United States Moving Backwards: China Takes Lead in Electric Cars

By: Joe Dietrich

In its pursuit of a tax break for Americans, the House GOP missed a chance to compete with China in the market for electric vehicles. The House tax bill eliminated the $7,500 tax credit for purchasers of an electric vehicle.[1] While electric vehicles account for a miniscule amount of the total vehicle market—65,000 of 14.2 million sold last year in the US—major automakers are preparing to release their first mass-market electric vehicles.[2] BMW, Ford, and Volkswagen are pursuing mass-market electric vehicles because they believe that is the market of the future.[3] The tax credit serves as an important incentive for consumers to purchase electric vehicles. Without the tax credit, the gradual shift from dependence on fossil fuel vehicles will slow to a trickle in the United States.

The responses from automakers and economists have been uniform. Xavier Mosquet, author of a study on the electric car market, asserted that the GOP’s elimination of the credit will “stop any electric vehicle market in the US.”[4] GM’s statement in response to the House GOP’s elimination of the tax credit read, “Because General Motors believes in an all-electric future, we will work with Congress to find ways to maintain this incentive.”[5] Luke Tonachel, the director of Natural Resources Defense Council’s Clean Energy and Fuel Project, said in a statement that the EV credit repeal will cede US leadership in the clean vehicles while costing consumers more at the pump and increasing pollution.[6] The response of the market mirrors those concerns, evidenced by Tesla’s stock price falling over 7% in the wake of the GOP’s tax plan.[7] Despite an almost unanimous view that the elimination of the electric-vehicle tax credit will stall efforts by major automakers to innovate and inhibit our goal of decreasing dependence on fossil fuels, the GOP chose to prioritize profits of the fossil fuel industry.

Conversely, China, known for its extreme pollution in major cities, has taken a drastically different approach to the electric-vehicle market. China aggressively subsidized the electric-car market by funding its own manufacturers and creating an expansive charging-station network.[8] Chinese made models dominate the domestic market with over 100 domestic models already released and sales of plug-in models reaching 351,000 in 2016.[9] The 351,000 vehicles sold in 2016 account for nearly half of the global total sold.[10] Projections show that by 2025 EV models will make up 25% of the total vehicles sold in China, up from 1-2% this year.[11] Major automakers took note of China’s commitment to the electric-vehicle market. Volkswagen recently announced that it plans to invest $12 billion by 2025 in developing electric vehicles for the local market in China.[12] The Chinese government demanded that electric vehicles account for 3-4% of the market by 2019.[13] Automakers seeking to compete in the largest auto-consumer market in the world must adapt and innovate to keep pace with China’s aggressive policies on electric vehicles.

Not only is China pursuing a greener future, but they are rapidly improving its domestic automakers competitiveness in a market traditionally dominated by foreign competitors. Policies aimed at increasing the ability of domestic companies to compete with foreign competitors, while maintaining its position as a global model for innovation is something that the United States should do. Unfortunately, the United States continues to remove itself from a position of leadership in an increasingly globalized world. With the rest of the world committing itself to innovation and a move away from fossil fuels, the United States government took a step to preserve the fossil fuel industry while inhibiting the competitive growth of its domestic automakers. The reclusive policies of our government will only harm us in the future and erode our influence in a world looking for a leader. In a time where the world is scrambling to innovate and adapt to climate change, the United States left a vacuum in leadership, and China enthusiastically is stepping in.

[1] Bill Vlasick, Tax Plan Would Scrap Electric-Car Credit, Dampening Market, New York Times (Nov. 2, 2017) https://www.nytimes.com/2017/11/02/business/tax-electric-cars.html.

[2] Id.

[3] Id.

[4] Ryan Beene, Ari Natter, and Keith Naughton, House GOP Tax Bill Would End Electric-Car Credits, Bloomberg (Nov. 2, 2017) https://www.bloomberg.com/news/articles/2017-11-02/tax-credit-for-electric-cars-said-to-be-axed-in-gop-tax-proposal.

[5] Vlasick, supra 1.

[6] Beene, supra 4.

[7] Vlasick, supra 1.

[8] Trefor Moss, China, With Methodical Discipline, Conjures a Market for Electric Cars, Wall Street Journal (Oct. 2, 2017) https://www.wsj.com/articles/china-with-methodical-discipline-takes-global-lead-in-electric-cars-1506954248.

[9] Id.

[10] Id.

[11] Id.

[12] Trefor Moss, Volkswagen Plans $12 Billion Electric-Car Blitz in China, Wall Street Journal (Nov. 16, 2017) https://www.wsj.com/articles/volkswagen-plans-12-billion-electric-car-blitz-in-china-1510820168.

[13] Id.

United States Moving Backwards: China Takes Lead in Electric Cars

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