Automakers and pure play electric vehicle makers got a boost this week by President Joe Biden’s “Buy American” plan.
His “Made in America” executive directs the federal government to spend taxpayer funds on American made goods and products, including a plan for fleet vehicle purchases to go green.
“The federal government ... owns an enormous fleet of vehicles, which we’re going to replace with clean, electric vehicles made right here in America by American workers, creating millions of jobs — a million autoworker jobs in clean energy — and vehicles that are net-zero emissions,” Biden said during the signing of his executive order on Monday.
Shares of pure electric carmakers Tesla (TSLA), Lordstown Motors (RIDE), Workhorse (WKHS), Fisker (FSR), and Nikola (NKLA) rose following the announcement, and even shares of Chinese EV maker Nio (NIO) saw a pop after the plans were revealed.
The U.S. General Services Administration, or GSA, is tasked with implementing procurement of vehicles for civilian agencies. In a statement to Yahoo Finance, the GSA elaborated on about how it aims to reach those goals:
“GSA is committed to exploring opportunities to leverage the purchasing and leasing power of the federal government to address the climate crisis, including greening the federal fleet. GSA currently manages over 224,000 passenger vehicles in its leased fleet to support the Federal Government’s mission. By leveraging clean energy vehicle technologies, GSA will support the President’s climate goals, while working with the American automotive manufacturing industry to ensure that these next generation vehicles are built in America by American workers.”
Not surprisingly the federal government is a large purchaser and lessee of vehicles in this country. In addition to the fleet of over 224K vehicles the GSA manages for civilian agencies, data from 2019 shows the the U.S. military has an inventory of over 173,000 vehicles, and the government-owned USPS has a fleet of nearly 226,000 vehicles. The total value of those fleets is around $4.37 billion.
That’s a lot of purchasing power, and when the federal government puts its wheels in motion on initiatives like going green and boosting EV purchasing, can force the private sector to respond.
And look no further than GM (GM). On Thursday the largest U.S. automaker announced an aggressive timeline to phase out sales of gas- and diesel-powered light-duty vehicles by 2035. In addition, the company plans to be carbon neutral by 2040.
With regards to the Biden plan, a GM spokesperson tells Yahoo Finance, “We are excited that President Biden shares our enthusiasm for American manufacturing as well as electric vehicles and think that adding EVs to government fleets and the needed infrastructure to support them is a great way to get more EVs on the road as we work towards a zero-emission, all-electric future.”
GM’s push to go electric kicked off in earnest earlier this year after the automaker touted big plans for future EV offerings as well as a partnership with FedEx (FDX) at CES, and the company’s share price has risen concurrently as investors bid up GM and companies poised to move forward with an electric future.
Ford (F) has also backed the Biden Administration’s efforts in promoting EVs, noting it will invest a $100 million in its Kansas City Assembly Plant and add approximately 150 full-time jobs to begin producing the all-new E-Transit electric van. This comes on the heels of the all-electric F-150, which was announced late last year, and which will be arriving in showrooms in 2022. The E-Transit van arrives later this year.
And then there’s Rivian, the private electric truck maker that Ford and Amazon (AMZN) among others have invested in as partners. Not surprisingly the Biden EV plan is music to its ears, especially since it will be building its trucks right here in the USA at its plant in Normal, Illinois.
“Rivian is encouraged to see the growing awareness of the benefits of American made, all-electric vehicles for reducing emissions, capitalizing on domestic sources of energy, creating jobs and supporting the U.S. economy,” James Chen, Rivan’s VP of public policy and chief regulatory counsel tells Yahoo Finance. “President Biden’s executive order directing the shift of the federal fleet to zero emission vehicles that are made in the United States is a step in the right to direction for U.S. leadership in new transportation technology,” he added
Problems with going green (at least right now)
But there are some big unknowns with the Biden plan. One is lack of specificity — The administration did not announce a timeline for when the administration would like these electric purchases to begin.
Another one is money. Electric vehicles cost more to make, and the economies of scale haven’t yet reached the nascent endeavor of EV production, and batteries prices haven’t yet come down to where a $30,000 EV is feasible. It will be very expensive for the federal government to replace all of its civilian vehicles with electric, at least for quite a long time. The deficit hawks in Congress likely will be chirping when funding of this program inevitably comes up.
The other big problem is production capacity. Currently the capacity for electric vehicle output is limited by factory space and battery supple. Tesla, the largest EV maker in the world, produced slightly more than 500,000 EVs globally. By contrast Volkswagen, the world largest overall automaker, sold 9.3 million vehicles last year.
Tesla CEO Elon Musk on an earnings conference call this week said battery supply constraints were a big reason why the company can’t build more cars, including its delayed electric semi truck.
This may be why, when it comes to a federal timeline, the Biden administration has been mum about expectations.
“They don’t want to put themselves back against a wall, in terms of timing,” Wedbush’s Dan Ives said. Ives believes the federal plan for EV fleet transformation will be rolled out in the next 6 to 12 months, and will be multi-faceted.
“The restoration of tax credits for Tesla and GM, that’s significant, especially for Tesla when it comes to U.S. demand,” he says. “More tax incentives in terms of factory build-outs and then the supercharger build-outs.”
And Ives is bullish on the possible encouragement of new entrants coming to U.S. shores to boost the industry. “I believe a year from now we’ll have more foreign EV manufacturers coming into this country, and this going to be a big part of job growth in terms of the EV environment.”