Ford F-150 Lightning Manufacturing Plant
Source: Ford

Legacy US automakers have been struggling with the transition to electric vehicles. First, they were behind the curve in anticipating American customer demand for EVs, with almost every new EV announced seeing long waitlists for new orders. But secondly, they're discovering that it is expensive to build everything they need to build these cars. From the supply chain for raw materials to retooling assembly plants around electrics instead of gas to setting up nationwide charging infrastructure, there are a bunch of new costs that weren't part of the internal combustion manufacturing process.

It took Tesla a decade to regularly turn a profit on their EVs, in large part to those necessary chicken-or-the-egg investments. The US government doesn't want the huge costs associated with transitioning to EV manufacturing to slow the production ramp for the cars, so it's offering billions of dollars in grants and loans to American automakers.

Specifically, the US Department of Energy is offering $2 billion in grants (which companies don't have to repay) and $10 billion in loans (which they will have to repay, with interest) to accelerate the conversion of existing American automobile plants from a focus on internal combustion engines to battery electric vehicles. This is being touted as more than just an EV-acceleration project, but also a jobs project to ensure automakers don't feel they have to lay off employees as part of the transition. Though it's worth noting that the relative simplicity of an EV powertrain compared to the enormously complex internal combustion engine will inevitable lead to fewer humans being necessary to make the electric vehicles.

The program is designed to benefit legacy American automakers like Ford, Chrysler, and GM.

The program is designed to primarily benefit legacy American automakers like Ford, Chrysler, and GM. The scoring process for applications for the funding will give higher scores to "projects that are likely to retain collective bargaining agreements and/or those that have an existing high-quality, high-wage hourly production workforce, such as applicants that currently pay top quartile wages in their industry." Many other cars that are assembled in the United States may pay well, but would score lower due to their lack of a unionized workforce.

The Biden administration has made a point of favoring labor unions in the distribution of many funds, to the extent that it led to congressional backlash when an early draft of the updated EV tax credits plan included a requirement for a unionized workforce. That would've put non-unionized but high-volume EV manufacturers like Tesla, Kia, Rivian, and VW at a distinct disadvantage. The provisions were removed and the new EV tax credits instead call on an annually increasing requirement for domestically produced parts and domestically sourced materials.

In addition to the billions for retooling assembly plants, the Department of Energy is also offering $3.5 billion to expand domestic production of the necessary battery cells for all the EVs they want to see hitting the roads, as well as for grid-scale power storage systems that will enable the transition to variable-production electric sources like wind and solar.

These investments will be significant, but far from comprehensive, in accelerating the transition of the American auto fleet from gas to electric. Between strong customer demand, government financing, and increasing state and federal fuel efficiency standards that transition is moving forward and America's roads and power grid are steadily getting greener. But after so many years of a world built around burning fossil fuels to produce power, it will take a lot more money and willpower to rapidly transition to a cleaner fuel model.

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