President Donald Trump’s threat to eliminate tax credits for all electric vehicles could create potential chaos for an auto industry that is just ramping up its roll-out of battery-based vehicles that are sleek, efficient, family friendly — and growing in popularity.
More importantly, Trump’s actions could hit U.S. automakers particularly hard, and allow Asian and European manufacturers to take the lead — ironically, hurting U.S. demand and potentially reducing domestic jobs, observers warn.
While hybrids, plug-ins and pure battery-electric vehicles, or BEVs, currently account for less than 4 percent of total U.S. new vehicle sales, it’s a burgeoning market. This month’s Los Angeles Auto Show saw a flood of new all-electric models being introduced, ranging from a high-performance Audi sports car to a full-size Rivian pick-up truck.
But the EV market could come unplugged if the Trump administration follows through on threats to cancel the tax credits upon which many buyers have counted.
Under federal law, buyers of electrified vehicles can claim tax credits of up to $7,500. The exact amount is determined by the size of vehicle’s battery pack. Most all-electric vehicles, like Tesla’s Model 3 and the Chevrolet Bolt, qualify for the full amount, which can help make such vehicles affordable.
But Congress set a limit on how many incentives could be handed out: a maximum of 200,000 for any manufacturer. Tesla recently crossed that threshold and, come Jan. 1, the tax credit will be halved to $3,750. It will be cut in half again next July and then eliminated entirely in 2020.
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“We are now looking at cutting all @GM subsidies, including … for electric cars,” Trump tweeted after GM announced it would be laying off almost 15,000 workers and shuttering plants in five North American locations. Larry Kudlow, the president’s chief economic adviser, echoed that sentiment, telling reporters that subsidies could be dropped by as early as 2020 or 2021.
“Clearly, taking away the credits would hurt middle-income people and be a damper on EV sales — if it happens,” automotive analyst John McElroy told NBC News.
McElroy also warned that Asian and European car makers could continue to see their home governments move to incentivize both the production and sales of battery-based products, something that that could help them offset a lack of incentives in the U.S.
That said, it’s unclear if the Trump administration actually can take action without the help of Congress. And that would be difficult once Democrats take control of the House in January. If anything, they could press to expand the incentives program, perhaps raising the cut-off threshold.
Despite its fight with the administration over the plant closings and jobs cuts, GM is aggressively lobbying Congress to do just that. There is widespread speculation that the automaker might be willing to save one or more of those factories by introducing production of new EV models if lawmakers go along — though a senior, C-suite level source at the automaker insists that is not accurate.
Tesla chief executive officer Elon Musk has also indicated that he might be willing to take over one of GM’s shuttered plants.
“It’s possible that we would be interested. If they were going to sell a plant or not use it that we would take it over,” he said in an interview earlier this week.
While prices are coming down, battery-based models still carry a premium. The new Subaru CrossTrek Hybrid, a plug-in, is about $8,000 more expensive than a comparably equipped, gas-powered model, for example. A study by the Boston Consulting Group anticipates falling battery prices will see gas and all-electric models eventually reach cost parity, but not until after the mid-2020s.
With Congress likely to deadlock over incentives, the White House may have no power to act. But as sales steadily rise, one automaker after another will cross the threshold and lose the givebacks anyway. Whether that will short-circuit demand remains to be seen, but it will clearly make costly battery-cars even more expensive.
Meanwhile, the number of plug-based models now in U.S. showrooms is expected to grow from around 40 this year to “100s” by 2025, estimated Josh Boone, executive director of Veloz, a nonprofit group that promotes zero-emissions vehicles.