Donald Trump is only the second president in U.S. history to get elected for nonconsecutive terms. And he may be the first voted into the country’s highest office under the assumption that he would not follow through on his wildest campaign promises.
The President-elect seems to be sticking to at least one goal so far: unraveling Joe Biden’s policies that prop up America’s electric vehicle industry. Reuters on Thursday reported that the Trump transition team plans to kill the $7,500 consumer EV tax credit, a move that would drive up vehicle costs and make the U.S auto industry’s tough transition to EVs—one that is happening globally—even rockier.
That is, if he can manage to rip up the policy in the first place, which is far from a sure thing.
What Does It Mean For You?
The federal EV tax credit—known as 30D among policy wonks—has been around in one form or another since the George W. Bush administration. The current version, passed as part of the Inflation Reduction Act in 2022, provides an up-to-$7,500 upfront discount for the purchase of eligible electric and plug-in hybrid vehicles.
Not every EV qualifies due to strict rules that promote domestic manufacturing, bar certain battery bits from China and exclude cars that are too expensive. Today, 21 models qualify, including some Teslas, a few Chevrolets, the new Honda and Acura EVs, the Ford F-150 Lightning pickup and the Volkswagen ID.4 crossover. Generally, to receive the full credit, both the EVs and their batteries must be made in North America. But the hope is that list will grow over time, as car companies adjust their supply chains.
The idea goes something like this: The federal incentive exists to help put cleaner cars on the road that do not pollute with tailpipe emissions, getting new drivers to go electric for the first time. As more and more of them do, car companies will build out their manufacturing scale, driving down EV and battery costs. EV charging infrastructure will grow along with demand for these cars.
And the U.S. auto industry will be well-poised to compete with China, which gained a formidable lead with this technology after the rest of the world spent decades outsourcing battery development to that country. It’s why automakers and related industries are investing some $300 billion into new EV factories, battery plants and charging equipment.
Without the tax credit, the effective price of those eligible vehicles would jump by thousands of dollars, likely pushing more people toward gas cars. Automakers could decide to drop prices or lather on incentives at dealerships as a result. But, if all companies were to lose the credit at the same time, they may not feel pressure to slash prices and compete. Less demand means fewer EVs and less EV development, leaving the U.S. auto industry vulnerable to a technological triumph by China.
The move would harm EV affordability—one of the biggest barriers to wider adoption—and delay the onset of truly inexpensive options, a longstanding and critical gap in the auto market. Right now, the average new EV sells for some $56,000, while competitive, low-cost models are basically nonexistent. More are coming soon, however.
Photo by: InsideEVs
The 2024 Chevrolet Equinox EV is a bright spot for EV affordability, and it qualifies for the federal tax credit.
General Motors finally cracked that code with the new Chevy Equinox EV, a small crossover with over 300 miles of range and a federally subsidized price well below $30,000. Without the tax credit, though, it’s not nearly as appealing.
It Could Help Tesla, Hurt Others
That’s the impact on consumers: higher prices for vehicles that already ask a hefty premium over gas counterparts. For EV manufacturers, that could translate to slower sales during what’s already been a rough patch for the worldwide transition away from combustion engines. Sales of purely gasoline-powered cars peaked in 2017 and have been declining globally ever since, so if Ford, GM and others want to compete across the world, they need to make this pivot.
Demand for EVs is still growing, to be sure, but it’s rising more gradually than in years past and at a slower pace than much of the auto industry previously predicted. That’s why you’re seeing some manufacturers pump the brakes on their EV plans.
Photo by: Ford
A Ford F-150 Lightning leaves the assembly line.
Cutting a key policy driving EV sales would be another setback. According to Jessica Caldwell, head of insights at car-buying website Edmunds, if Trump were to kill the tax credit, that “could derail the trajectory of EV sales in the United States.” It would deal a blow to legacy automakers, whose EV operations are still relatively low-volume and unprofitable. Ford, for its part, projects a $5 billion loss for its EV division this year and has struggled to drum up sales of its F-150 Lightning pickup. GM has said it will start making money on its EVs this year. But what happens to that timeline if Cadillacs, Chevys and GMCs lose the tax credit all of a sudden?
At least those established automakers can fall back on their gas-powered trucks and the like, which reliably generate fat profits.
Startups like Rivian aren’t so lucky. For old and new companies trying to make it in EVs, scaling up production is critical. And losing the tax credit would likely draw out that process. For example, Rivian is hoping its new R2 crossover will lead it to long-term stability and profitability; it’s expected to receive the tax credit too. Without that, the upstart’s future looks more cloudy.
Rivian is planning a sprawling plant in Georgia where it will make its next-generation EVs.
If Trump were to also attack the commercial clean vehicle tax credit, that would do even more damage to EV sales. Through something of a loophole, that policy (45W, if you’re curious) subsidizes EV leases. And, unlike the standard credit, it doesn’t enforce any restrictions around household income, battery sourcing, North American assembly or vehicle price. Basically, if you lease any EV, the lessor can choose to pass on a $7,500 discount.
This is why nearly 80% of EVs are leased at dealerships now. If that went away, it would hit most EV sellers hard. But Trump’s position there isn’t clear. And a transition team spokesperson did not elaborate on the topic when asked by InsideEVs.
Photo by: InsideEVs
Tesla, maker of the Cybertruck, may be the only player that benefits from such a drastic change in EV policy.
Tesla may be the only automaker that stands to benefit from Trump’s plans. It turns a handsome profit selling electric cars and owns about half the U.S. EV market. So, while the axing of the consumer tax credit would probably hurt its sales to some degree, it would hurt its competitors more. Indeed, Reuters reported on Thursday that Tesla supports the Trump team’s plan. And that’s not so surprising, given Trump’s increasingly cozy relationship with Tesla CEO Elon Musk.
But the non-Tesla firms that constitute the backbone of U.S. manufacturing won’t let these tax credits go without a fight. After all, they’ve invested far too much in EV development and domestic EV factories—in part to make vehicles that qualify for the tax credit—to go quietly. That’s only part of why tossing 30D in the garbage may be harder than it looks.
Congress And Big EV Investments Complicate Things
EVs are more of a political football than ever, but they’re also far more ingrained in the U.S. and global economies. The EV tax credit survived the last Trump presidency, and it may prove just as durable this time around.
One big reason: It’s not just a handout to electric car buyers. Rather, it’s part of a complex web of policies aimed at supporting domestic car manufacturing and standing up to China’s fearsome EV and battery industries. Furthermore, it’s primarily Republican districts that stand to benefit from the billions of dollars going to EV investments and the tens of thousands of jobs they’ll create.
Scout Motors is bringing a sprawling EV plant to South Carolina.
Hyundai’s new factory is the largest investment project the state of Georgia has ever seen, and the EVs produced there will qualify for the tax credit. Toyota is bringing battery manufacturing to Kentucky. BMW, Volvo and Scout Motors, a new offshoot of Volkswagen, are investing in EV operations in South Carolina. Any major attack on 30D and other IRA provisions could slow down future investments.
“If the United States is going to continue to fight to bring those jobs here and actually compete to win against China, there needs to be a demand signal—like the New Clean Vehicle Tax Credit—aligned with that goal, otherwise we would be undercutting those investments and hurting American job growth,” Albert Gore, executive director of the Zero Emission Transportation Association, a trade group, said in a statement on Friday.
Trump wants to kill the tax credit to fund tax cuts, Reuters reports, and for that he needs Congress. It would only take a handful of Republican lawmakers—the party has just a slim majority in the House—to gum up the works. And there very well may be enough representatives who don’t want to jeopardize transformative investments in their districts, or who believe strongly enough that the U.S. shouldn’t cede the future of car manufacturing to its biggest global adversary.
After all, without the EV tax credit, manufacturers won’t be under nearly the same pressure not to use Chinese-sourced batteries and minerals. They’ll just buy whatever’s cheapest, which would likely come from China.
So, there are strong tides that could keep the tax credit in place. Still, it couldn’t hurt to buy that EV you’ve been eyeing sooner rather than later.
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