PRESIDENT elect Donald Trump's transition team is planning to kill the $7,500 consumer tax credit for electric-vehicle purchases as part of broader tax-reform legislation, two sources with direct knowledge of the matter told Reuters.
Ending the tax credit could have grave implications for an already stalling U.S. EV transition. And yet representatives of Tesla - by far the nation's biggest EV maker - have told a Trump-transition committee they support ending the subsidy, said the two sources, speaking on condition of anonymity. Tesla CEO Elon Musk, one of Trump's biggest backers and the world's richest person, said in July that killing the subsidy might slightly hurt Tesla sales but would be “devastating” to its U.S. EV competitors, which include legacy automakers such as General Motors.
Shares of Tesla ended nearly 6% lower at $311.18, while shares of smaller EV rival Rivian closed down 14% at $10.31. Lucid, another EV maker, tumbled 5% to $2.08. Repealing the subsidy, a signature measure of Democratic President Joe Biden's Inflation Reduction Act (IRA), is being discussed in meetings by an energy-policy transition team led by billionaire oilman Harold Hamm, founder of Continental Resources, and Republican North Dakota Governor Doug Burgum, the two sources said. The group has met several times since Trump's Nov. 5 election victory, including at his Florida Mar-a-Lago club, where Musk has also spent considerable time since the election.
Representatives of Tesla and Ford did not respond to requests for comment. GM and Stellantis declined to comment.
The Alliance for Automotive Innovation urged Congress in an Oct. 15 letter to retain the EV tax credits, calling them “critical to cementing the U.S. as a global leader” in future auto manufacturing.
The Trump transition team did not comment on the fate of the EV tax credit but said in a statement that the president-elect would deliver on “promises he made on the campaign trail.”
Trump campaigned on ending Biden's “EV mandate,“ without spelling out specific targeted policies. The energy-focused transition team has determined some of Biden's clean-energy policies will be tough to end because they are popular and already funneling money to Republican-dominated states, the sources said.
The team views the consumer EV credit as an easy target, believing that eliminating it would get broad consensus in a Republican-controlled Congress.
Trump could use the cost savings from killing the credit to help pay for the extension of trillions of dollars in tax cuts from his first term that are set to expire soon, the two sources said. Congressional Republicans plan to take up the broader tax bill as one of their first actions.
Energy transition team members expect the Republican Congress will deploy a legislative measure known as reconciliation to avoid relying on Democratic votes. Biden used the same tactic to pass the IRA.
Killing EV tax credits is strongly supported by Hamm, a long-time Trump supporter, along with the broader oil-and-gas industry.
Trump promised while campaigning to boost U.S. oil production, even as it has hit record highs, and to roll back Biden's clean-energy initiatives, which also include subsidies for wind and solar power and the mass production of hydrogen.
WHY TESLA COULD BENEFIT
Tesla has historically been the biggest beneficiary of consumer EV subsidies passed by Biden and previous administrations. And yet it now may stand to gain from killing the incentive because that could hurt rising EV competitors more than Tesla.
Musk himself pointed out as much in a July earnings call, saying losing the subsidy under Trump would “probably benefit Tesla” in the long term.
Tesla sold just under half of all U.S. EVs in the third quarter, according to data from Cox Automotive. Other automakers with notable EV sales such as GM, Ford and Hyundai, individually trail far behind. But Tesla's U.S. EV rivals collectively have steadily eroded its market share, which exceeded 80% in the first quarter of 2020.
Nicholas Mersch, portfolio manager at Purpose Investments, a Tesla investor, said Tesla can withstand a potential sales hit from losing subsidies because the automaker’s “engineering and manufacturing prowess” lowers its costs.
“Getting rid of the subsidy,“ Mersch said, “means that competitors can’t catch up and won’t be able to compete on a cost basis.”
Musk and Tesla also stand to gain hugely from Biden policies that Trump will likely leave in place or strengthen - like steep trade barriers blocking imports of Chinese EVs, including a 100% tariff.
Chinese EV makers led by Tesla rival BYD have rocketed past the rest of the industry, with the help of generous government subsidies. Electric vehicles and hybrids have accounted for more than half of all cars sold in recent months in China, the world's largest auto market.
Tesla is a major player in China but, like all foreign automakers, has been recently losing market share to homegrown players that sell EVs for as little as $10,000.
Tesla “can’t beat Chinese EVs,“ Mersch said, but with Trump's help may be able to keep them out of the U.S. market.
Mike Murphy, a longtime Republican strategist who runs the EV Politics Project - an advocacy group seeking bipartisan EV support - described ending the subsidy as a “Tesla first, everybody else second” policy.
He described the move as “really bad for American automakers” trying to catch up to highly subsidized Chinese EV industry: “The Trump administration is proving they have absolutely no interest in helping the U.S. auto industry survive the coming Chinese invasion,“ he said.
WHY DETROIT NEEDS EV SUBSIDIES
Automakers in the U.S. market have been bracing for automotive-policy changes under Trump. Some could provide greater flexibility to build more gas-powered SUVs and trucks that generate big profits for the Detroit Three - General Motors, Ford and Jeep parent Stellantis.
But other changes, like losing the EV tax credit, could cripple their nascent efforts to transition to electric vehicles.
Losing EV subsidies would make it tougher for Tesla's struggling rivals to achieve profitability on those vehicles. GM, Ford, Hyundai and others are still ramping up EV production and scrambling to cut manufacturing costs. Ford, which expects to record a $5 billion loss on its EV and software operations this year, has previously relied on EV tax credits to boost demand from price-conscious consumers. Yet even with the credits, demand for Ford's F-150 Lightning electric pickup has faltered, leading Ford to idle the truck's production through the year-end. The United Auto Workers labor union, which represents workers at the Detroit Three - but not Tesla - has supported Biden's pro-EV policies, including the $7,500 incentive. Last month, UAW president Shawn Fain slammed Trump's threats to repeal the policies, saying “hundreds of thousands” of auto-industry jobs were at stake. GM, which touts plans to boost EV production, previously said it had received $800 million in separate EV manufacturing credits this year - also enacted in Biden's IRA legislation - and expected that figure to grow. GM recently said it planned to slash its annual EV losses next year by between $2 billion and $4 billion, which would be more difficult without the tax credit. In a push to further cut costs around EVs, GM and Hyundai in September announced a non-binding memorandum of understanding to work together.
