The IRA Future Proofs the US Economy
By: John Higham, EVA Board Member
By 2008 the financial crisis known as “The Great Recession” was severely impacting the auto industry. Access to credit for car loans dried up and auto sales plunged 40 percent. Before the crisis was over in 2009, both GM and Chrysler would declare bankruptcy.
As 2008 wound down, there was probably very little the outgoing George W. Bush administration and the incoming Obama administration would agree on. One thing is for certain - both administrations agreed the US Auto industry was too big to fail and the two administrations coordinated their efforts to ensure that it did not fail. We cannot know with certainty what might have happened if one or more of the US’s “big three” automakers would have failed and had its assets liquidated. We can be certain, however, that the Great Recession would have taken longer to recover from.
The purpose of this quick reminder from our recent past is that both sides of the political spectrum agree – the auto industry is too big to fail and there is historical precedent from both major parties to shore it up in the face of overwhelming odds.
In late 2024 overwhelming odds are gathering on the figurative horizon for the auto industry. Those odds are in the form of strong headwinds from Chinese and other automakers as the auto industry electrifies. Gratefully, the bipartisan Inflation Reduction Act of 2022 future proofs the auto industry against those oncoming headwinds.
An Ounce of Prevention is Worth a Pound of Cure
An Ounce of Prevention:
China is the number one auto market in the world. That’s all autos, not just EVs.
China is the number one EV manufacturer in the world.
Jim Farley (Ford CEO) loved his Xiaomi SU7 so much he didn’t want to give it back.
China plug-in (all-electric plus PHEV) sales passed 50% of the total car market in July of 2024, and China is now selling more than 1M new EVs per month.
Norway already has over 97% of auto sales with a plug. John Higham, one of EVA’s Board of Directors, recent visit to Norway informed him that over 50% of EVs there are from China
Brazil is China’s number one EV export destination.
The IRA gives auto manufacturers huge incentives to build their EVs in the US.
Auto manufacturers from Hyundai to Ford to Mercedes Benz have invested heavily to set up US based EV manufacturing. In 2024, many of those plants are now coming online for the first time, and mostly in Republican districts.
All of those “ounces of prevention” will look cheap compared the pending Pound of Cure:
If the IRA is gutted to remove support for EV manufacturing in the US, automakers who relied on the stability of the US government will lose billions and be reluctant to provide future investment
US automakers compete in a worldwide market. Even if EV sales slow in the US, they will continue to grow in other countries
The auto industry is too important of a piece of the US economy to fail
Sales of gas-powered cars peaked in 2017 while EV sales have grown steadily since the mid 2010s. The world’s largest auto market, China, is already seeing EV penetration of greater than 50%. While a much smaller auto market, Norway sees EV penetration of over 97%. The world will continue to electrify transportation whether the incoming administration likes it or not. The EV incentives embedded in the IRA are an investment into the future of the US Auto Industry. WIthout that investment, the US will continue to fall behind the world leader, China, in this growing market.