The Journal. - Ford vs. GM: A Battle to Shape the Future of EVs in America

Episode Date: October 3, 2023

Long-time rivals ​​Ford and General Motors are battling over how a $7,500 tax credit for electric cars should be interpreted. WSJ’s Andrew Duehren explains how this bleeds into the Biden administration’s conflicting priorities of reducing American reliance on Chinese batteries while also achieving clean energy goals.  Further Reading: -This Ford vs. GM Feud Could Shape the Future of EVs in America  Further Listening:  -‘We’ll Strike All Three’: The UAW’s Historic Walkout  -Biden’s New Move Against Chinese Tech  -Ford and GM's Battle for the Hottest Electric Vehicle Startup  Learn more about your ad choices. Visit megaphone.fm/adchoices

Ford and General Motors are two of the oldest carmakers in the U.S. and two of the biggest rivals in the industry. The Ford Motor Company and General Motors have been competing with each other for more than a century. That's our colleague Andy Duren. And they have been trying to sell better products than each other, have more competitive prices than each other for decades and decades and decades. But right now they're not exactly racing to make a better Mustang or a better Camaro. What is it that they're fighting over now? So yeah, they are fighting over precisely four words buried in the United States tax code.

And what are those four words? Four words are foreign entity of concern. That is the latest arena for this corporate rivalry, is how the rules for a tax credit for electric vehicles should be written by the Biden administration this year. should be written by the Biden administration this year. The foreign entity that the U.S. government is concerned about is China. And more specifically, Chinese-made parts in American-made electric cars. Ford and GM each have different ways they want that rule to be interpreted. At stake is a $7,500 tax credit that could make

EVs more affordable for more Americans. Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Tuesday, October 3rd. Coming up on the show, Well, what about two? Right now, get a small, organic Fairtrade coffee and a tasty bacon and egg or breakfast sandwich for only $5 at A&W's in Ontario. Andy, do you own a car? I actually do not own a car. I take public transit and I occasionally borrow a friend's car, but I do not own one. No intention of buying any type of car at the moment?

You know, that's a whole can of worms, if I'm being honest, whether I should buy a car. I think about it and sometimes I wish I owned a car, and sometimes I seriously consider buying one. For people who are looking to buy a new car, EVs are becoming a popular choice. The state of the EV market in the United States right now, I mean, it's growing quickly. I mean, EV sales are growing rapidly this year. sales are growing rapidly this year. But EVs are expensive. Right now, the average price for a gas car is about $48,000. For an EV, it's about $53,000. And cutting down the costs of EV manufacturing is a big challenge, especially for traditional car companies like Ford and GM. The dominant player in the U.S. EV market these days is Tesla.

And I mean, Tesla has a big advantage in the fact that Tesla only sells electric vehicles and Ford and General Motors have for decades and decades and decades sold, you know, gasoline powered cars. And now they have to figure out a way to basically change their entire business model. How important is the EV market to Ford and GM? And now they have to figure out a way to basically change their entire business model. How important is the EV market to Ford and GM? Yeah, so I mean, both car makers and basically every car maker in the world, they see electric vehicles as the future of the car industry. You know, they're investing billions and billions of dollars into new factories and new resource agreements to build these electric vehicles. One of those big investments for Ford is a new factory it's building in Michigan.

The factory will make EV batteries and cost the company $3.5 billion. But there's a bit of a catch. Ford is working with a Chinese company. But there's a bit of a catch. Ford is working with a Chinese company. It'll be a Ford-owned subsidiary that battery, a lithium iron phosphate battery that is cheaper than most of the batteries that people put in electric vehicles in the United States now, and is also a type of battery that no one is currently making in the United States. Chinese companies really dominate this market. And basically, Ford's calculation was,

if you want to sell this stuff in the US and you want to sell this stuff in the U.S. and you want to make this stuff in the U.S., you're going to have to work with a Chinese company one way or another. The problem for Ford is that the government has been trying to make the U.S. less dependent on China. But at the same time, the Biden administration is also trying to address climate change,

in part by promoting EVs over gas-powered cars. So last year, Congress passed the Inflation Reduction Act, and it included that $7,500 tax credit for people who want to buy EVs. To qualify for that credit, the buyer has to fall within a certain household income bracket. The car that buyer chooses has to be built in the U.S. and has to have a certain sticker price, depending on what kind of car it is, like if it's a sedan or an SUV. The car also can't include any parts made by a foreign entity of concern. And so this takes us back to those four words that you mentioned before, foreign entity of concern. What's the intention behind that phrase?

Yeah, so the intention or the goal is to basically build up American capacity to build electric vehicles and electric vehicle batteries without having to rely on China. Right now, Chinese battery companies, Chinese mining companies, Chinese processing companies are overwhelmingly dominant for making the batteries themselves and also for mining and processing all of the critical minerals that go into them. This is something that Democrats and Republicans in Washington see as a potential vulnerability, basically, that China is a country that the United States is increasingly adversarial with, that there are concerns, basically,

that if things really got serious, China could say, you can't have any of this stuff anymore. It gives China leverage. It gives China leverage, exactly. And there's already some evidence, there was over the summer, China did take some steps to stop the export

of certain kind of rare earth materials. And there's just concern that if there were ever a conflict between the United States and China, China could say, you can't have our lithium, you can't have our car batteries, you can't have our cars. And that could, you know, have all sorts of complicated consequences for the United States economy, obviously. Though this tax credit was approved last year, President Biden still needs to decide how strictly to enforce the provision about a foreign entity of concern. For Ford and GM, a lot is riding on the decision. Ford says that while it is licensing technology from a Chinese company, its new battery factory will create 2,500 jobs in Michigan.

We've talked a lot about Ford's approach to this, but when it comes to GM's investment in American batteries, what is it that they're proposing? GM has primarily, at its battery factories, worked with Korean companies. They've done joint ventures where they work with Korean

battery makers to build battery factories. And so they have kind of avoided working with the Chinese battery maker themselves. But I will say, I mean, one thing I came across when I was reporting the story is, you know, so there's the factory where you make the batteries themselves, but then there's also all the mining and everything else that goes into getting the stuff that you put in the batteries. And GM is making this big investment in a mining company that's going to open and hopes to open a mine in Nevada for lithium eventually. And GM is now the largest shareholder of this mine, but a Chinese company is the second largest shareholder of this mine. And so it's very difficult for any company to completely escape the web of Chinese companies and Chinese entities that are in this industry. Earlier this year, GM invested $650 million in that mining company and says it intends to buy up even more shares to dilute Chinese ownership.

But what Ford is trying to do? GM says that doesn't line up with what the tax credit is for. GM is nervous that if Ford can do this, can build this factory with this better Chinese technology and also still get this tax credit, that that will basically put GM on its back foot in the EV transition and that Ford will have this big head start basically ahead of them, this lead on the race to sell cheaper EVs. So that sounds like GM is concerned that Ford is going to get ahead of it. Are there other arguments that they're making as well? Yeah. I mean, so part of what GM says basically is that, and the way that they kind of try and convince or talk to Republicans in Congress, Democrats in Congress, and also members of the Biden administration is to say, hey, look, I mean, you all created this incentive to make the U.S. more independent from China. If Ford's collaboration with this big Chinese company is something that still keeps their cars eligible for these subsidies, then we're all going to want to do this, too. I mean, these Chinese companies offer such advantageous terms. They have such good technology.

They have such low costs that, you know, General Motors, other companies, like how could we resist working with them too? And so they basically say that the Chinese companies are so attractive as potential business partners that they may not be able to help themselves if it's something that is still allowed under the subsidies. Ford and GM have been busy lobbying their cases in Washington. In the coming months, the Biden administration will have to decide which company has the right approach. Why that's a tricky decision is after the break. Introducing TD Insurance for Business, with customized coverage options for your business.

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are trademarks of Bacardi and Company Limited. Rum 40% alcohol by volume. Interpreting those four words, foreign entity of concern, puts President Biden in a difficult position. The Biden administration is in a bit of a bind about what to do about this. The people I've talked to, I've described to them, I was like, would you say this is a quandary? And they would say, I would say it's a lot worse than just a quandary. I mean, basically—

What is worse than a quandary? I mean, I think you could use words that are maybe not something you would put on a family podcast. But, you know, something's related to clusters, I guess. Anyway, it's a big situation for them. At the heart of this decision is how to balance two big priorities, climate change and national security. Climate change is an important issue for Biden. He's tried to cut greenhouse gas emissions and reduce pollution. But national security is also a major concern. The president has put sanctions on Chinese chips and restricted American firms from investing in Chinese tech.

And so they're trying to figure out, you know, what's the best way to do this? And how do we do this in a way that, you know, both accomplishes our goal of making the United States kind of more resilient when it comes to China and that we fight climate change, which the Biden administration says, you know, is like the biggest public policy issue in the world. And so it basically, in a lot of ways, it comes down to what's more important,

becoming independent from China or reducing carbon emissions. And if you reduce carbon emissions as much as possible, you'd maybe don't become super independent from China. And if you become as independent from China as possible, you maybe don't reduce carbon emissions as much. And so where become as independent from China as possible, you maybe don't reduce carbon emissions as much. And so where between those two do you land? As Biden figures that out, Ford is waiting. But it's not exactly waiting patiently. Last month, the company paused construction on its new battery plant.

And it said it might scale back its plans. That means thousands of people could lose out on new jobs, which is another big priority for the Biden administration. You know, I read a letter that Ford's general counsel sent to top Biden administration officials saying that we would scale back the number of Americans we plan to employ at this plant and we would not be making as many batteries in the United States. And so, yeah, it's kind of these rules are potentially make or break for this. Again, this is $3.5 billion that Ford wants to spend on this factory. And they might, you know, functionally abandon it if they are on the wrong side of these tax credits rules. Ford's decision to pause construction has been slammed by the United Auto Workers, the union representing the thousands of workers currently on strike at Ford, GM, and Stellantis factories. A big part of why they're striking has to do with how the industry plans to move toward EV manufacturing and what happens to workers in the process.

And then finally, sort of just big picture, whichever way the Biden administration decides on this, how would the decision impact the future of the EV industry? So this decision will have a major impact on how many Americans buy electric vehicles in the next 10 years. If this tax credit is widely available that automakers find it straightforward to comply with and they can build cars that meet its requirements and that get the discount, that could substantially increase the number of Americans who say, oh, when I buy my next new car, I'll make it an electric vehicle because I'll get $7,500 off the price and that will make it cheaper than a gasoline-powered car. And if they don't do that, if the Biden administration writes this tax credit in a way that automakers say, this is so expensive to try and figure out a way to do this without China, we're not even going to bother, then that would mean that electric vehicles could be more expensive

and fewer Americans would buy them, and there would be more gasoline- fewer Americans would buy them. And there would be, you know, more gasoline powered cars on the road and that car makers would have an incentive to still keep selling and developing more gasoline powered cars if they're more enticing to consumers. And so the rules for this tax credit will have an impact on kind of what consumers want to buy. And that will, what consumers want to buy will direct what companies offer to them. And I mean, yeah, $7,500, that's a lot of money. I mean, it might help you make a decision if you wind up being eligible.

I don't think I can say whether I would buy a Ford or General Motors car, but yeah, I mean, certainly when the day comes when I buy a car, you know, I would certainly take this tax credit into consideration, I guess. That's all for today, Tuesday, October 3rd. The Journal is a co-production of Spotify and The Wall Street Journal. If you like our show, follow us wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening.

See you tomorrow.