The case for subsidizing electric vehicles

Summary
Ending the tax credits would cede global leadership to China.Honda and Nissan recently announced plans to merge by 2026. Unthinkable 10 years ago, the merger is intended to keep the companies competitive as the automobile industry makes a transition to electric vehicles. Failure to do so spells doom in today’s car market. Foreign EV manufacturers have created an “existential crisis" for Germany’s once-mighty domestic industry.
China recently became the world’s leading car exporter, thanks to heavy investment in EVs. The U.S. is also making great strides in this growing market, but some American politicians want to wave the white flag. Although a combination of private-sector innovation and support from Congress has driven the EV sector’s growth in the U.S., lawmakers are floating the possibility of ending consumer and manufacturing tax incentives for manufacturers and parts suppliers. These incentives level the playing field for American businesses in the face of huge public investments from Europe and China. They are necessary to help America compete.
In the past two years, companies such as Ford and General Motors have announced more than 100,000 new EV-related jobs. Automakers and other companies have built or are building vehicle, battery and parts factories in 160 congressional districts across the country. Mississippi Gov. Tate Reeves called the battery plant under construction in his state a “project of record proportions—the single largest payroll commitment in Mississippi’s entire history."
Federal manufacturing and consumer tax credits have fostered massive growth all the way up the EV supply chain, from vehicle assembly to critical minerals. The credits have strict eligibility standards, requiring that the majority of critical minerals and battery components come from the U.S. or an ally. Consumers can receive a $7,500 credit for purchasing an EV. The enactment of this credit encouraged Hyundai to fast-track plans for a Georgia factory.
Working together, the supply-side and demand-side credits are fueling the domestic industry. EV sales are growing, with November sales up 13.6% over last year. If Congress eliminates these incentives, booming communities across the country will be devastated. America’s ability to build its industry globally requires domestic consumer demand. For the near future, this requires a boost from these policies, as many new industries do. Killing the tax credits will have a domino effect: Plants will close, sales will slow, and American businesses won’t be able to compete on the global market.
Congress could cost the U.S. billions of dollars and hundreds of thousands of jobs—that’s what this transformed industry will soon provide. Protecting the industry is common sense. It saves American families money, invests in local economies, and keeps the country in this economic race. Let’s give our businesses a fighting chance to beat the global competition.
Mr. Krupp is president of the Environmental Defense Fund.