The Government Goes All In on Electric Vehicles

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As part of an executive order encouraging government purchases of American-made products that President Joe Biden signed on Jan. 25, the federal government is committing to the purchase of 645,000 electric vehicles as it upgrades its fleet.

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The government owns lots of cars, from The Beast, the secured limousine that the president travels in, to fleet vehicles that agency employees use to get to remote locations. As each reaches the end of its life, it will be replaced by a U.S.-made electric vehicle. There are no plans to accelerate normal vehicle retirements.

Under current labeling rules, a car is considered to be made in the United States if 50% of its production occurred in the U.S., and that will remain in place.

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An increase in electric vehicle production has two benefits for anyone considering the purchase of one. The first is that this will encourage the auto companies to design more types of electric vehicles, expanding the market. The second is that the greater the number of electric vehicles on the road, the more charging stations there will be. One concern many potential buyers have had is that they will be stuck somewhere if they can’t get their car charged.

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The U.S. government has always purchased U.S.-made vehicles, so the order itself doesn’t change that. It does create demand for a specific type of vehicle. This is especially good news for General Motors (NYSE: GM), the automaker that has made the greatest commitment to electric vehicle production.

What about Tesla (NASDAQ: TSLA)? The company produces a limited range of vehicles and has trouble meeting its demand, so it is unlikely to become a government fleet supplier any time soon.

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