How A New Bill Could Pick Winners In The U.S. Auto Sector

U.S. Auto EV

Have you been shopping around for an electric car in the last few months? If so, you may have noticed that companies are advertising lavish government subsidies. In fact, electric vehicles (EV) are currently only conceivable at all because of these subsidies. Without taxpayers’ money, the whole technology would simply not yet be competitive with internal combustion engine (ICE) vehicles in view of electric cars’ higher production costs. President Biden, however, seems intent on strengthening this subsidy regime. He wants at least half of all new cars sold in the U.S. by 2030 to be electric. 

Biden Pumps Triple-Digit Billions into U.S. Auto E-Mobility

To make this happen, Biden’s infrastructure plan calls for a $174 billion investment in electromobility. A gigantic portion of that is earmarked for the development of charging infrastructure and battery production. However a substantial amount will also fund purchase incentives. At the moment, there is a $7,500 tax credit on e-car purchases in the US. 

Of course, this is not only appealing for EV buyers, but also for EV company shareholders. After all, the subsidies support sales. But now that could change, at least for some corporations.

A few days ago, the Democrats presented a controversial new bill which would overhaul EV subsidy regulations. It provides for a tax credit of up to $12,500 for the purchase of electric cars – $5,000 more than before. The controversial part is that Biden’s party only wants to give the subsidy increase to manufacturers whose US workforces are unionized. That, of course, pleases the Big Three: General Motors (GM), Ford (F) and Stellantis (STLA). 

Bad News for Tesla

That provision would notably exclude Tesla (TSLA). Although the company is the largest EV manufacturer in the US, their employees are not unionized. Company boss Elon Musk has been at loggerheads with employee representatives for years over a variety of labor issues. Critics have even accused the billionaire of immediately firing employees who discussed unionization.

So far, this has been rather positive for investors. Tesla has been able to control its personnel costs without input from unions, giving it more flexibility than its organized rivals. With the change in subsidies pushed by the Democrats, this advantage could become a liability – with possible negative consequences for its share price.

Musk was anything but thrilled after the Democrats’ announcement. The billionaire fumed on Twitter that he believed the regulatory change was cooked up by Ford lobbyists. Musk, in any case, sees the proposed policy as an unfair act of favoritism towards the legacy U.S. auto makers to the detriment of up-and-coming companies like Tesla.

Toyota and Honda also Not Amused

But Tesla is by no means the only company to be displeased by the proposed subsidy change. The foreign manufacturers Toyota and Honda, which operate many non-union plants in the U.S., also sharply criticized the Democrats’ draft. Toyota, for example, said that the bill discriminated against American car workers who decide not to join a union. Honda echoed the same sentiment, calling for equal treatment for all employees.

For now, the bill is far from becoming law. But as an investor, you should follow political developments like these all the more closely if you want to invest in manufacturers that do business in the US. General Motors, Ford and Stellantis subsidiary Chrysler have all expressed their confidence in the new legislation – and no wonder. It could give their shares an extra competitive moat.

Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.
Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.

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