The transition towards electric vehicles is inevitable. And like any disrupting technology, the effects on the industry and job market at large could create unwanted shock waves if this transition isn’t managed properly. Case in point, a new report released this week by the Economic Policy Institute found the U.S. auto industry could stand to lose about 75,000 jobs by 2030 due to things such as more overseas parts manufacturing and less domestic assembly.
The year 2030 has been eyed by President Biden as the time by which at least 50% of all new vehicles sold in the United States would be electric.
In a recent Pew Research Center survey, 7% of U.S. adults said they currently have an electric or hybrid vehicle, and 39% said they were very or somewhat likely to seriously consider buying an electric vehicle. But the U.S. represents only about 17% of the world’s total stock of 10.2 million electric vehicles, while China has 44% (more than 4.5 million) and the nearly 3.2 million in Europe account for about 31%. The high cost of acquisition and lack of cheap car insurance (electric vehicles cost approximately $442 more to insure than gas-powered ones) are still keeping undecided buyers on the sidelines.
In order to accelerate this transition, Democrats have circulated a plan in Congress that seeks to up the current $7,500 tax credit for the purchase of a new electric vehicle (EV) to as high as $12,500.
While these consumer subsidies are welcomed, economists argue that the government needs to also incentivize manufacturers in order to prevent jobs lost down the supply chain. Under the current plan discussed in Congress, EV buyers could be awarded an extra $4,500 credit for vehicles assembled at unionized factories in the U.S., as well as $500 if the vehicle’s battery was made domestically. These are good subsidies, however, they may still be not enough.
According to the Economic Policy Institute, about 50% of all EVs currently sold in the U.S. are made domestically. Less than half of the parts in the powertrains for U.S.-made electric vehicles are produced domestically, whereas three-quarters of the powertrain parts for U.S.-made gasoline vehicles are produced domestically.
If the market share of domestic manufacturers were to drop to 40% and powertrain manufacturing stayed the same, the industry could stand to lose 200,000 jobs. If it were to rise to 60%, the industry could gain 100,000 additional jobs by 2030.
These risks are due to fundamental differences between gasoline and electric car manufacturing. EVs require about 30% less labor to manufacture than gasoline-powered ones since they have much fewer moving parts.
Compare these numbers to China’s, the world’s largest EV market. In China, virtually all EVs sold in the country (98%) are assembled domestically. Nearly 100% of the value of a battery pack, by far the most expensive part for an electric vehicle, stays in China. In contrast, half of the value of the battery for EVs sold in the U.S. stays in foreign countries like South Korea, Japan, and China, which have a more robust battery manufacturing chain.
Unlike the U.S., China has offered a lot of subsidies to manufacturers. So much so that it found itself with too many EV manufacturers, many of which have gone bankrupt due to stiff competition. Industry and Information Technology Minister Xiao Yaqing said that the government is now encouraging the consolidation of the market through mergers.
It’s not all bad news, though. Ford and General Motors have both announced they will be ramping up domestic battery production in order to minimize supply disruptions.
“U.S. automotive workers have had their economic opportunities and job quality battered for decades by harmful policy decisions. The massive coming shifts in automotive sales toward EVs present new challenges and opportunities for these workers. If policymakers ignore the opportunity to build the sector back stronger, large job losses and further degradation of job quality is the most likely outcome. If instead policymakers help meet this coming transformation with strong investment targeted at boosting the U.S. position in the electric vehicle market and in advanced vehicle technology manufacturing, and if these investments are accompanied by measures aimed at strengthening bargaining power for workers, then employment will expand in the U.S. auto sector and the number of unionized jobs will grow. With a smart policy push, the long downward slide in job quality will reverse at the same time that the U.S. leads in building the vehicles of the future and combating climate change,” the authors of the new report concluded.