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Editorial: Pull the plug on imbalanced incentives for electric vehicles

Volvo (copy)

A Volvo employee works in the automaker's battery assembly plant in Belgium. Volvo has vowed that every new car it produces by 2030 will be battery-powered. Provided/Volvo Cars

Congress is considering legislation to give buyers of electric cars built by unionized workers an extra $4,500 tax credit. It’s a bad idea, and South Carolina’s congressional leaders should work to pull the plug.

We say this not only because South Carolina’s economy has a large dog in this fight, though it does. The state’s BMW plant in Greer is scheduled to begin producing electric vehicles, and Volvo is investing $118 million in a Polestar 3 electric SUV plant. The credit also could affect vans made in the future at Mercedes-Benz’s North Charleston facility. All are nonunion shops.

Instead, we say this because it muddies the waters and ultimately will work against the goal of encouraging electric vehicles instead of gas-powered ones. While EVs currently represent less than 3.6% of the United States’ new car market, they’re expected to make up half of all new car sales by decade’s end.

Gov. Henry McMaster is among those who voiced deep concern about the bill, which he said “not only discriminates against certain American workers but also undermines the efforts by automotive manufacturers to grow the electric vehicle market and meet broader climate goals.”

Pending legislation in the House and Senate would extend the current $7,500 tax credit for consumers who buy an electric vehicle for another five years, but the House version also would give buyers an added $4,500 credit if their vehicle was built by union labor. Another pending provision would make tax credits available only for U.S.-assembled cars after five years.

The most effective way to grow our electric vehicle market is to reduce the overall cost for all such vehicles, not just some, especially if the haves and have nots are determined by something as arbitrary and unrelated to climate concerns as labor arrangements. Volvo Cars USA president and CEO Anders Gustafsson joined other automakers in signing a letter to House Speaker Nancy Pelosi opposing the incentive plan.

By one measure, the tax credit strategy would make only two (in the House version) or six (in the Senate version) of 52 EV models eligible for the full credit, which seems counter-productive. “The U.S. auto industry has committed billions to increase consumer use of green vehicles,” said Jennifer Safavian of Autos Drive America, an industry group advocating for consumer choice and competitive pricing. “You don’t reduce climate change by making over 90% of EVs ineligible to receive the credit.”

Unions are not helpful when they try to amass their own power through a back door, whether it be tweaking tax credits for cars or seizing on vague contractual language to try to expand the percentage of the union workforce at the brand-new Hugh K. Leatherman Sr. Terminal — a move we’ve decried and one that’s limiting business at the billion-dollar terminal.

Unions are pressuring Democratic lawmakers, now in the majority, to deliver something for them; the United Auto Workers president says the tax credit plan “would go a long way to support good paying union jobs in the EV auto sector.”

That could be true. But this ill-considered tax credit plan would advance union interests at the expense of not only most other EV makers, including those in South Carolina, but also our larger, more critical efforts to adapt to climate change. It would be a shockingly inappropriate step.

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A debate in Congress over whether cars built by unionized workers should receive incentives that non-union-built vehicles can't get could have big consequences for South Carolina, which has the lowest percentage of organized labor in the U.S. and is home to a major car builder with the world's most ambitious electrification goals.

Legislation working its way through the U.S. House of Representatives and the U.S. Senate would extend by five years a $7,500 tax credit for consumers who buy an electric vehicle.

On top of that, the House proposal would give consumers an additional $4,500 credit if the electric vehicle is built by union labor.

It's that second part that has Gov. Henry McMaster worried.

"We are deeply concerned that Congress is considering legislation that not only discriminates against certain American workers but also undermines the efforts by automotive manufacturers to grow the electric vehicle market and meet broader climate goals," McMaster said in an Oct. 12 letter to leaders in the House and Senate.

McMaster added the Palmetto State is home to three manufacturers banking on electric vehicles for their futures — BMW in the Upstate, Mercedes-Benz Vans in North Charleston and Volvo Cars in Ridgeville. The trio has invested a combined $12.5 billion in the state and account for 70,000 direct and indirect jobs, he said.

None of the South Carolina plants is a union shop.

Volvo would seem to have the most to lose. The Sweden-based and Chinese-owned automaker has vowed that all of its new cars will be battery-powered by 2030.

Volvo currently builds the S60 sedan at its Ridgeville campus off Interstate 26, and will add a next-generation XC90 SUV to the production line in a couple of years. It also will build an electric car for sister brand Polestar starting in 2022.

"It is essential that the U.S. government pursue policies that encourage and develop the U.S. electric vehicle market via consumer incentives available to all manufacturers," a Volvo spokesperson said.

The company added that the proposed legislation — part of President Joe Biden's "Build Back Better" budget bill — would circumvent efforts to fight climate change by limiting consumer choice and, thus, adoption of EVs.

Anders Gustafsson, president and CEO of Volvo Cars USA, was among a dozen auto executives who signed a letter to House Speaker Nancy Pelosi opposing the incentive plan, which would also make tax credits available only for U.S.-assembled cars after five years. Sebastian Mackensen, president and CEO of BMW of North America, and Mercedes-Benz USA's Dimitris Psillakis also were among the signees.

Dan Kildee, a Democrat representative from Michigan, is a key supporter of the House tax incentive proposal.

"My hometown of Flint was the birthplace of the labor movement and helped put the world on wheels." Kildee said in a written statement. "Now, through my work in Congress, I’m working to ensure that American auto workers can put the world on electrified wheels."

A separate version in the Senate would provide up to $5,000 in tax credits — $2,500 for union-built vehicles and another $2,500 if it's assembled in the U.S. — on top of extending the existing $7,500 credit.

More cars would be eligible under the Senate version because it caps the sticker price of qualifying vehicles higher than the House plan. The House also has a $500 bonus credit if the vehicle's battery is made in America.

Not surprisingly, the measure is being applauded by union leaders.

The proposal "would go a long way to support good paying union jobs in the EV auto sector that President Biden has championed," Ray Curry, president of the United Auto Workers, said in a written statement. "For too long, U.S. tax credits meant to create good paying American jobs have subsidized products not made in the United State or at substandard wages."

A report by Autos Drive America, a group of foreign-owned carmakers advocating for free trade, shows 52 EV models are eligible for U.S. tax credits. Only six would be eligible under the Senate proposal and two if the House version is adopted.

"The U.S. auto industry has committed billions to increase consumer use of green vehicles," said Jennifer Safavian, president of Autos Drive America. "You don’t reduce climate change by making over 90 percent of EVs ineligible to receive the credit."

Electric vehicles accounted for 3.6 percent — or roughly 160,000 — of all vehicles sold in the U.S. during the second quarter of this year, according to a report by McKinsey & Co. The group expects about half of U.S. car sales will be for electric vehicles by 2030.

The proposed legislation is part of Biden's $3.5 trillion spending package intended to address climate change, public education, health care and other economic and social issues. Democrats are trying to pare the spending to about $2 trillion to make the package more palatable to centrist Democrats, whose support is needed to pass the bill.

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