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(Bloomberg Notice) – Tesla Inc. shares predictably surged on news of incentives for electric vehicles in President Joe Biden’s greenish new deal proposal of $ 2.3 trillion, the “US Jobs Plan.” It doesn’t match what Biden is actually trying to achieve.
Biden’s proposals, which were just unveiled ahead of a major political speech he is due to deliver in Pittsburgh on Wednesday afternoon, contain $ 174 billion focused on electric vehicles (EVs). While this is considerably lower than the $ 450 billion Clean Cars for America proposal advocated by Senate Majority Leader Chuck Schumer, it shares many of the same elements and the level of ambition is unlike anything like this. that the federal government has seen before when it comes to electric vehicles. Biden aims to expand discounts and rebates for drivers to purchase the vehicles. It provides incentives to increase the number of public vehicle chargers to half a million by 2030, up from 72,000 at the end of 2019. In terms of direct supply, it calls for electrifying the federal vehicle fleet of approximately 650,000 people as well as tens of thousands of public transport vehicles, including school buses.
Compared to previous measures, like the $ 3 billion “cash-for-clunkers” rebate program of 2009 or existing tax credits for electric vehicles, Biden’s proposal is several orders of magnitude larger. So it’s understandable that a company like Tesla, which has relied heavily on grants, be seen as the primary beneficiary. Moreover, the story of buying Tesla stock, which has risen by almost 4%, is never so demanding. Indeed, the already gargantuan market value of the company is a good reason to view Biden’s plan as less of boosting the fortunes of America’s leading electric vehicle maker and more of allowing the competition that weighs on it.
With transportation now the largest source of greenhouse gas emissions in the United States, the electrification of the vehicle fleet is critical if Biden takes tackling climate change seriously. As it stands, despite being home to Tesla, the United States is lagging behind in terms of electric vehicle penetration. BloombergNEF expects approximately 4 million electric vehicles to be delivered in 2030, or roughly a quarter of vehicle sales in the United States. That would be an increase of less than 2% now, but far behind the projected penetration for Europe and China in 2030, estimated at around a third and a half, respectively. More importantly, from an emissions standpoint, this will only imply about 8% of the US car fleet running on electrons by then.
Biden’s proposal can be seen as a way to advance demand and bring the EV market to self-sustaining speed faster. Chargers, for example, suffer from a notorious chicken-and-egg problem: nobody buys cars if there aren’t enough chargers, but nobody builds chargers if they don’t. there are not enough cars to serve. BloombergNEF estimates that half a million public chargers would support an 8.5 million vehicle fleet, which is only about half of the current fleet projection for 2030. However, by sowing that critical mass , Biden’s proposal would allow other developers to overcome their hesitation; in fact, the wording of the proposal positions federal dollars as a vehicle to provide other funding.
The expenses also appear minimal in the context of the overall plan; BloombergNEF estimates that a charger network of 500,000 people would require an investment of around $ 6 billion. The lion’s share of that $ 174 billion is expected to go directly to consumers to encourage the purchase of electric vehicles. Taken together, however – and alongside the direct purchase of federal vehicles – the effect is the same: pushing demand forward to spur the US auto industry to ramp up electrification.
As I wrote here in January, the existing cleantech investment bubble is something Biden should tap into to achieve his climate agenda. Prime the charging network and persuade Americans to buy into a growing number of electric vehicle models build on the existing momentum. In doing so, it also serves to stoke even more excitement – hence the $ 23 billion increase in Tesla’s market cap on Wednesday morning.
Yet if Biden capitalizes on this enthusiasm, his goal of massive penetration of electric vehicles ultimately does not support this gain. After all, Tesla was already valued at over 200 times forecast earnings and had raised $ 12 billion in new equity in the past year alone. In a way, CEO Elon Musk is able to get all the funding he wants more easily than the president; Tesla investors are much easier to butter than Senator Joe Manchin. This is the company’s biggest advantage in terms of overthrowing incumbents in the auto industry, with their mundane multiples and lingering demands from investors for reporting real profits. Inventories at General Motors Co. and Ford Motor Co. were down Wednesday morning, by the way.
On that basis, Biden’s $ 174 billion can be seen as helping to close the gap. Would some go to Tesla? Of course. Dollar for dollar, however, it would offer far greater benefits to existing automakers looking to convince their much less forgiving investors that it makes sense to jump into electric vehicles. The energy transition, for all its complexities, is just one big exercise in changing our capital base – which means it comes down to a lot of securing capital at the best possible price. Doing this for the greatest number of actors must be the guiding ethics if Biden is to achieve his climate ambitions.
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Liam Denning is a Bloomberg opinion columnist covering energy, mining and commodities. He was previously editor of the Heard on the Street column of the Wall Street Journal and wrote for the Lex column of the Financial Times. He was also an investment banker.
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