Biden Administration’s $100 Million Pledge Aims To Help Automotive Suppliers Switch From

The Biden Administration has announced a new $100 million pledge for the shift to electric vehicles, but instead of this money being directed towards charging infrastructure, tax rebates, or automaker incentives, it’ll find its way to small- and medium-sized auto suppliers who would otherwise be unable to shift from the production of combustion-related parts to electric ones. Vice President Kamala Harris made the announcement in Detroit, Michigan, the home of automotive manufacturing in the United States, as the latest initiative to keep American jobs alive in a post-combustion era. The $100 million will allow these suppliers to retool or expand their factories to cope with the rigors of EV parts manufacturing without the exorbitant costs usually associated with such a move – costs that small and medium businesses typically can’t bear. The goal is “to ensure that the future of the auto industry is made in America by American autoworkers.”

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How Will This $100 Million Be Spent?

Working with the US Department of Energy, the funding will be split in half between two primary initiatives.

• $50 million will come from the Automotive Conversion Grants Program and will aid these small- and medium-sized suppliers’ switch from combustion parts supply to EV parts manufacturing. The goal is to retool existing facilities to retain union jobs in the same areas as automakers, allowing EV manufacturing to be maintained in the US instead of elsewhere in the world. This follows prior initiatives like sections of the Inflation Reduction Act that incentivize the manufacturing of EVs in the US with up to $7,500 in rebates for buyers of qualifying vehicles. This alone has seen manufacturers clamoring to build US EV factories in the next few years.
• Another $50 million will come from the DoE’s Implementation Grants Program. This program was funded by the Bipartisan Infrastructure Law and provides grants of up to $300,000 to businesses for upgrading their facilities to improve energy and material efficiency, cybersecurity, productivity, and greenhouse gas emissions. This is done with the intent of kickstarting “manufacturing diversification and conversion projects.”

Additional Benefits For Small- And Medium-Sized Auto Parts Suppliers

But funding and grants are just a small part of the new initiative, and there will be other benefits. For one, the Small Business Administration wants to catalyze millions of dollars in private capital to help these suppliers grow and adjust to a world in which EVs are the norm, leveraging the Small Business Investment Company. A New Working Capital Pilot Program will also be established to provide lines of credit to small businesses like auto parts manufacturers and distributors to help them both in local business and export.

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Workforce training will also see a significant boost through several related initiatives, like an electric vehicle hub in Michigan to focus on job training related to the EV sector, the opening of applications for the DoE’s new Community Workforce Readiness Accelerator for Major Projects (RAMP) Fellowship, training of clean energy and manufacturing workforces at community colleges, trade schools, and the like, and a Battery Workforce Initiative providing standardized training guidelines for battery manufacturing occupations.

Additionally, a variety of technical assistance programs will be geared toward helping the aforementioned auto parts manufacturers take advantage of growth in the EV sector and its related fields.

Positive Reception From The Auto Industry

While major automakers are yet to respond to the announcement, the Motor & Equipment Manufacturers Association (MEMA) responded positively, issuing a statement in which it applauded the announcement from Vice President Harris. “This significant investment and comprehensive set of actions announced by Vice President Harris will undoubtedly have a meaningful impact for the sector,” said Bill Long, President and CEO of MEMA. “This is a clear step in the right direction for our members, empowering them to thrive in the evolving vehicle ecosystem.”

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The move is an important one from the US government, as following the recent settlement between the Big Three American automakers and the United Auto Workers after a protracted strike, there was the huge potential for jobs to be lost if suppliers of EV componentry couldn’t adapt to reduce prices. The dream of sub-$20,000 EVs has already been forgotten in the wake of the strike, but an initiative like this one at least ensures that auto industry jobs are not lost to countries like China.

What Does This Mean For You And Me?

There are several potential benefits from a program like this, but as always, they may only be fully realized if the industry at large participates actively:

• More automotive jobs stay in America
• Reduction in price hikes for EV components – suppliers won’t need to recover costs from clients
• Standardized training for the EV sector
• Diversification makes small- and medium-sized suppliers more versatile

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Forget About All Those Affordable EVs Detroit Promised You

With the continuation of the UAW strike, waning EV demand, and massive lines of credit that need to be managed, cheap EVs are unlikely to happen this decade.

In light of the above, the obvious knock-on effect is a lower likelihood of EVs becoming prohibitively expensive. At the time UAW members went on strike, automakers complained that rising wage costs would prevent affordable EVs from becoming a reality. Despite the economies of scale initially boding well for cheaper EVs as sales increased, the rising costs associated with EV manufacturing put paid to that notion quickly. Stellantis asked Italian suppliers to “manage [their] cost policy efficiently” – basically begging for a price reduction on EV components – and froze the development of the Maserati Quattroporte Folgore while delaying the launch of the new Fiat 500e, potentially until 2030. Meanwhile, Ford reported huge losses this year on every EV it sold, citing “significant industry-wide pricing pressure” as the cause for slashing EV prices below the point of profitability.

However, with support from the government, suppliers can switch to producing EV components more affordably, reducing the knock-on costs for automakers. Hopefully, the consumer will be on the ultimate receiving end of the reduced production costs, and cheap EVs might not be gone after all.

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The decarbonization conundrum is tricky. Automakers must develop cleaner vehicles that do not pollute city centers with tailpipe emissions, but they cannot afford to put all their eggs in one basket when the majority of the buying public is choosing hybrids over all-electric vehicles. Therefore, they need support to remain profitable as they slowly reduce costs and increase efficiency. Small- and medium-sized, flexible, third-party enterprises can help in this endeavor.

Slowing EV Demand Threatens To Derail New Investment

While the above is an optimistic viewpoint on the investment made by the Biden administration, it still relies on the automotive industry shifting to electrification at a rapid pace. While a few years ago, this seemed a certainty, after the initial EV boom, we’ve seen a drastic reduction in demand for electric vehicles. Automakers that went all-in on EV development suddenly had to make an about-turn, with many announcing revisions to their electrification plans this year:

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What am I really getting for my money?

If demand for EVs doesn’t bounce back, initiatives like this new $100 million pledge from the US government could be wasted time and money. While there is still growing support for EVs, there seems to be anti-EV sentiment in equal measure, and it’s seeming more and more likely that governments legislating electrification into being the standard was not as well-thought-through as was initially proposed. The United Kingdom pushed back its ban on tailpipe emissions by five years, and Euro 7 emissions regulations were lightened significantly after huge pushback from automakers.

Manufacturers like Toyota now seem to have been the smart players after delaying their EV rollouts instead of falling victim to premature electrification. Toyota remains outspoken on the dangers of committing to electric as the only solution to combat emissions, and Akio Toyoda even believes that BEVs will never make up more than 30% of the global automotive demand.