Carney: The Gamble Behind Volkswagen’s $800 Million Investment in Electric Vehicles in Tennessee

Volkswagen said on Monday that it plans to build a new electric vehicle at its plant in Chattanooga, Tennessee. The company will invest $800 million to expand and modernize the plant.

The German automaker has an ambitious plan to move toward zero-emission vehicles. The company wants a quarter of its cars to be electric by 2025.

That ambition is not without risk. To expand its electric fleet that rapidly, Volkswagen will have to produce mass market electric cars that sell at price points significantly below Tesla’s least expensive vehicle. The trouble is that the technology required for desirable, all-electric cars, especially the batteries, is still too expensive to make these profitable.

American drivers do not want the electric or hybrid cars are the past, plagued by weak engines with little pick-up. They want powerful cars, muscle cars run without emissions. That’s possible now but it is not inexpensive.

That’s one of the reasons that General Motors is making its big push into all electric with a Cadillac. Premium brands are the only places where margins are large enough and price points high enough to support the combination of power and zero-emissions.

But that could change. Technology could become cheaper. Or it could become mandatory. Stricter emissions limits and other regulations could force electric vehicles on the market. That’s what is already happening in Europe and China, where regulations mandate that electric vehicles make up a minimum share of all the cars automakers sell. Alternatively, the U.S. government could provide even greater subsidies to buyers of the electric cars.

Volkswagen, which is backed by the German government, may have an advantage in creating uneconomic vehicles. But it is also likely gambling that the Green New Deal or some similar program of environmental regulations will take shape in the U.S.

For now, the announcement of the new investment in Tennessee appears to be good news for American workers. The German automaker said it is adding 1,000 new jobs and that electric vehicle production will launch in 2022. But whether the investment and jobs are here for the longterm may depend on whether markets or governments are the driving force in the automarket’s development in the next few years.