EV Maker Faces $623M Loss, Yet Secures $1.2B in Taxpayer Subsidies
VinFast, an electric vehicle company based in Vietnam, has received an unprecedented taxpayer subsidy in North Carolina after reporting over $600 million in losses during the third quarter.
The EV maker experienced a net loss of $622.9 million for Q3 2023, which is nearly 20 percent higher than the previous quarter, according to VinFast’s Oct. 5 earnings release. Since transitioning to electric SUVs in 2021, the company has accumulated over $5 billion in losses. VinFast is currently constructing a $4 billion manufacturing and assembly plant in Chatham County, North Carolina, and will receive record subsidies for this project.
The state has pledged $854 million over 32 years to support the facility, contingent on VinFast meeting its investment and employment goals. The company aims to create 7,500 jobs at the plant by 2027, making this the largest subsidy ever granted by North Carolina to a private economic venture.
In addition to the state’s $854 million contribution, Chatham County is expected to provide around $400 million in funding, bringing the total taxpayer support for VinFast to over $1.2 billion. The groundbreaking ceremony for the manufacturing plant took place in July, and production is scheduled to commence in 2025.
Despite incurring $5 billion in losses since 2021, VinFast has been promised subsidies and is seeking additional capital to fuel its business growth, as stated in an Oct. 2 prospectus filed with the U.S. Securities Exchange Commission (SEC).
The provision of government subsidies to an EV manufacturer operating at a loss raises concerns about the economic viability of such expenditures.
Over the past decade, several other EV companies that received taxpayer funding have ceased operations. For instance, in 2014, Missouri-based Smith Electric Vehicles suspended its American operations after receiving $30 million in funds from President Barack Obama’s 2009 stimulus package.
Similarly, California-based EV firm Proterra filed for Chapter 11 bankruptcy protection in August this year. The company, once praised by President Joe Biden, received a $10 million loan under the COVID-19 Paycheck Protection Program, which was later forgiven in May 2022.
Meanwhile, the Biden administration continues to allocate more subsidies to EV manufacturers.
In June, the government announced its intention to invest $2 billion from the Inflation Reduction Act (IRA) passed last year to accelerate domestic EV manufacturing and revive struggling electric vehicle plants.
Republican Criticism
The Biden administration’s policy of funding electric vehicle production at the expense of American citizens has faced criticism from Republicans.
During a House Transportation and Infrastructure Committee hearing on Sept. 20, House Republicans engaged in a heated exchange with Transportation Secretary Pete Buttigieg on this matter.
“Despite the subsidization, the market is simply not embracing EVs, regardless of what we want to believe or say,” stated Rep. Scott Perry (R-Pa.) during the discussion.
He further expressed concerns about the federal government using taxpayers’ money to undermine the automotive industry and eliminate jobs in Michigan, where Buttigieg recently relocated.
In addition to subsidizing EV companies, the Biden administration is utilizing taxpayer funds to facilitate the transition of traditional auto plants to EV manufacturing.
In August, the federal government announced a $12 billion investment for this purpose, with $10 billion allocated by the Energy Department. The U.S. Environmental Protection Agency (EPA) has also unveiled a plan to make two-thirds of all new vehicle sales in the United States electric by 2032.
Buyer Subsidies
The Biden administration is further using taxpayer funds to provide subsidies to individuals purchasing electric vehicles.
Last week, the Treasury Department released new guidelines outlining how vehicle dealers can effectively reduce the price of EVs by up to $7,500 for prospective buyers at the point of sale.
This means that buyers no longer have to wait until they file taxes to claim the credit. The $7,500 credit was approved as part of the Inflation Reduction Act.
While these $7,500 rebates aim to boost EV sales, they create a situation where the success of electric vehicle sales relies heavily on government subsidies.
In January, energy research firm Rystad Energy reported a significant decline in global EV sales due to the “abrupt halt” in subsidies and tax credits.
“The automotive market typically experiences a downturn after the implementation of new subsidy rules at the beginning of each year, followed by a gradual recovery,” the firm stated in a press release.
Despite the Biden administration’s strong push for EVs, the majority of Americans remain uninterested in purchasing electric vehicles.
According to a July survey conducted by Pew Research, 50 percent of respondents stated that they were “not too/not at all” likely to buy an EV, while only 38 percent expressed being “very/somewhat likely.” The disinterest in EVs is particularly high among Republican/Republican-leaning participants, with 70 percent stating they were “not too/not at all” likely to make a purchase.
“The share of the public interested in purchasing an EV has decreased by 4 percentage points since May 2022,” the research revealed.
What are the arguments in favor of offering a property tax exemption and a grant to VinFast?
Will provide a property tax exemption worth $16.1 million, and the town of Siler City will offer a $4.5 million grant. These incentives are intended to attract VinFast to the region and stimulate economic growth.
However, the decision to provide such a substantial subsidy to VinFast has drawn criticism from some experts and residents. Critics argue that the company’s significant financial losses raise concerns about its long-term viability and the effectiveness of taxpayer-funded support. They question whether the investment in VinFast is a prudent use of public funds, especially given the uncertainty surrounding the electric vehicle market.
Proponents of the subsidy argue that it will bring much-needed jobs and investment to the area. They believe that the development of VinFast’s manufacturing and assembly plant will boost the local economy and create new opportunities for residents. Additionally, supporters claim that the subsidies are necessary to compete with other states and countries that offer similar incentives to attract electric vehicle companies.
VinFast, owned by Vietnamese conglomerate Vingroup, has ambitious plans to become a major player in the global electric vehicle market. The company is aiming to produce and sell 300,000 electric vehicles per year by 2025, with a focus on the United States market. VinFast’s entry into the North Carolina market is seen as a strategic move to establish a foothold in the highly competitive US electric vehicle industry.
The success of VinFast’s venture in North Carolina will ultimately depend on several factors. The company will need to address its financial challenges and demonstrate a sustainable business model. It will also face competition from established automakers and potential regulatory changes that could impact the electric vehicle market.
As the electric vehicle industry continues to evolve and grow, governments around the world are grappling with the question of how best to support its development. Subsidies and incentives for electric vehicle companies are common, with the aim of encouraging innovation, reducing greenhouse gas emissions, and creating jobs. However, striking the right balance between supporting the industry and protecting the interests of taxpayers is essential.
The VinFast subsidy in North Carolina represents a significant investment in the future of the electric vehicle industry. While it has attracted criticism and raised important questions about the use of taxpayer funds, it also highlights the challenges and opportunities that come with supporting emerging technologies. Only time will tell whether VinFast’s gamble on the North Carolina market will pay off.
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