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Electric vehicle, green energy 'tidal wave' to be unleashed by Biden spending splurge

Analysts at Wedbush said that US$174bn earmarked in the plan for EV initiatives is “just the start” and expected a significant ramp up in incentives for the sector over the coming years

Tesla Inc - Electric vehicle, green energy 'tidal wave' to be unleashed by Biden spending splurge

The US$2.25 trillion infrastructure spending plan unveiled by US president Joe Biden overnight is expected to be a boon for green energy and electric vehicles (EVs), according to Wall Street analysts.

Out of the eye-watering total, US$174bn has been earmarked in the plan for EV initiatives, including a commitment to US$12.5bn of new lithium-ion battery manufacturing capacity.

This is “just the start”, said broker Wedbush in a note on Wednesday night, with the industry needing to see an expansion of the tax credits as well as other point-of-sale rebates that could be inserted into the bill as it moves through Congress, which could “catalyse consumers to head down the EV path”.

Analysts also said they expected the lifting of the 200,000-per manufacturer ceiling on the credits being phased out, which will restore the EV tax advantage for industry stalwarts such as Tesla Inc (NASDAQ:TSLA) and General Motors Company (NYSE:GM).

“Another lynchpin of these EV initiatives will be centred around massive expansion of charging stations around the US over the next decade. Today there are roughly 100k public charging ports with another 400k needed over the next decade to support this groundswell EV green tidal wave for consumers/trucking with the goal of 500k by 2030,” Wedbush said.

“While the stocks and the EV space is clearly going through a painful digestion period, we view this as a short-term pullback in a multi-year upward rally…there are many pure play innovative EV players (consumer/commercial) on the horizon poised to capitalize on a Biden driven green tidal wave domestically with our expectations that the tax credits and incentives around EVs will ramp significantly in the coming years,” the broker added.

Transportation and manufacturing to receive billions

While the EV funding news may be one of the more interesting aspects of the spending plan, Biden’s bill also includes US$620bn for transportation and US$650bn for measures that include clean water and high-speed internet.

An additional US$580bn has been earmarked for US manufacturing, which includes US$180bn for non-defence research & development, as well as US$400bn for elderly and disabled care.

The programme is expected to be funded by an increase in corporate tax to 28% from the 21% set by the Trump administration in a 2017.

Assessing the proposal, analysts at JP Morgan said the plans imply an additional US$14bn of infrastructure spending per annum, which could be beneficial for construction materials firms such as CRH PLC (LON:CRH).

Analysts at RBC, meanwhile, have made a similar assessment, highlighting plumbing and heating products maker Ferguson PLC (LON:FERG) as another potential winner.

But Republicans unlikely to be on board

However, Biden’s grandiose plans will still need to make it through both houses of Congress to become law, which includes retaining full support from the Democrats’ wafer-thin majority in the Senate as analysts are not optimistic that any opposition Republican Senators will support the spending spree.

A particular point of contention is likely to be Biden’s plan to partially undo cuts to the corporation tax passed by President Trump.

“We suspect that President Joe Biden will struggle to garner bipartisan support for his $2trn in infrastructure spending, even if he was willing to placate centrist Senate Republicans by dropping his proposal to fully fund that investment by raising corporate taxes,” said analysts at Capital Economics.

“We think the most likely outcome is that the Democrats will end up passing a revenue-neutral infrastructure package using a budget reconciliation early in the next fiscal year, which begins this October," they added.

The infrastructure package is expected to be followed this month by another large investment scheme, said to be around US$1tn, intended to focus on education and childcare and called the “American Family Plan”.

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