Trump Threatens to Cut General Motors’ Electric Car Subsidies

- November 27th, 2018

The carmaker plans to shut down seven factories by the end of next year, while dropping six gas-powered car models to cut costs.

General Motors (NYSE:GM) announced plans to close seven factories worldwide on Monday (November 26) as the company prepares to shift production to electric and self-driving vehicles.

The carmaker said it would shut down four factories in the US and one in Canada by the end of next year, and will drop six gas-powered car models to cut costs. The move will also see the company’s workforce reduced by 15,000 jobs.

After the news, US President Donald Trump said he was very disappointed with GM’s decision and threatened to cut all subsidies for the company, including those for its electric car programs. 

“There’s great disappointment that it seems like GM would rather build its electric cars in China rather than the United States,” Larry Kudlow, director of the White House National Economic Council, told reporters at a briefing on Tuesday (November 27), just before Trump’s tweets.

“We are going to be looking at certain subsidies regarding electric cars and others and whether they should apply or not. Can’t say anything final about that, but we’re looking into it,” he added.

Currently, buyers of electric cars made by GM get US federal tax credits of up to US$7,500 as an incentive to get more electric vehicles on the road. The credit will begin to phase out after the sale of more than 200,000 eligible vehicles, which GM is expected to reach soon.

Shares of the carmaker fell more than 3 percent in New York after Trump took to Twitter to show his anger about GM’s plans. The carmaker’s decision came on the heels of strong third-quarter results released at the end of October.

“We recognize the need to stay in front of changing market conditions and customer preferences to position our company for long-term success,” CEO Mary Barra told reporters after the news on Monday.

“We’re taking these actions while the economy is strong,” Barra continued. “This industry is changing very rapidly. We want to make sure we’re well-positioned. We think it’s appropriate to do it while company is strong and the economy is strong.”

GM’s move is another sign of the shift to electric vehicles by major automakers, which are betting on consumers switching to battery-powered cars. Experts predict these types of announcements will become more and more common, and will drive of demand for raw materials such as lithium, whose use is expected to drastically increase in the next few years.

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The same day GM announced its plans, Korean battery maker SK Innovation (KRX:096770said it will spend US$1.01 billion to build its first electric vehicle battery plant in the US, with an annual capacity of 9.8 gigawatt hours. Construction is set to start in 2019 and production is targeted for 2022.

SK Innovation’s news comes just a few weeks after it signed a deal to supply battery cells to German carmaker Volkswagen (ETR:VOW).

“We have sharpened our edge in the battery business by having production sites in the key global markets as well as winning more orders,” CEO Kim Jun said in a statement. “We will grow as the globe’s top player in the battery business by being successful in the toughest market in the world.”

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article. 

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