Many people may assume that big automakers, such as Ford, General Motors, and Tesla, complete all the parts of the automaking process in-house. However, the reality is more complicated: these automakers have to purchase hundreds of parts from other firms. As with many finished goods, this makes it difficult to determine if the product we purchase at retailers, including car dealerships, is truly made in America. Domestic automakers, including Ford, GM, and Chrysler, all use many foreign-made parts in their vehicles. The domestic content of American-made cars is often just slightly more than 50 percent.
Fortunately, the Biden administration is trying to boost this domestic content of American-made vehicles by offering additional grants to domestic auto parts manufacturers, helping them compete with foreign parts-makers. Vice President Kamala Harris has announced a new round of $100 million in federal grants available to these small businesses. These grants are intended to help U.S. auto parts manufacturers re-tool for electric vehicle (EV) parts, which will help reduce the cost of EVs as an increased supply of parts becomes available. Currently, the EV revolution has slowed due to unexpectedly high prices and a slower-than-expected expansion of recharging infrastructure.
U.S. Trying to Reduce Chinese Dominance in EV Parts
The new grants, courtesy of the U.S. Department of Energy and administered with the assistance of the U.S. Small Business Administration (SBA), are targeted at reducing Chinese dominance in EV parts. $50 million is aimed at boosting existing domestic EV parts products, and a second $50 million grant program is focused on retooling from gas- and diesel-engine parts to EV parts. Simultaneously, the SBA is working to make it easier for EV parts entrepreneurs in the United States to get loans for start-ups.
Currently, China controls about 60 percent of the EV battery market, which the U.S. government wants to reduce for national security reasons. Should conflict suspend trade between the United States and China, all industries that rely on sophisticated and heavy-duty batteries need to have a robust domestic source of such equipment. The DOE grants should help develop this domestic source quickly.
Grants for Small Businesses Can Provide Stable Labor Market
Focusing on helping small businesses is beneficial because it provides greater market stability, especially for jobs. While larger firms may enjoy economies of scale in production, they make markets more vulnerable to supply shocks. If a single large company that dominates an industry goes through a calamity, such as bankruptcy, the industry can lose a significant chunk of output. This will cause prices to soar due to shortages. Having several smaller firms generating output means output is more stable even if one or two firms suffer losses. And, while small businesses may lack the economies of scale enjoyed by larger firms, they are less able to price gouge by controlling dominant stakes in market supply.
Helping small businesses retool for EV part production can ensure a resilient supply of EV parts, as small businesses are excellent innovators. Hopefully, the DOE grants will help the EV industry achieve critical mass and provide both technological and environmental improvements for the nation as a whole.
