Taxpayers Bankroll Electric Vehicles Even as Fewer People Buy Them

American automakers are delaying or abandoning their promises of electric vehicle (E.V.) production, citing cooling market demand. Unfortunately, government subsidies and mandates are unlikely to go away as easily.

Earlier this week, The Wall Street Journal reported that General Motors (G.M.), the United States' top-selling automaker, had walked back its E.V. production ambitions. CEO Mary Barra told investors in February 2022 that the company planned to manufacture, sell, and deliver 400,000 E.V.s in North America by the end of this year. In October 2022, Barra delayed the deadline by as much as six months, citing difficulty sourcing raw materials.

Now G.M. is abandoning that plan altogether amid cooling demand. Last week, the automaker announced that it was delaying E.V. production at its factory in Orion Township, near Detroit. In July, Ford similarly announced that it expected to hit its goal of producing 600,000 E.V.s per year in 2024—not in 2023, as it had previously predicted.

Each company is also contending with a strike by the United Auto Workers union. G.M. noted that it is losing $200 million per week as a result of the strike, though the company still outperformed expectations in its third-quarter earnings.

But there's more to this story than just a series of decisions by private companies. Earlier this year, the Environmental Protection Agency (EPA) announced new rules that would require as many as two of every three vehicles sold in the U.S. by 2032 to be electric. In July, an automotive lobby trade organization argued that while it supported a shift to green technology, the EPA's proposal was "neither reasonable nor achievable" on its intended timeline.

In turn, governments are spending billions of dollars trying to bend both the supply and demand curves to their whim. The Biden administration's Inflation Reduction Act implemented a $7,500 tax credit for the purchase of electric vehicles, even including a "made in America"–style provision requiring that to qualify, a vehicle's "final assembly" must have taken place in North America and its materials must be sourced domestically as well.

Meanwhile, state and local governments are dishing out lucrative incentive packages, trying to entice automakers looking for places to build new factories. In fact, the Orion Township plant for which G.M. delayed its E.V. rollout was part of a series of factories that received $824 million in incentives from the Michigan government, including a $600 million grant, a $158 million tax break, and more than $66 million in infrastructure improvements. Ford has similarly received hundreds of millions of dollars from the Michigan government since 2021 specifically tied to its plans for E.V. production.

Granted, market conditions change, and businesses have to adjust accordingly; sometimes that means delaying big projects. But in those cases, it's the companies themselves whose money is on the line. When governments chip in, it's taxpayers who are left holding the bag. G.M. may be delaying its E.V. goals, but Michiganders are still on the hook for $824 million in tax money or foregone revenues that the state government felt was better served in the hands of a company with a market cap currently just shy of $40 billion.