How EV stocks are getting a boost from Washington
13:09, 12 November 2021
The new $1.2trn Infrastructure Investment and Jobs Act passed by the US Congress last week is modestly supportive of the electrification efforts taking place in the automotive industry, according to analysts at Bank of America.
However, market participants are eagerly awaiting the passage of the larger Build Back Better bill to really boost electric vehicles (EV), the analysts said in a report reviewed by Capital.com.
The infrastructure bill provides critical spending for electric charging stations and green public transportation, but it is the forthcoming $1.75trn (£1.31trn) Build Back Better bill that is more critical for the industry due to the addition of new tax credits to spur sales of electric vehicles. Additionally, the bill is expected to be paired with an executive order that will set a target for EVs to account for 50% of car sales by 2030.
Infrastructure and Jobs Act
The Infrastructure and Jobs Act includes $550bn in new federal funding for areas such as transportation, broadband and utilities over the next five years. This spending includes $11bn for transportation safety, $7.5bn for low-emission buses and ferries and $7.5bn for a national network of plug-in electric vehicle chargers, Bank of America detailed in the report.
“From an equity perspective, an infrastructure bill can act as a stimulus,” Don Townswick, director of equity strategy at Conning, told Capital.com. “Assuming the money gets spent where it is supposed to be spent that can be supportive of the economy”.
Conning provides investment management services and research to the insurance industry.
The bill has already boosted the share price for bus manufacturer Blue Bird by nearly 30% this month as the company promotes its electric school buses. Likewise, electric charging company EVgo – which debuted on the Nasdaq over the summer – is up more than 100% since the start of November. Public electric charging companies ChargePoint and Blink Charging are also up 30% over the last month.
Not to mention, this supportive legislative backdrop helped electric truck-maker Rivian price the largest initial public offering of the year as optimism for electric vehicles grows.
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Car manufacturers are eager to take advantage of new EV tax credits that are expected in the Build Back Better bill.
The current slate of tax credits are capped at 200,000 cumulative units per automaker after which they are no longer provided to consumers purchasing those electric vehicles.
While Ford or Rivian customers could still take advantage of these tax credits today as both manufacturers work on selling their first 200,000 EVs, manufacturers such as Tesla, General Motors and Nissan hit the cap long ago and can no longer offer these discounts to their customers.
The Build Back Better bill would not only remove this cap (or at least reset the clock for the companies that have already reached the cap) but could also boost the incentives to as much as $12,500 off a new EV compared with the $4,000 tax credits today.
The incentives would increase by $3,500 if the EV’s battery pack includes at least 40 kilowatt-hours of capacity, by another $4,500 for EVs assembled in the US using union labour and by another $500 for EVs using battery packs with 50% of components made in the US.
Only GM, Ford and Stellantis’ Chrysler brand would stand a chance of qualifying for the American-made incentives, but still, EVs sold by foreign automakers and US-based EV start-up automakers would largely qualify for $7,500 in tax credits, according to Bank of America.
Achieving 50% EV sales
In order to get to US President Joe Biden’s goal of EVs accounting for 50% of car sales by 2030, incentives may have to be boosted beyond the current proposals, Bank of America said.
The analysts expect EVs to account for 7% of sales by 2025 and 20% of sales by 2030 under its base case scenario of $7,500 of vehicle tax credits and the 200,000 vehicle cap remaining in place.
Under the bull case scenario of $10,000 of tax credits and an elimination of the cap, BofA’s EV penetration forecasts increase to 25% in 2025 and 50% in 2030.
“While upside from our base case forecasts is looking increasingly more likely with the regulatory environment becoming more supportive, our estimates indicate that 50% EV penetration in the US by 2030 may require greater federal stimulus than outlined under the Build Back Better framework,” the BofA analysts wrote. “Although, the proposal could be sufficient to push EV penetration to the 30%–40% range by late decade, which is material.”