DETROIT — If President-elect Donald Trump follows through on his intention to eliminate federal tax incentives for purchasing electric vehicles (EVs), it may result in a decline in EV sales.
However, automakers are committed to advancing towards an electric future, regardless of these tax incentives. Since 2021, the automobile industry has invested over $160 billion in the development, engineering, and manufacturing of electric vehicles, as reported by the Center for Auto Research.
During his presidential campaign, Trump criticized the federal tax credit of up to $7,500 for electric vehicle buyers as part of a “green new scam” that would harm the auto sector. Reports indicate that his transition team is discussing plans to eliminate these credits and to reverse the stricter fuel-economy regulations established by the Biden administration. Nonetheless, it remains uncertain whether Trump’s administration would be able to rescind these credits effectively.
Trump has argued—though many economists disagree—that a swift shift toward electric vehicles in the U.S. could result in a majority of EVs being manufactured in China and lead to increased prices for American consumers. He proposes that if the tax credits are abolished, the government funds saved would be redirected toward infrastructure projects such as roads and bridges.
Eliminating these credits, which form a significant part of President Joe Biden’s Inflation Reduction Act, is likely to dampen the rising EV sales observed this year in the U.S., though the growth hasn’t met manufacturers’ expectations. The slower-than-anticipated sales growth has driven most automakers to reduce production of electric vehicles and delay plans for new battery factories that are now unnecessary due to a more gradual transition to electric transportation.
Jonathan Chariff, a leading executive at Midway Ford, a top-selling EV dealership in Miami, believes that ending the tax credits could drastically impact sales. He indicated that these credits help lower monthly payments, making electric vehicles more competitive in pricing against traditional gasoline vehicles.
Chariff calculated that the $7,500 credit could reduce monthly payments by $200 to $250, making EVs more accessible. Currently, the average price for electric vehicles is approximately $57,000, compared to about $48,000 for gasoline vehicles. Although EVs have a higher initial purchase price, they typically incur lower operational costs due to cheaper maintenance and energy expenses.
To be eligible for the federal tax credits, electric vehicles must be manufactured in North America, and those with components sourced from countries identified as economic threats can only qualify for half of the available credits. As a result, many of the 75 electric vehicle models available in the U.S. are not eligible for the full incentive. All EVs do qualify for full credits when leased, which is likely to be a target for the Trump administration. Some plug-in gas-electric hybrids also qualify for the tax benefits.
Regarding Trump’s expressed opposition to the EV tax credits, his transition team mentioned that he has a commitment to fulfill the promises made during his campaign. Notably, Elon Musk, a key supporter of Trump and a co-chair of a commission aimed at reducing federal government expenditure, shares this viewpoint and favors abolishing the credits. Musk, the CEO of Tesla, suggested that while Tesla would experience minimal impact from the removal of these credits, it could severely disadvantage competing manufacturers.
However, rescinding the credits may not be straightforward for Trump without backing from the newly Republican-led Congress, where many members hail from districts that benefit from the EV credits. Trump has suggested employing a constitutional approach known as “impoundment,” which would enable him to decide the allocation of congressional appropriations.
Yet John Helveston, an academic at George Washington University specializing in electric vehicle policies, believes this theory may not be applicable here, as tax credits do not constitute an appropriation of funds. He also expresses doubt that Trump could secure legislative support from Republicans to eliminate the credits, given the potential economic impact on congressional districts that benefit from them.
According to a 1974 federal statute, a president is restricted from imposing his judgment on spending policies, and should Trump attempt to abolish the tax credits, it is expected to face legal challenges.
Furthermore, research by J.D. Power indicates that awareness of tax credits significantly increases interest in electric vehicles. Federal subsidies, beyond the buyer credits, are aiding manufacturers like General Motors, Ford, and Stellantis in facilitating the costly transition from gasoline-operated vehicles. This support is crucial for U.S. manufacturers to compete against international rivals, particularly as Chinese automakers continue to leverage government support and have made significant advancements in electric vehicle technology.
While both Ford and GM are currently facing financial challenges in their electric vehicle segments, they are optimistic that their electric operations will become profitable as production costs decrease and sales increase. Eliminating the federal tax credits would likely pose long-term competitive disadvantages for the Detroit Three against global manufacturers making significant advancements in electric technology.
Though GM, Ford, and Stellantis opted not to comment, previous statements from their executives indicate a commitment to developing electric vehicles alongside traditional gasoline and hybrid offerings. The Alliance for Automotive Innovation, a coalition representing most automakers, has voiced support for the tax credits, asserting that they are crucial for securing U.S. leadership in manufacturing essential for national security.
Hyundai, a South Korean automaker investing more than $7 billion into an EV factory in Georgia, could also face setbacks if the credits are withdrawn, as they have expedited construction to take advantage of these incentives.
Ultimately, many manufacturers maintain that their ambitious objectives for transitioning to electric vehicles will continue unabated despite potential policy shifts in Washington. David Christ, vice president at Toyota North America, articulated that their long-term strategies for product development and investment decisions will remain unaffected by political changes.