President Biden’s signature climate law has sparked a wave of investment in electric vehicle production across the country, resulting in tens of billions of dollars spent on battery plants in the South and new assembly lines near the Great Lakes. It is succeeding at a goal economists have long considered difficult and costly: using the power of government to rapidly grow a new industry. This growth is important for enticing consumers to buy electric vehicles, as the future affordability of electric vehicles is linked to automakers’ willingness to source and build them in the United States.
While the law has yet to significantly impact electric vehicle sales, Americans are expected to buy one million electric cars and trucks for the first time this year, continuing a trend of increased market share for electric vehicles that began years ago. However, it has unintentionally driven many electric car shoppers to lease vehicles instead of buying them, due to a Treasury Department regulation that enables auto dealers to avoid the law’s made-in-America requirements for leased vehicles.
Analysts project a sharp increase in electric vehicle sales under the right conditions, which would require automakers to continue investing in battery and assembly plants, and for the government to deploy charging stations meant to ease the logistics of owning and driving an electric vehicle. President Biden is attempting to jump-start the electric vehicle market as the global transition to cleaner fuels, including electric vehicles, accelerates. This transition is a cornerstone of efforts to reduce emissions and comes with the aim of supporting middle-class jobs in the auto industry.
The law encourages U.S. investment by providing tax credits for companies that invest in electric vehicle production and component parts. Congress stipulates that vehicles qualify for the credit only if they meet certain standards for content made and mined in America. This prompted companies to invest in battery projects across the United States. Nevertheless, the response has been faster than anyone would have anticipated, and the Treasury Department predicts that these investments will be effective in stimulating consumer decisions.
There remains little evidence that the climate law has significantly increased consumer demand for electric vehicles, but it has had a mixed effect for consumers and automakers. The federal government previously capped the total individual automakers could qualify for in terms of credits for electric car buyers; the climate law restored credits for Tesla and General Motors and eliminated them for competitors like Hyundai and Kia. There has been a noted shift in consumer preference from purchasing to leasing due to the Treasury Department’s regulation that allows leased vehicles to be treated differently under the law’s domestic content requirements.
