Plugged In: An EV Newsletter Vol. 2, No. 7

Welcome to our September, 2024 edition of Plugged In, DW’s monthly newsletter addressing the industry’s transformative transition to EVs. Over the next few months, Plugged In will turn its focus to the accelerating influence of technology, particularly AI, in the automotive sector. There are few segments of the automotive industry that are not being materially impacted, if not transformed, by the integration of AI, from enhancing manufacturing capabilities, improving battery efficiency, to cutting edge software for autonomous driving. With these extraordinary advancements come significant operational and legal risks. Over the next three issues, we will examine the role of technology in the automotive sector, the benefits and risks of its various applications, and the associated legal issues/risks inherent in its widespread adoption. I hope you will join us on this journey as we uncover the milestones, innovations, and challenges that are defining the intersection of electrification, autonomous driving and AI in the automotive world.  Our journey will culminate in an in-person program to be held in November entitled, “The Intersection of Electrification/Autonomous Driving and AI – The Evolving and Uncharted Legal Landscape”.  Details to follow.

In this edition, we cover a lot of ground, from an opinion piece by Mark Heusel contemplating the potential impact of the forthcoming presidential election on the scope and pace of transition to electric vehicles; Bob Weiss’ recurring column focusing on recent selections from the general and industry press relating to AI, autonomous driving and the challenges facing legacy OEMs in competing with Chinese manufacturers in the Chinese domestic market and globally; and an article by Scott McBain and Joe Pytel highlighting the current technological challenges confronting the auto industry as it navigates the uncharted territory of electrification.

I hope you will find this edition thought provoking and an enjoyable read.

Robert Weiss | Of Counsel | Co-Chair, EV Initiative

and

Heather Frayre | Member Partner

 

In August 2021, President Biden signed Executive Order 14037, setting forth the Administration’s public policy towards “strengthening American leadership in clean cars and trucks.”  This policy included a lofty goal that challenged domestic automakers to manufacture no less than 50% of all their new passenger cars and trucks as zero-emission vehicles by 2030. The Administration committed to supporting this goal by: i) prioritizing clear standards, ii) expanding key infrastructure, iii) spurring on critical innovation, and iv) investing in the American autoworker. At the time, the President’s engagement was historic.  Never before had a U.S. President taken such a proactive position on such an important initiative for the U.S. auto industry. By the time the Executed Order was signed, however, the U.S. OEMS had already set their own aggressive goals and the industry found itself in the middle of the largest transition in decades. 

Three years in, and any honest assessment of the Administration’s success and, more importantly, the industry’s progress, is mixed.  The Administration and its allies are quick to point to the Infrastructure Investment and Jobs Act and the Inflation Reduction Act (IRA), the two largest pieces of legislation in history, as game changers in the government’s support behind the EV transition.  No doubt these laws paved the way for the U.S. OEMs to feel more comfortable about their own accelerated pace of transition, and hundreds of millions more dollars were allocated to nascent technologies and supply chains to support the transition.  But, as the glow of a new emerging technology dimmed with the reality of headwinds facing OEMs, including skepticism from the public, the naysayers (and dare say the Republican Party, including its current leader, former President Trump) were quick to pounce on the fragile transition and what the Republicans have characterized as wasteful spending by Democrats and tax incentives that help no one but the Chinese.  

Like many issues in the United States today, the amazingly inventive technologies that are being developed in Detroit and Silicon Valley (as well as many other American cities) to drive forward the EV transition have become political.  President Biden has continued to remain “all in” on government spending to drive forward the transition.  Most recently, he introduced severe new protectionist tariffs to disincentive Chinese OEMs from entering the U.S. market (a move recently followed by Canada). Behind this, the Administration has aligned its commitment to other more “traditional” planks in its campaign platform: American Jobs, American Innovation, and winning the battle for American supremacy in automobile manufacturing. 

In a foregone day, these same planks rested squarely in the Republican platform.  For a kid growing up in the 1970s and 80s, I still remember when cutting off oil dependency from the Middle East was a shared goal for both parties.  In the U.S. today, however, Republicans tend to prioritize policies that support the oil industry, with former President Trump famously saying: “Drill, baby, drill.” Before July, when it appeared to many that Mr. Trump was bound for a return to the White House, some said this could be catastrophic for the EV transition, as the former President had promised to roll back legislation that incentivized the industry.  Just eight weeks later, the Democrats have a new candidate in Vice President Kamala Harris, and former President Trump has softened on EVs (at least Teslas) after he received the endorsement of Elon Musk. So, let’s have a quick check to see where each of the candidates stand on EVs, as of Labor Day 2024.

First up, Vice President Harris. This is what we know about her record: VP Harris has been supportive of President Biden’s push to expand access and manufacturing of EVs in the U.S.  She has doubled down on supporting the UAW, and the Administration’s labor-focused agenda will likely remain at the center of a Harris Administration.  In May, VP Harris traveled to Detroit, where she announced $100 million for small and medium-sized auto manufacturers to upgrade their facilities for EV production.  As early as the 2020 presidential campaign, VP Harris promoted ambitious climate policies, including production of EVs consistent with Biden’s later Executive Order. VP Harris, however, went even further by proposing that the industry be 100% EV by 2035, and advocating for heavy duty vehicles to join the EV ranks much quicker. In fact, in 2019, then Senator Harris cosponsored the Zero-Emission Vehicles Act, which proposed aggressive EV goals for vehicle adoption. As Vice President, Ms. Harris took an active role in passage of the IRA and continues to be a fervent advocate of its end goals.  If elected President, Ms. Harris should be expected to stay largely aligned with Biden’s commitment to labor, but her past history on environmental issues could be construed as even more robust when it comes to climate issues, and most would agree that EVs figure into that equation. 

Former President Trump, on the other hand, has become more of a chameleon when it comes to EVs.  Way back in June, Mr. Trump easily cast EVs and their loyalists as leftist Green New Dealers, out to take everyone’s gas-propelled vehicle.  Stirring his supporters, much like he did with guns, immigration, and national security, Mr. Trump claimed that the Democrats were forcing inferior products on consumers and promoting a failed technology that was too expensive and controlled by China. Fast forward, and after Elon Musk endorses former President Trump for President, Mr. Trump has pivoted ever so slightly (maybe).  Recently, Mr. Trump told a crowd in Atlanta that, “[Kamala Harris] wants to get rid of gas-powered cars and replace them with all electric,” “They don’t go far, they cost too much, they’re all made in China; other than that they’re fantastic, and I’m for electric cars.” “I have to be, you know, because Elon [Musk] endorsed me very strongly, Elon. So I have no choice.”  Mr. Trump went on to say that, he’s for “a very small slice” of cars being electric, which is not exactly a ringing endorsement and certainly should not comfort Detroit. Could Mr. Trump, however, be persuaded to remain, at least, neutral on the transition? Since the Musk endorsement, Mr. Trump has gone out of his way to ingratiate himself to Musk and his products, but it has hardly been an about face on EVs, and Mr. Trump still seems willing to gut the federal legislation that U.S. OEMs are counting on to help make EVs more affordable in the future. And, he can continue to remain critical of tax incentives without angering Musk, who has also been critical of such government support, likely because it benefits his U.S. competitors. 

The biggest take away for November is that we can expect a Harris Administration to continue a robust agenda for EVs, while the Trump team and his allies in Congress say they are determined to roll back the Infrastructure Act and IRA. If this happens, it will only further delay an EV transition as it takes needed dollars away from consumers interested in buying their first EVs and, more importantly, undermines spending on infrastructure improvements, such as EV charging stations.  Ironically, Mr. Trump’s “anti-government spend” position is at odds with the Big Three, who have pushed for this legislation as a means to facilitate their transition.  The question is, however, whether Mr. Trump’s current rhetoric will become a longer term policy should he occupy the Oval Office in 2025, and could he really cause the entire transition to come to a screeching halt after the industry has committed billions of dollars to electrify their vehicles. Perhaps Mr. Trump has simply concluded that the U.S. auto industry will not catch China in the next 4 years and producing cheaper ICE vehicles for U.S. consumers in the short-term will be welcomed by his Base.  Those in the industry will quickly point out, however, that this type of isolationism will be catastrophic for the U.S. auto industry as the rest of the world transitions to BEVs, leaving Chinese OEMs to only redouble their early successes in every other corner of the globe.

** Please Note:  The content of this article is the author’s own opinion, and not necessarily that of DW.

Mark Heusel | Member Partner | Chair, East Asia Practice Group

Three of the hottest topics in the general and automotive press these days are: (1) Artificial Intelligence; (2) autonomous driving; and (3) the Chinese automotive domestic and global markets.

Let’s start with the Autonomy/Artificial Intelligence.

(1)        First is an article appearing in the August 15^th edition of the New York Times entitled, “A Chinese Self-Driving Start-Up Is About To Go Public in the U.S.” The author discusses the forthcoming public offering of WeRide, which is described as “One of China’s leading autonomous driving startups.” It is reported that one of the principal shareholders of WeRide is Alliance Ventures, the venture capital fund of Renault, Nissan and Mitsubishi Alliance.

WeRide has registered to go public on the Nasdaq Stock Exchange in an attempt to raise $440 million. The list of risks disclosed in its prospectus is lengthy and intimidating for would be investors, including risks associated with the current geopolitical climate and Chinese government potential influence. The prospectus states that among risks is that the Chinese government “has substantial significant oversight and discretion over the conduct of our business, and may intervene or influence our operations”. Apparently, raising capital in China is greatly constrained for start-ups like WeRide. It may prove to be in the U.S. as well. 

Artificial intelligence 

(2)        The rivalry among nations to lead in the development and application of AI is explored in an article appearing in the August 14^th edition of the New York Times entitled, “The Global Race to Control A.I.: We explore who is winning — and what could come next.” The premise of the article is summed up in its opening sentence – “As artificial intelligence advances, many nations are worried about being left behind.” The consensus is that AI could soon reshape the global economy and nations want the security of knowing that companies based on their soil are taking the lead and will not be dependent for critical technology based in other countries. New laws, regulations and alliances are being created as a result. 

(3)        A thought provoking article from the Wall Street Journal regarding the ethical challenges facing the participants in the development of autonomous vehicles. In an article appearing in the August 28^th edition of the Wall Street Journal entitled, “How will Self-Driving Cars Learn to Make Life-and- Death Choices?”, the authors explore a number of the questions that engineers, programmers and bioethicists are struggling with as AI-driven vehicles approach greater adoption. In one section entitled, “The good trip” the author poses the question, “Is taking the fastest route the core metric that should guide autonomous vehicles, or are other factors just as relevant”, e.g., should safety be the prime motivation at the expense of causing slow and snarled traffic or in the case of commercial vehicles, less trips and less profit. A fascinating read from my perspective.