Tariffs and timidity are driving US carmakers into a ditch

Faced with the greatest challenge of the 21st century, America is giving up.Just 18 months ago, President Joe Biden was celebrating the passage of the Inflation Reduction Act or IRA, a $500 billion dollar law to revitalize the US economy and jump-start the transition to a zero-emission car and power sector.
“We are going to take the most aggressive action ever, ever, ever to confront the climate crisis and increase our energy security,” Biden said at the time. “American automobile companies and American labor are committing billions of dollars and a great deal of hard work and ingenuity to make electric vehicles and batteries.”

That spirit of can-do optimism feels a very distant memory right now.

Ford Motor Co. is reducing orders from battery suppliers as part of a plan to trim its spending on EVs by $12 billion, Bloomberg News reported Saturday. One unnamed person cited losses of $100,000 per car — a dubious, if much-repeated, figure. General Motors Co. has missed its electrification targets for two years running. A company that once aspired to produce one in every five cars globally shifted less than 76,000 EVs last year, equivalent to one in 200 of the 14 million sold worldwide.

Tesla Inc. is cutting 10% of its workforce and disbanding a Supercharger team that the whole industry is relying on to provide refueling options on the go. Its shares have slumped 32% year-to-date. First-quarter US EV sales rose just 2.6% from a year earlier, a far cry from the rates of 81% and 46% in the same periods of 2022 and 2023. Auto analysts cheer every move away from battery power.Meanwhile, the one place on the planet that appears to be transitioning seamlessly to EVs with sub-$10,000 compact cars and gleaming sports sedans for less than $30,000 is being cut off from key export markets. Biden is planning to announce fresh tariffs on Chinese clean tech next week, Bloomberg News reported Friday, with the Wall Street Journal saying the centerpiece will be a quadrupling of levies on EVs to 100%.What we’re witnessing is an astonishing loss of nerve in a country whose capitalist hunger once created the modern auto industry.

In its long recovery from the 2008 financial crash, Detroit has progressively quit the international businesses that made it a world leader. Ford’s divisions outside North America accounted for a third of its assets in 2008. Last year, they had dwindled below 15%. GM sold European marques held since the 1920s into Stellantis NV’s burgeoning house of brands. Cosy within a market protected by distance and tariffs, and fearful of the wrenching shifts required by both electrification and Chinese competition, many executives would like to believe the whole energy transition thing was just a bad dream.

Those much-discussed figures of $100,000 losses or more per EV are a good example of this. The figure is bogus, dependent on a quirk of US accounting rules that mean the one-time expense of rethinking the automotive power train for the first time in a century is being treated as an ongoing annual expense, and then divided by 2024’s lackluster EV sales. (Those who want to go into the weeds of this issue can read this X thread, which explains it in more depth.) That’s absurd, acting as if this burst of research and development spending won’t provide any benefit to the tens of millions of electric cars that will be sold over the decades yet to come.

The enthusiasm with which some auto executives bandy about such spurious figures shouldn’t be taken as a sign of how costly EVs are, but of the deep cultural aversion to change within many US car companies.

If you’ve worked all your career in an engine division that’s now being starved of R&D and capital so it can work as a cash cow for the fresh-out-of-college Zennials in the EV team, such numbers are a way to lobby the C suite to change course. If you’re an executive terrified not so much by the price but the quality of the new EV models being developed by would-be Chinese rivals, they’re a useful way of convincing politicians to ratchet up the tariffs yet further — at least until you get past the “production hell” phase that every carmaker appears to endure during its EV switch.

The danger is that protectionism and corporate timidity are a lot easier to switch on than switch off, especially with the prospect of a Trump presidency looming.

Like birds on isolated islands, America’s carmakers are evolving to suit an oddly congenial environment — one where they can grow big and bloated in the absence of competition from hungry rivals. Gradually, they’ll lose the ability to fly.

Consumers who’d like to get their hands on affordable, clean and innovative cars will be the ones to lose out. “The American people won and special interest lost,” Biden declared as he announced the IRA. Increasingly, it looks like the reverse is happening.