas for the Consumer Electronics Show. “If the market shrinks, we don’t need so many plants. Some unpopular decisions will have to be made.” . . .

Stellantis has no choice but to keep slashing its fixed, variable and distribution expenses to stay competitive and to make EVs more affordable for the middle classes, Tavares said Thursday, adding that “you go from hero to zero in three years if you stop working on costs.”

As every day goes by, the size and the nature of the gamble being taken on EVs becomes clearer and clearer. The fact that, as Tavares has previously pointed out, electrification is a technology that has been selected by governments, not industry, raises inevitable questions as to how sound that gamble is. Leaving aside the question of how desirable it is, as a matter of principle, that governments should be making such choices (spoiler: it’s not), when it comes to picking winners and losers, politicians and technocrats have a less than enviable record.

And the risk of this gamble will be increased if the auto industry starts running into tough times. In the U.S. there seems to be some optimism (which may evaporate if the country moves into recession) about the prospects for 2023, but there have been some warning signs coming out of Europe. The combination of high EV-related capital expenditure and profits coming under pressure is not a happy one.

There’s also something else. For now, anyway, it is far from clear that EVs are a superior product to the internal combustion engine (ICE) vehicles they are meant to be replacing. The coming bans in Europe and in some U.S. states on the sale of new ICE vehicles appear to have have left the auto sector (and, apparently, taxpayers) with no alternative other than to invest billions in EV production, but that doesn’t change the fact that investing that money in a technology that is, in certain respects, a step back is, well, suboptimal. EVs will doubtless improve a great deal over time, but we are not there yet, and buyers might look to the used-car lot when the EV mandates kick in.

Returning to the topic of China, this was also worth noting (my emphasis added):

Tavares also is still considering whether to stop manufacturing cars altogether in China, the world’s biggest auto market.

Stellantis is continuing talks with its Chinese partner for Peugeot and Citroën cars because remaining in China “with an asset heavy presence would represent a major risk” should geopolitical tensions with the western world escalate.

“The talks are difficult, they are respectful and they are not finished,” Tavares said in Las Vegas.

Stellantis may end up implementing an “asset-light” strategy for those brands in China, he added. Earlier this year, Tavares used the same phrase to describe the decision to pull out from the company’s only Jeep plant in Asia’s largest economy.