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What a split Congress means for the auto industry

Washington — When Congress reconvenes in January, Republicans and Democrats will each hold power by a narrow margin in one chamber. It’s sure to create gridlock — but experts say that could actually be a good thing for the U.S. auto industry.

The partisan division will provide automakers with stability to make investments without fear of major political changes as they prepare to capitalize on tens of billions of dollars approved by Democrats this year, chiefly on efforts to speed the transition to electrification and emissions-free driving. 

Republicans fumed over Democrats' unilateral passage of the Inflation Reduction Act this summer, which appropriated $370 billion for climate and energy initiatives, including significant funding to accelerate electric vehicle production and adoption. Most also voted against the Infrastructure Investment and Jobs Act, the infrastructure law that passed with some bipartisan support last year and included funding for EV chargers, low-emission school buses and battery supply chains.

Republicans would struggle to repeal the legislation with a Democratic president sure to reject any such attempt. But experts say there may not be much appetite to do so within the GOP caucus anyway: Despite campaigning against Democrats’ spending, Republicans and the states they represent are among the major beneficiaries as the southeastern United States becomes an EV hub.

For example, in the Department of Energy's first allocation of $2.8 billion for projects that would bolster the EV battery supply chain in October, eight of the 12 states that received funding voted for former President Donald Trump in 2020.

“Republicans may have a different philosophy about some of these issues” than Democrats, said Andrew Buczek, a government policy advisor at the Dykema law firm in Washington. “But they don’t want to do anything that might jeopardize those types of investments being made.”

Instead, the Republican-led House is expected to increase scrutiny of Biden administration officials who will be implementing climate legislation. Groups representing automakers also say they see opportunity for bipartisanship — and the beginning of an era in which Democrats’ climate goals and Republicans’ economic priorities align.

Democrats might be more interested in reducing emissions, but Republicans will also be interested in continuing industrial policy and strengthening critical mineral supply chains, said Joe Britton, executive director of the Zero Emission Transportation Association (ZETA): “We’ll find things to work on no matter who has the gavel."

EV growth in red states

The global auto industry is undergoing a historic shift to electric vehicles, driven by some of the world's largest car companies looking to compete in international markets with increasingly strict emissions regulations.

Automakers are expected to spend $515 billion over the next decade on battery-powered electric vehicle production, according to the Alliance for Automotive Innovation, including $98.6 billion pledged to electrification projects in the U.S. since 2017. However, battery and plug-in hybrid electric vehicles remained only around 6% of total new car sales in the first 6 months of 2022.

Car companies found allies in Democrat-controlled Washington over the last two years, as leaders concerned about climate change and competition with China sought to both speed the transition and ensure the U.S. is home to the manufacturing jobs created by the new industry.

The infrastructure law approved $7.5 billion for EV charging, $7.5 billion for low-emission school buses and $74 billion for clean energy infrastructure, manufacturing tax credits, grid improvements and critical mineral supply chains. The Inflation Reduction Act's nearly $400 billion in clean energy initiatives included even more boosts for EV-makers, including manufacturing tax credits to build EVs and batteries, direct funding for mineral production and processing, and an overhaul of consumer tax credits to subsidize EV purchases.

Republicans unsuccessfully fought the plans, arguing EV-boosting policies would unfairly advantage wealthy Americans, sidestep market preferences for gas-powered cars, and would make the U.S. more reliant on Chinese supply chains. That fight continued on the campaign trail during the midterm elections, when GOP candidates nationwide made EV policies a repeated point of attack amid arguments that Democratic spending accelerated inflation.

Despite their rejection of Democrats' policies, Republican-led states became new hotspots for EV investments. Southern states make up five of the top 10 states for EV-related investments as of August, according to ZETA. The first state in the industrial Midwest that has traditionally been considered the center of the country's auto industry was Michigan, coming in at number eight.

Sen. Lindsey Graham, R-South Carolina, said last month that his state is "going to become the Detroit of batteries" and said he wanted to hold a hearing to evaluate EV supply chains. Republican governors in Tennessee and Georgia have recently expressed similar optimism about EV investments in their states, said Britton of ZETA.

"EVs are going to be part of the future and a growing piece of the industrial success that we have as a country," he said. "My hope and my sense is that people will see EVs as synonymous with this new manufacturing acceleration and want to be a part of it."

Republicans won't want to stop the flow of federal money to their states, said Buczek of Dykema. And with a Democratic Senate and a Republican House, "no one expects major legislation or major changes in existing policy."

"In a divided government, for better or for worse, you end up a lot with the status quo," he said. "That leads to certainty for automakers who are trying to make decisions about investments."

Areas of consensus

Without the power to pass party-line legislation, GOP power in the House is likely to bring more oversight of the Biden administration officials responsible for doling out the funds Democrats approved.

They'll have control of House committees and are expected to call cabinet members to Capitol Hill to report on their work and keep an eye out "to make sure there isn't any type of waste, fraud and abuse" Buczek said.

"If they can uncover any, then they can use that against the administration as leverage" to embolden their criticism of Democrats' policies, he said. He added that Republicans are also likely to shift the focus away from EV-only solutions to climate challenges and toward an "all of the above" approach that might include other alternative fuels and technologies.

Advocates for automakers agreed that a change in power won't restructure their priorities and said there are some issues where both parties are interested in movement.

John Bozzella, CEO of the Alliance for Automotive Innovation, and Jennifer Safavian, CEO of Autos Drive America, both cited supply chain shortages (for critical minerals and semiconductor chips, for example) and bottlenecks as areas of potential bipartisan cooperation.

The new Congress "won’t fundamentally change the top automaker priorities: electrification, automation and connectivity," Bozzella said. He added that they would continue pushing for a national framework to accelerate autonomous vehicle deployment and to build up public EV chargers.

Safavian, whose group represents major foreign-owned automakers operating in the United States, added that they hope the new Congress can invest in STEM education to help solve long-term concerns about labor shortages and push the Biden administration to expand exports of U.S.-made vehicles.

Twitter: @rbeggin