Peter Morici: Biden administration needs a winning EV strategy or Chinese carmakers will take American jobs

American and European leaders decry Chinese mercantilism, but more is at play than trade barriers and subsidies in the struggle to dominate the electric vehicle (EV) industry.

Early in this century, Chinese policymakers recognized the importance of the auto sector — it’s a huge user of semiconductors and software — and bet big on EVs. China launched R&D programs for EVs, batteries and related components. It followed with elaborate tax incentives, production and purchases subsidies, and creative regulations. China now produces six of 10 EVs globally and leads in battery production.

China’s potential exports threaten the viability of the U.S. auto sector, especially as federal regulations push Americans to switch from gasoline-powered vehicles.

The U.S. Department of Energy has supported the development of battery technology and offered tax credits to purchase EVs since the Obama administration. President Joe Biden’s Inflation Reduction Act (IRA) doubled down with aggressive subsidies to encourage U.S. vehicle and battery and vehicle development and production, and offered tax credits for the purchase of domestically produced EVs.

Yet some of what American automakers do is tragically inept.

Ford Motor Co., despite heavy price tags and subsidies for purchasers, hasn’t managed to earn a profit on EVs. Whereas South Korea’s Hyundai, without qualifying for U.S. tax credits, appears able to sell EVs in the U.S. at a profit and is opening an EV battery and assembly plant in Georgia.

Unfortunately for Detroit, the reckoning is coming. New EPA regulations effectively require that about 53% of new vehicles sold be EVs by 2032.

Soon it won’t take incentives or regulatory mandates to persuade more drivers to embrace EVs. Prices for lithium, nickel and cobalt have fallen substantially, and Goldman Sachs is predicting a 40% drop in battery cost, which would take the price per kilowatt hour below $100.

That’s singularity. EVs should then be cheaper to make than gasoline-powered vehicles. A modest Hyundai EV could be sold for less than a gas-powered Chevy, and those EVs would have lower ownership costs.

Over the next five years, modifications to battery designs should substantially increase the amount of power and reduce charging time for batteries. That would virtually eliminate range anxiety and inconvenience on long trips, which currently are major barriers to EV acceptance.

The U.S. can’t afford to let GM and Ford fail. The legacy auto industry is too important for maintaining jobs throughout their supply chains, but industrial policies have so far not worked. And now Biden is slapping 100% tariffs on Chinese-made EVs.

The U.S. needs a better EV strategy or subsidized Chinese manufacturers will steal American jobs. It would be better to let Inflation Reduction Act EV-purchase subsidies expire as planned by 2032 and proceed with Biden’s tariff on Chinese imports — but also tax imported vehicles containing more than perhaps 20% Chinese components.

Plus, give Americans tariff-free access to European, Japanese and South Korean vehicles if they give U.S.-made cars the same allowance. Shutting out competitive imports won’t foster a more efficient U.S. auto sector. As it stands now, Detroit auto manufacturers are in danger of requiring indefinite subsidies that the U.S. budget can’t bear.