The EV transition is an example of industrial policy. Industrial policy is inherently political, and that’s the game being played here.
In the most recent Capital Letter, I looked, among other matters, at the way that the (preliminary) extension of a $6.6bn loan to electric vehicle (EV) manufacturer Rivian could be seen as a way to lock in such financing before the Trump administration slams on the brakes (to the extent that it does slam on the brakes) on climate-related spending.
The EV transition is an example of industrial policy. Industrial policy is inherently political, and that’s the game being played here. Rather than the Rivian loan being a punch thrown at Musk (Rivian is, sort of, a Tesla rival), it should be seen, I argued, as part of an effort by the administration to get
its climate money “spent” (or at least promised) in order to entrench support for its broader climate policy in states, many of them red, where the cash is being disbursed or is on the way. Thus, within the same 24-hour period as the Rivian loan was announced, over $5 billion was pledged to two other projects: one was for a transmission project to ship wind power generated in the Midwest; a second helps deploy a solar and battery system across 27 states.
Those “investments” are likely to be a gift that keeps giving. For example, should Rivian run into trouble after the $6.6 billion has been loaned and 7,500 jobs created, a constituency has been created for a bailout.
And in an auto sector being shaken to bits by the EV transition, bailouts are coming.
What’s the national debt again? Let’s ask Dominic Pino:
$36 trillion or so as at November 22.
Anyhoo, the loans keep coming (or at least keep being prepared).
A Stellantis joint venture with Samsung SDI has won a commitment from the U.S. government for up to a $7.54 billion loan to help build two electric vehicle battery plants in Kokomo, Indiana.
The project being built by StarPlus Energy LLC is expected to create at least 2,800 jobs at the plants and hundreds more at a nearby park for parts supply companies, the Energy Department said Monday in a statement.
The loan still must be finalized, but the government said the commitment shows its intent to finance the project. To get the loan, StarPlus must develop a plan to engage with community and labor leaders to create good paying jobs. It also has to meet technical, legal, environmental and financial conditions before the government will fund the loan.
It’s unclear whether the loan will be finalized before President-elect Donald Trump takes office on Jan. 20.
Stellantis (which owns Chrysler, among other marques) has been in the news recently. Its CEO, Juan Tavares, is “resigning” as the company wrestles with falling sales. Once upon a time, Tavares regularly sounded the alarm about EVs.
As I noted in mid-2022, he’d had this to say six months before:
“What is clear is that electrification is a technology chosen by politicians, not by industry,” Tavares told a handful of European newspapers in a joint interview. “Given the current European energy mix, an electric car needs to drive 70,000 kilometres to compensate for the carbon footprint of manufacturing the battery and to start catching up with a light hybrid vehicle, which costs half as much as an EV (electric vehicle).”
At the same time:
Tavares added that forcing automakers to transform their plans and supply chains to suit EVs “creates social risk” and said that he will try to avoid closing down any plants in Europe, Auto News reports.
“I generally hold on to the promises I make, but we also need to remain competitive,” he said while noting that production costs in Italy are “significantly higher, sometimes double of those at plants in other European countries” due to high local energy costs.
How’s that going?
The Financial Times (September 25, 2024):
The country’s biggest carmaker, Stellantis, has suspended car production at its historic Turin plant for a month, until mid-October, because of weak demand for the electric version of its Fiat 500, which is priced at €30,000, compared with €17,700 for the hybrid version. . . .
Car production in Italy fell more than a third in the first seven months of the year, compared with the same period of 2023, according to Italy’s National Auto Industry Supply Chain Association. Hybrid vehicle sales were up 16 per cent in Italy in the January to August period, compared with last year’s equivalent period, while electric vehicle sales were down 12 per cent.
[Italian industry minister] Urso said electric vehicles “cost too much compared to the incomes of Europeans and Italians” and warned Europe’s rushed embrace of electric vehicles — without first developing its own domestic supply chains — could leave the bloc over-reliant on China.
NR Capital Matters (October 2, 2024):
Stellantis (which in Italy includes Fiat, Alfa Romeo, Lancia, and Maserati) is now extending the production halt on its electric Fiat 500 in Turin from October 11 until the end of the month. That’s despite the model’s relative success within its category (city-car EV). The word relative is key here. It’s also worth noting because the pocket-sized 500e (a descendant of the legendary Cinquecento) is meant to be exactly the sort of car meant to appeal to urban EV users (small, good for quick drives, etc).
Production pauses are continuing beyond Turin (where the pause has been extended to January 2).
Sensing the way the political winds were blowing, Tavares ended his earlier, carefully thought-through concerns about the EV transition, and went all-in with all the enthusiasm of a Soviet apparatchik spared a show trial. He supported strict EV mandates (let’s make the customers buy our EVs) and put capital to work in accordance with climate policy-makers’ plans, rather than consumer demand. He neglected investment in the traditional models that did sell and poured capital into EVs that didn’t.
And then he doubled down (via the Wall Street Journal):
Mr. Tavares this spring formed a joint-venture with China’s Leapmotor to export low-priced EVs to Europe. His plan was undermined by Brussels’s recent imposition of tariffs on Chinese EVs. Phasing out profitable gas-powered models in the U.S. has made it harder for Stellantis to invest in EVs to meet government mandates.
Tariffs, eh? If a CEO is going to invest politically, he had better understand politics. The growing signs of panic over EVs were hard to miss, meaning that, even despite German opposition (it’s tough being tangled up with China) there was a decent chance that tariffs were on the way.
Tens of thousands have lost their jobs at Stellantis, and now Tavares has lost his.
Samsung SDI seems to be doing fine, but taxpayers ought to be asking themselves about the wisdom of lending so much money to a joint venture in which one of the two partners is looking more than a little sickly.