On Friday, the House Ways and Means Committee released the text for the long-awaited $3.5 trillion budget package the Biden administration has suggested would serve as its green energy package among other things included in the administration's expansive definition of "infrastructure." And there is a lot to like for automakers trying to execute an expensive transition from gas-powered cars to electric ones, including an extension and expansion of the $7,500 EV tax credit to up to $12,500. It also includes a customer option to get that discount at the point of sale rather than needing to wait to file tax returns.
But several automakers, including Toyota, Honda, and Tesla, are unhappy with this bill because of a key provision that incentivizes electric vehicles to be built in the U.S., and especially by unionized labor.
As currently written, any EV built anywhere in the world will still be eligible for the $7,500 tax credit, removing the existing cap on any EV made by a company that has already sold more than 200,000 EVs. This would benefit Tesla and General Motors, the only two companies that have thus far sold that many EVs. But EVs built in the U.S. by unionized labor would get an extra $4,500 tax credit. If the battery is manufactured in the U.S. as well, the EV will be eligible for another $500, for a grand total of up to $12,500 in subsidies. After five years, only EVs made in the U.S. will be eligible for these subsidies.
Naturally, the United Auto Workers (UAW) is thrilled about this and automakers that do not currently have unionized labor in the U.S. are not. The UAW says the provision would "go a long way in supporting good paying union jobs in EV auto sector that President Biden has championed." Meanwhile, Toyota and Honda sent angry letters and issued press releases that claim the bill, in Honda's words, "discriminates among EVs made by hard-working American auto workers based simply on whether they belong to a union."
Elon Musk claimed the bill was written by "Ford/UAW lobbyists," a curious assertion given that, as he then immediately acknowledged, Ford makes their electric car, the Mach-E, in Mexico so the provision wouldn't even apply to them.
Nevertheless, this battle lays bare the key dichotomy between auto companies: not "American'' versus "foreign," but unionized versus non-unionized, which cuts across automakers from all nationalities in unexpected ways.
Most people think of three major car companies as "American." They are Ford, Chrysler, and General Motors. They are called "the Big Three" because once upon a time they dominated U.S. car sales. Then the "foreign" automakers—Honda, Toyota, Volkswagen, Hyundai, Mercedes-Benz, BMW, and so on—made better and cheaper cars and Americans started to buy those instead in huge numbers.
As sales picked up, these "foreign" automakers opened factories in the U.S. and, obviously, hired Americans to work in them. For example, Honda has 12 plants in the U.S. and Toyota has eight. Both companies say several of their most popular models are made in the U.S. They also import cars from abroad, something "American" manufacturers also do, particularly from Mexico.
Which is to say, lots of cars by virtually all major car brands are made in the U.S., and lots of cars made by virtually all major car brands are not. The key difference, though, is which ones are made in the U.S. by unionized workers. This is because unionized auto workers in the U.S. make more on average than their non-union counterparts, a trend that holds for the U.S. labor force overall, while also offering protection from unpredictable economic winds.
The legacy of the "Big Three" remains in large part because of how successfully the United Auto Workers organized their shops prior to World War II. When "foreign" automakers opened plants in the U.S. in recent decades, they made sure they did so in a way that shielded them as much as possible from unionization, mainly by opening in right-to-work states like North Carolina, South Carolina, and Alabama. And they have succeeded. None of these shops have successfully unionized, thanks at times to union-busting campaigns.
As a result of this complicated mess of brands, factories, and international industrial policy, the key distinction is no longer the country of origin of the brand that's slapped on the steering wheel—Chrysler, which itself owns sub-brands of Jeep and Dodge, is owned by a conglomerate based in Amsterdam called Stellantis—but whether the car is made by domestic workers earning fair wages and benefits. And the easiest shorthand for that distinction is whether or not the workers who made it have a union.
It is especially ironic that companies like Honda, Toyota, and Tesla are upset about the union provision given their respective histories of fighting unionization efforts. It also leads one to wonder when these companies will get out their calculators. A 2015 industry study found the extra wages for unionized labor came out to approximately $250 per car. If the federal government is effectively offering them $4,500 per car to unionize, there's plenty of money to go around to make affordable, competitive cars and pay their workers unionized wages.