Biden's push for electric cars: $174 billion, 10 years and a bit of luck

Contributed by Volkswagen / The 2021 ID.4 electric SUV is scheduled for production in Chattanooga in 2022.

President Joe Biden is a muscle-car guy; one of his most prized possessions is a 1967 Corvette that he got from his father. But he is trying to make this an electric vehicle world.

The $2 trillion infrastructure plan that he unveiled Wednesday is aimed at tackling climate change in part by spending up to $174 billion to encourage Americans to switch to cars and trucks that run on electricity, not gasoline or diesel. That is a large investment, but it might not be enough to push most Americans toward EVs.

Despite rapid growth in recent years, electric vehicles remain a niche product, making up just 2% of the new car market and 1% of all cars, sport utility vehicles, vans and pickup trucks on the road. They have been slow to take off in large part because they can cost up to $10,000 more than similar conventional cars and trucks. Charging EVs is also more difficult and slower than simply refilling the tank at far more prevalent gas stations.

Biden hopes to address many of those challenges through federal largesse. He aims to lower the cost of electric vehicles by offering individuals, businesses and governments tax credits, rebates and other incentives. To address the chicken-and-egg problem of getting people to try a new technology before it is widely accepted, he hopes to build a half-million chargers by 2030 so people will feel confident that they will not be stranded when they run out of juice. And he is offering help to automakers to get them to build electric vehicles and batteries in the United States.

"We find ourselves at a unique moment here where most American businesses and many states are looking toward a decarbonized future but recognize there's a big lift on the infrastructure side," said Bob Perciasepe, president of the Center for Climate and Energy Solutions, an environmental research group. "This investment alone obviously won't solve the climate problem or fix all of the infrastructure in the United States, but it will be a huge boost."

Automakers see the writing on the wall, and many - including General Motors, Volkswagen and Ford Motor - have made big EV promises. But even they acknowledge that they will need federal help.

"This transformation is greater than any one policy, branch or level of government, or industry sector," a group representing manufacturers, suppliers and automotive workers said in a letter to Biden on Monday. "It will require a sustained holistic approach with a broad range of legislative and regulatory policies rooted in economic, social, environmental and cultural realities."

The letter called for grants, loans, tax credits and tax deductions to promote research and manufacturing. The authors of the letter, which included industry groups and the United Auto Workers union, called for investment in job training programs and federal help in promoting development of minerals and other raw materials in the United States.

But production is only one piece of the puzzle. The transition away from gas-powered vehicles rests on convincing consumers of the benefits of electric vehicles. That has not been easy because the cars have higher sticker prices, even though researchers say that they cost less to own. Electricity is cheaper on a per-mile basis than gasoline, and EVs require less routine maintenance - there is no oil to change - than combustion engine cars.

The single biggest cost of an electric car comes from the battery, which can run about $15,000 for a midsize sedan. That cost has been dropping and is widely expected to keep falling thanks to manufacturing improvements and technical advancements. But some scholars believe that a major technological breakthrough will be required to make electric cars much, much cheaper.

"There's a good sense that at least for the next maybe five years or so, they're going to keep declining, but then are they going to level off, or are they going to keep declining?" Joshua Linn, a professor at the University of Maryland and a senior fellow with Resources for the Future, an environmental nonprofit, said about battery costs. "That won't be enough, so then that's given rise to a lot of attention to infrastructure."

The federal government and some states already offer tax credits and other incentives for the purchase of electric cars. But the main such federal incentive - a $7,500 tax credit for the purchase of new electric cars - begins to phase out for cars once an automaker has sold 200,000 EVs. Buyers of Tesla and GM electric cars, for example, no longer qualify for that tax credit, but buyers of Ford and Volkswagen electric cars do.

Biden described his incentives for electric car purchases as rebates available at the "point of sale," presumably meaning at dealerships or while ordering cars online. But the administration has not released details about how big those rebates will be and which vehicles they would apply to.

Another big concern is charging. People with dedicated parking spots typically charge their EVs overnight at home, but many people who live in apartments or have to drive longer distances need to use public charging stations, which are still greatly outnumbered by gas stations.

"The top three reasons consumers give for not buying EVs are lack of charging stations, time to charge and the cost of EVs," said Sam Abuelsamid, an analyst at Guidehouse Insights. "They seem to be really emphasizing all three. So, overall, it looks very promising."

There are well over 100,000 gas stations in the United States, most with multiple pumps. Biden's plan calls for a national network of 500,000 electric vehicle chargers within the decade, up from about 41,000 charging stations with more than 100,000 outlets today, according to the Energy Department.

"One of the things that needs to be addressed is getting chargers into places where people only have on-street parking, like in cities and urban areas where you don't have a driveway or garage," Abuelsamid said. "If they can address that, it will make EVs available to a lot more people."

The government in China, which leads the world in the use of electric cars, has done much more than the United States to speed up the installation of chargers.

"It is, famously, one of the ways that China has become the No. 1 country in EVs on most dimensions," John Paul MacDuffie, a professor of management at the Wharton School at the University of Pennsylvania, said in an email.

Even with incentives for manufacturers, a robust charging network and a willing public, the transition to electric cars may take a few decades. Carmakers have improved vehicle reliability in recent years, so many cars stay on the road a long time. The average age of cars and light trucks in the United States is approaching 12 years, up from 9.6 years in 2002, according to IHS Markit, an economic forecasting firm.