Green New Deal or Stale Old Tax-Break Scam? Getting Electric Vehicle Incentives Right

Photo by Michael Marais on Unsplash

The rapid rise of electric vehicles (EVs) is about to disrupt state economies and budgets, but the tax break-industrial complex is on cruise control. Governments are suddenly throwing billions in subsidies at new EV assembly and battery factories. Uncle Sam, as usual, is MIA on industrial policy, so the “economic war among the states” is in overdrive.

Yes, we must convert and eliminate tailpipe emissions. But there is a right way to have a just transition and a wrongheaded “business as usual” corporate subsidy approach. Unfortunately, we’re seeing the latter.

States feel flush right now, thanks to multiple federal coronavirus relief packages (especially CARES and ARPA). But consider these EV-driven budget curves ahead:

• The conversion to EVs is expected by the auto industry to happen very rapidly, perhaps even 50-percent market share in the next eight years. That means massive dislocation for gasoline and diesel auto assembly workers—and more numerous auto parts makers—in many states.
• Auto manufacturing wages are headed down; not one non-Big-Three assembly plant in the US has a unionized workforce, nor do any new EV companies.
• EVs are much simpler mechanically than internal combustion engine cars, so they’re creating fewer parts and assembly jobs.
• The loss of old jobs, lower wages, and fewer new jobs all mean lower tax revenues.
• States and localities collect more than $52 billion per year in motor fuel taxes; that’s a lot of revenue to replace as EVs gain share.
• Yet states are also starting to budget billions to construct EV charging stations.

Despite all these dark budget clouds on the horizon, 2021 saw a bumper crop of massive “trophy deal” subsidy package announcements for EVs. They will reduce income, sales, and property tax revenues for decades.

 

For 2021: Big EV Announcements Accelerated

The list of recent subsidy deals is long. One example: in December, the state of Georgia announced that Rivian, an EV start-up that just went public, will build a large $5 billion factory east of Atlanta. Oddly, the state’s incentive package was not disclosed. But subsidies of more than $1 billion will not be surprising. The Atlanta Journal-Constitution writes that the deal is “expected to be the largest incentive package in state history.”

Then there is Oklahoma, which last summer promised at least $300 million to Canoo, also a start-up. This fall, the state of Tennessee announced subsidies totaling $884 million for a Ford Motor Company assembly plant with its partner battery factory of SK Innovation; full public costs are expected to exceed $1 billion. In December, North Carolina announced that Toyota will build a battery factory near Greensboro, with subsidies of more than $430 million. Most recently, General Motors just announced its intent to build two major battery factories in Michigan, saving the news for the day before Governor Gretchen Whitmer’s “State of the State” address. The state enacted $1 billion in new incentives targeting EV facilities—just 79 days after Ford’s announcement in Tennessee, which Whitmer called a “wake-up call.”

Other major automakers—Volkswagen, Stellantis (the parent now of Fiat/Chrysler as well as Peugeot), and Toyota—are expected to announce EV projects in the coming months. Public subsidy dollars can be expected to pay for large part of each of these projects as well.

 

Will Green Jobs Be Good Paying, Union Jobs?

In America’s Other Automakers, published last year, historian Timothy Minchin documents the rise of foreign-owned auto assembly plants in the US. First came Japanese companies, which worked around limits on importation of their vehicles in the 1980s by building plants in the Midwest. Then, post-NAFTA, German and Korean firms also invested, mainly in “right to work” states in the South. Today, about half of new US auto sales come from these foreign-nameplate US factories. Not one has a unionized workforce.

With hundreds of auto parts plants following them, the new players stretched the industry southward. While traditional auto-heavy states such as Michigan, Ohio, Indiana, and Illinois still have hundreds of auto-related factories each, so now do Texas, Tennessee, Missouri, Kentucky, and Alabama.

With several little-known foreign EV companies arriving in Georgia and Florida, a site consultant told Bisnow that “The Southeast is quickly becoming the center of gravity for EV production.” The foreign nameplate shift Minchin documents has been playing out gradually for more than 40 years, and it has surely been painful for many “Rustbelt” communities. By comparison, EVs now appear poised to drive a much bigger move—and much more quickly.

How quickly? A KPMG survey of more than 1,100 auto executives found, on average, they expect 52 percent of US auto sales to be EVs by 2030—up from just two percent in 2020—just eight years from now.

If auto industry executives are correct, the rapid shift to EVs would be a hopeful development that could greatly reduce carbon emissions. But it also has profound implications for America’s regional economies. If automakers continue to build most new US plants in the South and Southwest, the Midwest could suffer rapid job dislocation as gasoline-vehicle market share plunges. Locating in the South also increases the chances that EV manufacturing jobs end up being lower paid, non-union positions.

It’s not just corporate resistance to unionization, wage suppression is deeply ingrained in the Southern brand born in the 1930s. Even if the #2 global automaker Volkswagen says it wants its workers to vote in the United Auto Workers (UAW), politicians like then-Tennessee Gov. Bill Haslam feel entitled to tamper. As the vote approached, his administration withdrew an offer of $300 million in incentives for VW’s Chattanooga plant to add a new product line and work shift. Haslam asserted a right to interfere in the 2014 union election: “I think it is our business in the state of Tennessee. We have a considerable investment in that plant. The state of Tennessee put a whole lot of money in that plant,” he said. The union lost narrowly, and Haslam reinstated the incentives.

It’s a perverse economic development legacy. Incentives are supposed to help raise living standards, and in the South, they were also originally intended to “balance agriculture with industry,” in part by pirating jobs from the Northeast and Midwest. But unions—or even companies willing to accept unions—are not welcome. Living standards must remain fully in corporate control.

 

EVs’ Simplicity Means Fewer Manufacturing Jobs

For all the attention paid to Tesla’s stock-market valuation, its CEO Elon Musk, and the controversies surrounding autonomous vehicle technology, few have noted an important difference in EVs: they are mechanically simpler and have fewer parts. That means fewer factory jobs—and that’s assuming battery production is not dominated by imports. (That simplicity may also mean EVs will last longer and require less maintenance labor.)

Internal combustion cars have especially complex drive trains, with far more components than those in EVs. There are about three more US jobs “upstream” making components (such as tires, glass, and body stampings) and multi-component assemblies (such as engines, transmissions, doors, and dashboards) for each final-assembly job. One tear-down of an EV found that it had only one-fifth as many parts as an internal combustion car. Ford has told investors that EV production will lower its capital needs by 50 percent and its labor needs by 30 percent.

 

Honk If You Want a National Strategy

As we see it at Good Jobs First, the watchdog group I direct, the EV situation begs for a national strategy. The Rustbelt is about to take a huge jobs hit. Every state is facing a big gasoline tax revenue loss. The auto industry, which thanks to the UAW and Machinists Union has helped lift factory wages for 85 years, is steadily deunionizing and EVs may well accelerate that trend. States, engorged with a half-trillion dollars in federal COVID aid, are overspending on EV plants. And gridlock makes additional federal aid uncertain.

Despite all this foreseeable trouble, there has been little blowback to such deals. Here and there, some journalists have questioned the high price tags—or the predominately white, rural locations chosen for production facilities. But the very large corporate investments and projected jobs numbers have dominated the news.

Here is our checklist for auto-capacity safety in the decades ahead:

• States should cap EV-plant subsidies at $35,000 per job, tied to the federal limits on some major programs. And those subsidies should come with robust job quality standards that ensure market-rate wages and benefits—and support workers’ right to organize.
• Let demand for EVs be mainly driven by more aggressive federal fuel-efficiency standards and by changing consumer preferences, which are very evident.
• If federal EV tax credits for buyers are extended (via Build Back Better or a substitute bill), use them to deter states from subsidizing production: for every dollar a car’s manufacturing is subsidized by state or local incentives, subtract a dollar from the federal purchase credit.
• Instead of giving more federal research subsidies to start-ups (an important early boost to Tesla), use such monies to help existing US automakers convert gasoline and diesel-powered production to EVs, with an incentive to retain and retrain incumbent workforces.
• States should switch to a mileage-based vehicle-use tax (and also perhaps a progressively scaled EV sales tax surcharge) to succeed gasoline taxes. And those fees should reimburse states for the cost of charging stations.
• Deny federal- and state-regulated procurement bidding rights to any vehicle manufacturer found guilty of violating the National Labor Relations Act within the last five years.
• Encourage transit agencies and government fleet purchasers to use the alternative RFP structure known as the US Employment Plan (USEP), developed by Jobs to Move America and approved by the Federal Transit Administration. The USEP provides a mechanism to push for greater domestic content; increased hiring of women, people of color, veterans, and returning citizens; and promote higher job quality.

Instead of frittering away their budget surpluses on corporate giveaways, states and localities can advance a green economy with equity. This could include investing in electric transit buses to improve air quality in environmental justice communities, and in training—and retraining—for auto mechanics to transition to service electrical vehicles.

A Green New Deal is possible. But we can only get there by ditching the same old corporate subsidy road that helped create the climate emergency to begin with.