Tesla & The Government: A Contentious Relationship Spurred By Lobbyists?

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Tesla and the US government have had a healthy relationship under the past two administrations. President Obama toured the SpaceX facility and Trump asked Tesla CEO Elon Musk to be part of his business advisory council. Yet the Washington Post (whose owner, Jeff Bezos, has an antagonistic relationship with Musk) described Tesla recently as “used to being touted and even coddled by a government eager to show off Silicon Valley’s ingenuity and the innovative spirit ushered in by a friendly regulatory climate.”

Okay, “touted” and “coddled” may be a bit strong, but it was clear that the US was proud of Tesla’s made-in-America success.

Now there’s a new sheriff in town, and US President Biden said in August that he wanted half of new cars sold in the country to be battery-powered by the end of the decade. Woo hoo! Go, Tesla, right?

Not so fast.

Joining President Biden for the public face of the announcement were executives from General Motors, Ford, and Stellantis, who made broad and noble statements about their commitments to electric transportation.

Electric vehicles (EVs), however, are only a merest hint of these companies’ US sales, with 1.5% for GM, 1.3% for Ford, and none yet for Stellantis so far this year. Tesla, which manufactures only battery electric vehicles, was excluded from the White House photo shoots and conversations. “Yeah, seems odd that Tesla wasn’t invited,” responded Tesla CEO Elon Musk in a tweet responding to a CleanTechnica article about it.

Has Tesla’s relationship with the US government gone sour?

 Tesla and the Government: Consequences of Lobbying Pressure?

The Washington Post contends that Tesla has had a long “honeymoon period with the government” which may be ending. The article stands firm that “the company was bolstered by federal tax incentives that drove growth and sales, emissions compliance credits that ushered in profitability, and relatively hands-off oversight that allowed it to put new technology in the hands of customers without much fear of regulators stepping in.”

Let’s deconstruct that statement a bit, shall we? The harsh tone masks the reality that tax incentives, emissions compliance credits, and hands-off oversight might actually have been a good thing. And, then again, has Tesla and the US government really had a special relationship that was substantively different than other US automakers?

Incentives Leave Out Non-Union Automakers

House Democrats last week unveiled a proposal to allow an extra $4,500 in consumer incentives to buy a new EV if it is union-made in the US. Tesla, Toyota, and Honda are criticizing the proposed $12,500 EV tax incentive for including so much extra cash for union-made cars and trucks produced in the US, rather than focusing on “American made” by itself. They say a $4,500 incentive for vehicles assembled in a union plant unfairly favors General Motors, Ford, and Stellantis.

The House Ways and Means committee’s package would:

• extend a $7,500 tax credit to consumers for new EVs;

• add in $4,500 for cars that are assembled using union labor in the US; and,
• throw in $500 more if battery cells are manufactured in the US and no less than half of the vehicle’s component parts are made-in-the-USA.

Erin Hatch Thomas, communications director at the House Ways and Means Committee, said the proposal merely reflected the priorities of the committee. “The Democratic Caucus strongly values workers’ rights as well as American-based manufacturing, both of which this proposal encourages,” she said.

Tesla produces the most vehicle batteries and EVs in the US, but it is the only major US automaker whose production is not unionized. (Writer’s note: I am a staunch unionist, but I’d rather see the US government work with Tesla and its worker relations than reject the company stridently.)

Since Musk has long opposed unionization at Tesla, is the Biden administration’s distance from the all-electric carmaker a result of pro-union lobbying? Are the administration statements about supporting the Paris Accord and the necessary leveling of global warming to a limit of 1.5°C above pre-industrial levels subject to political convenience? Are lobbying influences at work to force Tesla into an outsider position? (Don’t say it’s so, Joe!)

Tesla CEO Elon Musk recently responded to the House proposal on Twitter.

In August, CleanTechnica editor Zachary Shahan wrote “it bears noting that Tesla is now an extremely popular and well known company.” He added, ” I don’t think Tesla needs a ‘Biden boost.’”

I wonder if, just a month later, that still can be said.

With the anti-Tesla discourse flying around the government these days — and the corollary of the data about supply chain complexities — should we be asking: Is Elon Musk correct in saying that the new proposed legislation is “the product of lobbyists” and does not “serve American taxpayers?#8221;

Editor’s note: I should clarify that I mean Tesla doesn’t need a “Biden boost” among the general public, and part of that is because demand is so high for Teslas. However, clearly, Tesla’s reputation is not the greatest with some on the left (or the right, for that matter) and with certain policymakers who see Tesla as anti-worker. So, Tesla could indeed use a Biden boost with some groups. —Zach

Made in the USA! Um, Not Anymore

Many people want to support local manufacturing by buying products made in the USA. In actual practice, however, such buying decisions are more nuanced that one might think. In fact, an analysis titled “American-Made Index” produced some interesting results — Tesla has 2 of the top 3 vehicles, and Asian manufacturers hold 6 of the top 12 slots — none of whom are the beneficiaries of the House proposed incentives. (The Tesla Model S and Model X were not included in the analysis.)

1. Tesla Model 3, assembled in Fremont, Calif.
2. Ford Mustang, assembled in Flat Rock, Mich.
3. Tesla Model Y, assembled in Fremont, Calif.
4. Jeep Cherokee, assembled in Belvidere, Ill.
5. Chevrolet Corvette, assembled in Bowling Green, Ky.
6. Honda Ridgeline, assembled in Lincoln, Ala.
7. Honda Odyssey, assembled in Lincoln, Ala.
8. Honda Pilot, assembled in Lincoln, Ala.
9. Honda Passport, assembled in Lincoln, Ala
10. Toyota Tundra, assembled in San Antonio, Texas
11. Ford Expedition, assembled in Louisville, Ky.
12. Acura RDX, assembled in East Liberty, Ohio

Of course, this index looks at the top autos “assembled” in the US. The automotive industry is a complex international web of factories and suppliers. Analyzing the automobile sector is important for understanding the sector’s direct importance in terms of GDP and employment, its sensitivity to the economic cycle, and its extended role in the economy through supply chains.

To narrow the analysis, it’s prudent to study the current position of the automobile sector in light of the transition towards EVs. In view of the upcoming shift towards electric car technologies and autonomous driving, evidence suggests that countries in the EU are lagging behind China and the US when it comes to the production of electric parts used in the car sector.

But the US outsources a whole lot of its parts, too. Tesla is heading in the right direction, with new production facilities expected to come online in Austin, Texas, by the end of the year. Tesla has been steadily increasing its manufacturing footprint since opening its first factory 11 years ago.

Also, electric vehicles utilize rare earth elements that are sourced from a monopolized supply chain — most EV rare earth metals are sourced from China. Future critical metal demands are substantially affected by battery technology roadmap.

And then there’s the demand for lithium-ion batteries (LIBs), which is immense. Their market was pegged at $36.7 billion in 2019 and is projected to hit $129.3 billion by 2027. The ubiquity of LIBs stems from research-driven efficiency improvements and an extensive worldwide manufacturing and distribution industry that, through improvements in scale and processing, has driven down battery prices by 87% in the last decade. Although the US is one of the biggest consumers of LIBs, it only produces 12% of the annual 316 GWh of lithium cell manufacturing capacity. China remains the largest manufacturer and accounts for 73% of annual LIB production.

Clearly, manufacturing EVs has a whole lot more complicated supply chain than the House proposal is letting on.

Tesla’s and the Government — Benefits that Go Both Ways

In January 2010, the US Department of Energy issued a $465 million loan to Tesla Motors to produce specially designed, all-electric plug-in vehicles and to develop a manufacturing facility in Fremont, California, to produce battery packs, electric motors, and other powertrain components for powering specially designed all-electric vehicles. The concept over a decade ago was that the Model S, as the first zero-emission, zero-gas, full-size electric vehicle on the market, would serve as a model for other EVs that would follow. Tesla had already produced battery packs, electric motors, and other powertrain components that would power all-electric, plug-in vehicles — not only Teslas, but also those of other vehicle manufacturers.

Another benefit Tesla receives comes when it sells regulatory credits to other automakers, such as Stellantis, the result of state, federal, and even international regulations meant to lower vehicle emissions.

In 2020, Tesla received payroll related benefits from the government in the first half of the year to help reduce the impact of the coronavirus pandemic on its business, the electric carmaker said in a filing. “As part of various governmental responses to the pandemic granted to companies globally, we received certain payroll related benefits which helped to reduce the impact of the COVID-19 pandemic on our financial results,” the company said.

Tesla and the Government — Final Thoughts

Today, Tesla not only has the strongest brand recognition of all EV manufacturers — it also has a 74% market share for all EVs sold in the 3 years prior to 2020 in the US. The Model 3 and Model Y cars are the current top sellers in the US market. And think of it: Tesla reached these sales levels even after the federal tax credit available to owners of Tesla cars expired in July, 2018. Tesla is also the top seller of EVs globally.

Aside from the union-made incentive, members of the House Ways and Means Committee raised questions about the domestic content of the vehicles as well as the bill potentially benefiting the wealthy. Remember the American-Made Index from earlier in the article? The average price of the 12 cars cited was $38,536. The estimated average transaction price for a light vehicle in the United States was $42,258 in June 2021, according to the analysts at Kelley Blue Book — consistent with the actual assembled-in-America vehicles.

So this fact-checking brings us back to the beginning. Who’s really to benefit from pushing Tesla away from the House proposal incentives? It’s not the mass market of future Tesla consumers, that’s for sure, who want an EV from a company that’s been working out the proverbial bugs for the last decade.