This surge in production is a direct result of President Biden's ambitious goal to phase out the use of fossil fuels. However, the burden of this push towards EVs has been shifted onto taxpayers, who are now footing the bill through billions of dollars in subsidies.
A recent study conducted by the Texas Public Policy Foundation reveals that taxpayers are on the hook for an astonishing $50,000 for every EV sold, amounting to a staggering $22 billion annually. This figure does not even include the $7,500 tax credit that has been extended for certain EV purchases. Despite the massive investment in the industry, EV sales have cooled off, at least for the time being.
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Auto dealers are reporting a dwindling number of EV buyers. Since August, sales have been on the decline as consumers opt for hybrid vehicles or gasoline-powered cars, which are generally less expensive and do not come with the challenges of charging EVs, particularly on longer trips. In August, EVs accounted for 7.8% of car sales, reaching an all-time high. However, this figure has dropped for three consecutive months, falling to 7.2% in October.
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Mike Stanton, the CEO of the National Auto Dealers Association, explains the struggle dealers are facing, stating, "We're having trouble selling them at a rate that would be improving because the customers are increasingly citing reasons why they don't work for them." The backlog of unsold EVs can be attributed to the subsidies and regulatory regime that are forcing the industry to move faster than consumers and automakers are ready for, according to Brent Bennett, a policy director at the Texas Public Policy Foundation.
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Auto dealers are pushing back against the pressure to sell more EVs. Scott Kunes, the COO of Kunes Auto and RV Group, which sells American-made cars as well as Nissan and Mitsubishi, reveals that he is turning away new EVs as he struggles to sell his current inventory. Kunes emphasizes that dealerships like his have invested heavily in the necessary equipment and training to maintain and service EVs, but they are not making any profit from them as they sit on the lots.
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Car manufacturers find themselves in a difficult position, as they are compelled to produce more EVs due to the Biden administration's proposed stricter emissions standard. This standard would require two-thirds of all cars and 25% of all heavy-duty trucks sold in the U.S. to be electric by 2032. Additionally, in California, one of the largest car markets globally, the sale of gasoline-powered cars and light trucks will be banned starting in 2035. New Jersey's Democratic Governor, Phil Murphy, recently announced a similar ban on gasoline-powered cars by 2035.
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To support this push towards EVs, the Biden administration, through its climate and tax law, has made nearly $16 billion in funding and loans available for the transition to electric vehicles. This includes over $7 billion in tax credits and loan programs for auto manufacturers to invest in EV production. The law also extends the federal tax credit for EV charging equipment and provides additional subsidies for the purchase of used EVs.
States are also contributing to the promotion of EV sales through taxpayer-funded incentives. The Texas Policy Institute estimates that many states provide tax credits and other incentives that amount to almost $1,500 per EV sold in the U.S. in 2021, totaling nearly $1 billion.
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However, consumers are not only paying for EVs through subsidies and incentives but also through their utility bills. Energy companies are passing on the cost of building fast charging stations or electrifying EV battery plants to ratepayers. Will Hild, the executive director of Consumer's Research, a conservative-leaning organization, points out that this means people who do not even drive cars are being forced to pay for infrastructure that only benefits a specific type of vehicle.
Proponents of EVs argue that the subsidies are necessary to combat the pollution caused by gasoline-powered cars, which is contributing to climate change. Duke Energy, for example, justifies building EV chargers as a means to comply with statewide goals of reducing carbon emissions. However, critics argue that the impact of EV infrastructure on customer rates is not negligible and that the burden of funding these initiatives falls unfairly on taxpayers.
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The transportation sector in the U.S. accounts for 28% of greenhouse gas emissions, with a significant portion coming from cars and trucks, according to the Environmental Protection Agency. The Biden administration aims to cut U.S. greenhouse gas emissions in half by 2030, making climate policy a top priority. President Biden recently attributed the $178 billion cost of natural disasters in the U.S. last year to climate change, warning that the impacts will only worsen in the future.
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Despite the administration's aggressive push to incentivize EVs, it has faced criticism from environmental groups. These groups argue that automakers are exaggerating the fuel efficiency of EVs they produce, thanks to a formula that overrates their fuel economy. Brent Bennett explains that this formula creates an additional subsidy for EVs, allowing car companies to comply with federal fuel efficiency standards more easily and avoid fines.
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In response to this criticism, the Biden administration has proposed a new fuel standard formula that would give less credit for EVs. If adopted, automakers will be required to produce even more EVs to meet the Corporate Average Fuel Economy program or face fines for failing to meet the new federal standards. The administration predicts that this new formula will result in half of all U.S. cars being electric or plug-in hybrids by 2030.
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However, car manufacturers, faced with falling consumer demand, are scaling back their EV production. Ford, GM, and Honda have all announced plans to slow down EV production, while Tesla, the leading EV maker, has slashed prices. Ford even halted the construction of an EV battery factory in Michigan, despite receiving $1.8 billion in grants and incentives from state taxpayers.
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The National Automobile Dealers Association is lobbying the Biden administration to modify its proposed emission standard. The association argues that hybrid vehicles, which are outselling EVs, should continue to be part of the U.S. vehicle mix alongside cleaner-burning gasoline-powered cars.
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They believe that offering consumers more choices and allowing for a gradual turnover of the fleet will have a more significant environmental impact without creating challenges for consumers who may not be able to afford or adapt to the new technology.
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