Over the past two years, the Inflation Reduction Act (IRA) has played a pivotal role in revitalizing the U.S. automotive manufacturing industry. Alongside the Infrastructure Investment and Jobs Act (IIJA), it has led to the establishment of numerous electric vehicle (EV) and battery manufacturing facilities. These measures aim to position American automakers as global leaders in a rapidly transforming industry. Despite these advances, many automakers have primarily focused on producing large, expensive vehicles, leaving the market for affordable and accessible EVs largely untapped. This approach risks surrendering both domestic and international leadership to foreign competitors, particularly from China.
The IRA and IIJA have provided substantial incentives to support EV manufacturing and adoption in the United States. These include tax credits for battery production, mineral processing, EV purchases, and charging infrastructure installations. Such incentives have driven unprecedented investment in the domestic EV industry, propelling the number of battery facilities from two in 2019 to over 34 by 2024. Private investments in the sector are expected to reach $312 billion, marking the U.S. as the most heavily invested EV market globally on a single-country basis.
The IRA’s policies aim to onshore the entire EV supply chain, enhancing both economic and energy security. By incentivizing activities such as critical mineral processing, battery assembly, and vehicle production, the legislation has generated over 184,000 jobs in EV and battery manufacturing. This level of growth has positioned the U.S. as a key player in the global EV market, yet significant challenges remain in ensuring these advancements meet consumer needs and industry potential.
Despite the incentives, automakers have largely focused on producing larger, high-margin vehicles, neglecting the need for affordable models. The number of cars priced under $25,000 has declined sharply, dropping from 36 models in 2017 to just 10 by 2022. This trend reflects automakers’ preference for higher-profit, large vehicles, which has driven the average transaction price of new cars to exceed $47,000 by 2023. This strategy risks alienating consumers and stalling the broader EV transition.
The Chevrolet Bolt exemplifies the consequences of this strategy. Initially launched as an affordable EV in 2016, its production was discontinued in favor of larger, costlier models such as the GMC Sierra and Chevrolet Silverado. Despite its popularity and affordability, GM prioritized high-margin vehicles, leading to consumer outcry and a delayed commitment to reintroduce the Bolt in 2025, albeit in a more expensive configuration. This case highlights a broader industry failure to embrace affordability and consumer demand.
Electric vehicles offer substantial cost savings to consumers, particularly in maintenance and fuel expenses. EV drivers save about 50% on repairs and 60% on fuel costs compared to traditional gasoline-powered vehicles, with annual savings ranging from $800 to $1,300. These savings are particularly significant for low-income households, who are disproportionately burdened by high gasoline costs. However, the limited availability of affordable EVs has restricted these benefits for many consumers.
Automakers have also faced criticism for their labor practices. Companies such as Stellantis and Tesla have prioritized shareholder returns over worker benefits and technological innovation. Stellantis delayed reopening a facility intended for EV production, while Tesla has resisted unionization efforts. Additionally, automakers like GM and Stellantis have engaged in large stock buybacks, diverting resources that could have been invested in research and development. Such practices threaten the long-term competitiveness and sustainability of the domestic auto industry.
The rise of foreign competition, particularly from Chinese automaker BYD, underscores the risks of failing to produce affordable EVs. BYD’s plans to establish a manufacturing facility in Mexico highlight the potential for foreign companies to fill gaps left by U.S. automakers. Offering EVs priced as low as $15,000, BYD poses a significant threat to the market share of domestic companies. While U.S. tariffs on Chinese EVs and components provide temporary relief, they underscore the need for innovation and affordability within the domestic industry.
Tariffs and other trade measures have been introduced to protect the U.S. auto market, but they are not a substitute for industry transformation. While these measures limit foreign competition temporarily, U.S. automakers must leverage this time to develop affordable, high-quality EVs. The loss of global market share, particularly in regions such as China, Europe, and Mexico, highlights the urgent need for a renewed focus on competitive and consumer-friendly EV development.
American automakers must embrace the opportunities provided by the IRA and shift their strategies to prioritize smaller, more affordable EVs. Leaders within the industry recognize the need to refocus on cost-effective and accessible vehicles to drive EV adoption and maintain market relevance. With public investments and protections in place, automakers have the tools to succeed, but their ability to align innovation and investment with consumer needs will determine the future of the U.S. auto industry. Congress and future administrations must continue to support these efforts to ensure a competitive, sustainable, and worker-friendly automotive sector.