One has to be rich to personally avail themselves of the insights of Jamie Dimon, the billionaire CEO of JP Morgan Chase. But the media got wind of the financial wisdom Dimon imparted on a call with Chase’s preferred wealthy clients last week, and every working- and middle-class American, and Americans who still care and love their country, should be aware of what he said.
I never sold a share of [JPM]. I bought shares. I still buy my own stocks. I don’t have many. I don’t have any long-term Treasuries. I think Mexico is going to be a great set up. I bought a Mexican ETF. Did you know their labor is cheaper in Mexico than in China? And it is a secured supply chain. If you are a manufacturer, it is a no-brainer. Green infrastructure will be big.
Allow me to elaborate on why Dimon is bullish on Mexico and its labor force. The country’s automotive workers are paid such low wages that most of them live in poverty. That’s why Ford and GM have expanded their Mexican factories, which is where Ford assembles its electric Mustang and GM assembles its electric Equinox and Blazer vehicles that will soon hit the market.
One doesn’t need Dimon’s financial acumen to appreciate it is a “no-brainer” for Ford and GM to continue expanding its EV production in Mexico. The Senate Inflation Reduction Act (IRA) crafted by Democrats provides generous subsidies to U.S. buyers of Mexican-made electric vehicles.
Widespread confusion
At the moment, there’s lots of confusion about which EVs qualify for subsidies because of U.S. sourcing requirements on batteries that increase over the years. According to the Alliance for Automotive Innovation, the auto industry’s main lobbying group, there are currently 72 EV models available for purchase in the United States, including battery, plug-in hybrid, and fuel cell electric vehicles. Of those models, only 30 percent are eligible for the tax credit when the bill passes. And by 2029, when additional sourcing requirements go into effect, supposedly none would qualify for the full credit.
Such is the confusion that even the automakers don’t seem to understand the provisions. As reported by The Verge, VW has advised its EV customers that it “expects but cannot guarantee” that model year 2022 and 2023 ID.4s will meet the new strict requirements. The German automaker is urging its customers to sign a “written binding contract to purchase” as their best chance of qualifying for the tax credits.
Debbie Stabenow, Michigan’s senior Senator, told the New York Times her understanding is that a $7,500 credit would apply for all manufacturers through next year before content restrictions kicked in. Practically speaking, I’m inclined to believe Stabenow since she voted to approve the legislation so hopefully she has an inkling of what she voted for, particularly since Ford and GM are headquartered in her state. The wording of the legislation might say one thing, but there are ways to circumvent the provisions.
Loss of jobs
What’s clear is that the conversion to electric vehicles is going to mean a major loss of American jobs. As reported by Codrin Spiridon in the trade publication AutoEvolution, more than 600,000 manufacturing jobs will likely be lost by 2030 because of the accelerated conversion to electric vehicles.
Explained Spiridon:
People that spent years or even decades training and learning how to put together all the technologies needed to run a vehicle with an internal combustion engine. Technologies that electric cars don’t need. And besides that, car companies require less manpower for the electric vehicles production line while not sacrificing their output.
Spiridon’s projections only include automotive and related supplier manufacturing jobs. Then there’s the loss of tens of thousands of other jobs ranging from gas station employment to oil change and ICE repair shops.
Heads will soon start to roll. Ford CEO Jim Farley leaked to Bloomberg that he plans to fire 8,000 salaried employees, representing 26 percent of his salaried workforce.
Congress hasn’t provided for retraining or other initiatives to ensure displayed automotive workers land on their financial feet.
The Inflation “Reduction” Act?
It comical that the proposed Senate bill is called the Inflation Reduction Act given there are strong indications that it will substantially drive up the costs of electric vehicles. President Biden hasn’t even signed the bill and Ford’s Jim Farley has already announced plans to increase the cost of his Ford Lightning electric pickup truck by as much as $8,500.
Perhaps the Lightning won’t qualify for $7,500 in subsidies – I’ll bet that it ultimately will – but IRA includes provisions to help Farley pay to build and retool plants to build his electric vehicles. Farley’s cherry on top is the $150 million Michigan governor Gretchen Whitmer gave him to help retool a Detroit-area plant to build the Lightning, likely only in the short-term until Ford’s $11 billion EV investments in Tennessee and Kentucky come to fruition. Those investments are also subsidized by taxpayers.
The EV subsidies will also provide funding to help GM CEO Mary Barra clean up the mess resulting from the recall of all her Bolt vehicles because they were at risk of catching fire. GM has offered a $6,000 credit to Bolt owners who agree not to sue the company. GM was forced to cut the price on its Bolts by about $6,000 because they weren’t selling, but if the Bolts qualify for a $7,500 subsidy, don’t be surprised if Barra pulls a Farley and raises the price on the vehicles.
Barra and Farley respectively “earned” $29 million and $23 million in compensation in 2021. Barra’s compensation was well above the average $18.5 million paid to America’s other overpaid CEOs. Barra’s ratio of total compensation to the median of all GM employees’ total compensation was 420-1. By comparison, the average S&P company’s CEO-to-worker pay ratio was 324-1.
So much for all that lofty talk about “stakeholder capitalism,” a Davos conceit which holds that companies have an obligation to serve the interests of all their constituencies, not just shareholders and CEO bank accounts.
No benefits for Rivian
There seems to be agreement that IRA doesn’t provide any subsidies for buyers of Rivian pickup trucks because their costs with options will exceed the $80,000 threshold. Rivian was founded in 2009 as a pure-play electric vehicle manufacturer. One might expect that Congress would want to support a U.S.-based EV company, but that doesn’t appear to be the case.
China’s Communist government sees benefit in supporting a domestic EV industry. The only EVs eligible for subsidies in that country are those manufactured in China, and that restriction has paid off.
Of the top 10 selling EVs in China, nine of them are manufactured in China by China-based companies. The tenth is Tesla, which has agreed to help nurture China’s EV expertise and ecosystem in exchange for preferential treatment.
As I’ve previously argued, the IRA is a wealth transfer that will enrich Ford and GM and subsidize the wealthy to purchase mostly and increasingly costly luxury electric vehicles that most Americans can’t afford. That Jamie Dimon is celebrating how Congress has chosen to bolster Mexico’s economy speaks to his disregard for U.S. workers – a disregard that’s sadly reflective of most U.S. CEOs.