Source: Going Green: Can Automakers invest in Environmental Solutions? Case financial data from annual reports, SEC 10-K, Yahoo Finance, NASDAQ, Bloomberg Terminal, or other sources.

Assignment: As an analyst at a Policy Think Tank (choose one between – Brookings Institute, Center for

American Progress, Rand Corporation, or Heritage Foundation), you must write a research article on

whether US automobile makers should tackle climate change issues. For the article you must conduct

analysis about the impact to Global Warning and Greenhouse gases that the Big Three US automobile

manufacturers contribute and whether they should seek to mitigate. Your analysis must consider the pros

and cons of Electrical Vehicle (EV) manufacturing and make recommendations about whether your

assigned company should reduce, continue or expand production of EVs in place of fossil-fuel powered

vehicles. The impetus for this article is to summarize how EV production by US automobile

manufacturers impact climate change and to publish an article on whether the EV production by US

manufacturers should be continued at same levels, expanded, or reduced. The period of study is from

2010 to present.

ARTICLE MUST INCLUDE (narrative of your analysis with supporting tables, charts and graphs, as appropriate). The article must be no more than 3 pages. The Excel spreadsheet of your computations, stock price analysis, and other work must be submitted as a separate file. There should be only two files submitted (article and Excel worksheet).

(1) The Problem: Provide a brief overview about global warming, climate change, and the Paris Climate

Agreement. Discuss how the US compares to other countries in addressing this issue. Outline why

your selected Think Tank’s knowledge/experience relates to addressing social problems like Climate

Change policy.

(2) Impact to Stakeholders. Before and After the Paris Agreement (2010 – present) for the Big Three

Detroit Auto Manufacturers (Ford, GM, and Stallantis), conduct analysis of how the following

stakeholders may benefit or be harmed from the production of EV vehicles (Answer Q1 from the

source case).

a. Employees,

b. Communities (environment),

c. Consumers, and

d. Stockholders.

(3) Future Focus of US Automakers. After the Paris Agreement (2015), discuss whether US production of

EVs has changed and what impact the US makes to the global climate change issue, especially

focusing on US light truck production (Answer Q2 from the source case).

(4) Evaluation. Based on your analysis that considers the pros and cons of Electrical Vehicle (EV)

manufacturing and its advantages and disadvantages to stakeholders, make recommendations

about whether your assigned company should reduce, continue or expand production of EVs in

place of fossil-fuel powered vehicles.

Article Format. Submit one Microsoft Word file or Adobe (*.pdf) file with all tables, graphs, figures

embedded:

 Title page with your name, selected Think Tank, and article title.

 All the sections must be properly labelled using the sections listed above.

 All required sections must be included.

 The article must be written for the target audience and be free of typographical and grammatical

errors.

 Include page numbers.

 Consistent font size and type. At least 12 font for text and 11 font for graphs and charts.

 Title page and references are not included in the page count.

 Include references, as appropriate.

 Submit article and Excel file via Canvas before 11:50pm on the due date.

1 | P a g e

FIN 620 Going Green Social Case

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Going Green: Can Automakers Invest in Environmental Solutions?

As concerns about global warming increase, many corporations and governments around the world are working to limit the production of so-called greenhouse gases (GHG) that have been linked to climate change. Indeed, after taking office, President Biden committed the U.S. to limiting carbon emissions by rejoining the Paris Climate Agreement. The administration also introduced policies encouraging the use of solar and wind power for producing electricity as alternatives to coal and natural gas. More recently, both China and the European Union have announced major changes to limit carbon emissions, including restrictions on the production of gasoline powered vehicles.

Many businesses have responded to the increased focus on climate change. For example, a group of automakers, including General Motors (GM), has said they are looking forward to working with the Biden administration “… to advance the shared goals of reducing emissions and realizing the benefits of an electric future.” So, what are greenhouse gases and how are they related to global warming? What is the Paris Climate Agreement? And what do automakers have to do with all of this?

Global Warming and Greenhouse Gases

Global warming is defined as the long-term heating of Earth’s climate system due to human activities that increase greenhouse gases.1 Climate data over the last 160 years suggests that the global average temperature has increased by over 1 degree Celsius to date, with ever increasing rates of change. There is evidence suggesting that global warming, and resulting climate change, negatively affects the environment by way of drought, flooding, rising sea levels, and increased intensity and frequency of severe weather. The majority of scientists today agree that greenhouse gases, including carbon dioxide emitted when fossil fuels (e.g., coal, diesel, natural gas, and oil) are burned, are major contributors to climate change.

The Paris Climate Agreement

Given concerns about the social and economic costs of climate change, representatives from 196 countries around the world met on December 12, 2015, in Paris, France to join the Paris Climate Agreement. The agreement is a voluntary, but legally binding, international treaty on climate change committing the signatories to develop and implement plans to reduce greenhouse gas emissions. The

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goal of the Paris Agreement is to limit global warming to less than 2 degrees Celsius above levels in the 1850-1900 “pre-industrial” period (and if possible, less than 1.5 degrees). Having already surpassed 1- degree above the pre-industrial level, the 2-degree threshold is seen by many scientists as critical in reducing the risks of climate change associated with global warming.2

The Auto Industry and General Motors

Automakers, including GM, are deeply involved in issues related to fuel efficiency and carbon emissions. In the U.S., the Environmental Protection Agency (EPA) reports that fuel used for transportation of people and goods is the single largest source of carbon dioxide emissions (with the production of electricity being the second largest).3 This is largely due to the reliance on vehicles powered by internal combustion engines that use fossil fuels.

In late January 2021, GM announced a strategic repositioning of the company for an “all-electric vehicle future.” This move was intended to both to address consumer concerns over the environment, and counter the rapidly increasing market share of competitors such as Toyota and Tesla in the hybrid and all-electric vehicle market. GM management said that the company would eliminate emissions from new light duty vehicles by 2035, and be carbon-neutral in its global operations (i.e., have net zero carbon emissions) by 2040.4 This would include cutting emissions where possible and using renewable energy sources such as wind and solar to power manufacturing facilities.

GM also announced plans to invest $27 billion over the next five years to produce electric and autonomous vehicles. This record investment for the firm includes updating manufacturing facilities in Michigan and Tennessee to produce vehicles using the firm’s new Battery Electric Vehicle 3 platform. GM will also build a new plant in Ohio to manufacture the firm’s new, more efficient and less costly Ultium lithium-ion batteries. GM’s Chief Executive Officer Mary Barra has said of the firm’s strategy: “I really see long-term value creation for General Motors and for our shareholders.”

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Will Producing Electric Vehicles Lower Emissions?

Some have applauded the efforts of GM and other automakers as important steps in an attempt reducing GHG emissions and working toward the goals of the Paris Agreement aimed at limiting global warming. Others, however, have expressed skepticism, and pointed out that GM’s investment might be risky for their shareholders.

While EVs produce little GHGs, the sources of electricity that are used to produce and charge vehicles and their batteries can produce GHGs. For example, vehicles produced or charged using electricity produced by solar power will result in less total GHGs compared with those that rely on electricity generated by coal-fired power plants.

Moreover, despite the focus on EVs, automakers will continue to produce vehicles including mid- and heavy-duty trucks that rely on internal combustion engines. One survey reported that about 40 percent of U.S. adults asked would consider buying an EV in the next decade.5 However, with the average price tag of an EV at $19,000 more than a gas-powered vehicle, it is unclear how many consumers will actually make the switch.6

It has also been suggested that the light duty vehicles that the auto manufacturers are focusing on in their EV strategy – particularly personal vehicles – contribute relatively little to overall GHG emissions. In the U.S., for example, the EPA reported that light duty vehicles accounted for about 17 percent of total

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U.S. emissions in 2019. As a result, it has been suggested that efforts to reduce emissions would be more effective if targeted elsewhere, for example at electricity generation.

Having said that, in other regions of the world, such as China and the European Union, the shift to EVs looks more certain as laws have been passed that require the reduction or elimination of new vehicles powered by internal combustion engines.7

Employees

Investments such as those that GM and other automakers are undertaking, and a move to EVs more generally, will result in changes in the types of employees that the auto and related industries will need. There will be increased demand for employees with experience in EV technology at firms that produce automobiles, batteries, and electric charging stations. But expanded production of EVs will likely result in the loss of other jobs. For example, there will be less demand for employees with experience in the manufacturing of internal combustion engines in the auto industry, and for employees in the related auto parts and auto services industries as EVs require fewer moving parts, and do not need gas, oil changes, or transmission fluids.

Communities

While many view the growing market for EVs as environmentally beneficial, there are potential downsides to adopting this technology. For example, the lithium-ion batteries used to power EVs have been linked to adverse environmental and social effects. Specifically, much of the world’s cobalt, a critical input to lithium-ion batteries, is mined in the Democratic Republic of the Congo (DRC) where there are concerns about abusive child labor practices, a lack of worker protections from cobalt’s toxic effects, and the pollution of local communities from mining operations. In other areas, such as Chile and the U.S, the potential for existing and planned lithium mines to damage the environment has also attracted the scrutiny of local communities and environmentalists.

Will EV Strategies Put Automakers in High Gear?

It is clear that there are pressures from politicians and many segments of society to reduce GHGs. It remains an open question, however, as to how effective the transition to EVs will be, and the impact that the automakers’ EV strategies will have on their shareholders and other stakeholders.

Discussion Questions

1. Identify 3 sets of stakeholders at GM and explain how each might i) benefit and ii) be harmed in some way from the firm’s plan to focus on the production of EVs in place of fossil-fuel powered vehicles.

2. As noted in the case, light duty vehicles currently contribute about 17 percent to the total U.S. emissions. Identify 2 factors that would limit reductions in emissions when drivers switch to EVs.

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