Ford assured investors last week that its generous deal with the United Auto Workers wouldn’t threaten its profitability. Maybe. The same can’t be said of its electric vehicles, which lost $3.1 billion during the first nine months of this year.
Those losses will doubtless grow, and anyone who thinks Washington won’t give auto makers another bailout should think again. Last week Munich-based Siemens Energy, one of the world’s top wind manufacturers, said the German government is prepared to extend as much as €16 billion (or $16.9 billion) in state guarantees to rescue it.
Government has invested too much politically and financially in renewables and electric vehicles to let the companies go bust.
In June Siemens blamed a “substantial increase in failure rates of wind turbine components” for its mounting losses—about $4.8 billion this year—and warned that its financial problems could drag on for years as it repairs and replaces faulty equipment. The company has a backlog of orders from wind developers chasing government subsidies, but banks won’t extend credit because of its financial troubles. Siemens wants Berlin to issue loan guarantees on the faulty premise that its failure could endanger the country’s economy and national security. Wind is the new too-big-to-fail enterprise.
German leaders worry that Chinese manufacturers will take over wind manufacturing as they did solar-panel production a decade ago and are now doing with electric vehicles. China boasts 10 of the world’s 15 largest turbine manufacturers and can sell turbines at half the price of European manufacturers, owing largely to its cheap coal power.
“These technologies will be produced anyway, and the question is whether Europe will have to import them,” German Vice Chancellor Robert Habeck said Friday. That may be true, but developers in Europe and the U.S. are scotching wind projects as rising costs and interest rates are making them unprofitable.
American companies are also pleading for government help. Large offshore wind developers in September importuned New York’s Public Service Commission to increase contractual payments by an average of 48% to cover their costs. Regulators rejected their requests.
Now developers are mulling whether to cancel the projects if they can’t coax more corporate welfare out of the Biden administration. Denmark’s Orsted, the world’s top offshore wind developer, and U.S. governors in the Northeast are lobbying the White House to boost subsidies in the Inflation Reduction Act to cover 50% of wind project costs.
Taxpayers and electricity customers will inevitably have to pay more to support wind energy, Orsted CEO Mads Nipper said last month. “And if they don’t, neither we nor any of our colleagues are going to build more offshore,” he warned. “It’s very simple.” Other wind executives are handing down similar ultimatums. One of the largest U.K. power generators, RWE, told the British government last week that its payments to wind developers would have to rise 70% if it wanted more projects built.
The European Commission got the message, and on Oct. 24 it announced more financial support for wind developers. How long before auto makers start begging for bailouts as they struggle to sell government-mandated EVs?
For now, auto makers are simply pumping the brakes on their electric-vehicle investments.
Ford joined the pileup and postponed $12 billion in planned electric-vehicle investment, stating that buyers weren’t willing to pay a premium over gasoline cars—even with a $7,500 federal tax credit and hefty state subsidies. “The customer is going to decide what the volumes are,” Ford CFO John Lawler said. Has the company checked with its regulators about that?
Perhaps auto executives are looking at recent poll numbers, which show Donald Trump leading Joe Biden in key swing states. If Mr. Trump or another Republican wins the White House in 2024, he will no doubt scrap the Biden administration’s electric-vehicle mandate and California’s waiver under the Clean Air Act that lets it set its own.
On the other hand, if Mr. Biden prevails, auto makers will need more government support—on top of the hundreds of billions in the Inflation Reduction Act—to meet his administration’s aggressive mandates. Even if auto makers succeed in building lower-cost electric vehicles, there’s no guarantee customers will buy them.
Ford Executive Chairman Bill Ford observed in an interview with the New York Times this month that electric vehicles have become collateral damage in a broader culture war: “Some of the red states say this is just like the vaccine, and it’s being shoved down our throat by the government, and we don’t want it.”