Trump's plan to cut EV tax credits sparks fears over demand fallout

Incoming President Donald Trump plans to end the Biden Administration’s electric vehicle tax credit, according to reports.

Driving the news: Trump criticized the tax credits, which offer buyers up to $7,500 for a new or used EV purchase, during his campaign, promising to repeal them were he elected to office.

• Two anonymous sources with direct knowledge of the matter have now told Reuters that the President-elect’s transition team intends to follow through with ending the incentive.

• The sources also claim that Tesla representatives are in support of canceling the measure. Earlier this year, company CEO Elon Musk admitted that reversing tax credits may hurt Tesla but would be “devastating” to competing EV makers.

• Last month, the Alliance for Automotive Innovation, a lobby group funded by most U.S. auto manufacturers, called on Congress to protect electric car credits, arguing that they were “critical to cementing the U.S. as a global leader” in the car business’ future.

Zooming in: Assuming Trump follows through on his campaign-trail promise, the end of EV tax credits is likely to have some impact on demand, although the extent remains unclear.

• EV sales continue to rise in the U.S., hitting a market share of 8.9% in the third quarter. Although growth has stumbled slightly in North America, global volume rose 35% in October and 30.5% in September, driven heavily by China.

• However, while some of this growth has been supported by Biden-era tax credits, automakers have also leveraged heavy discounts and attractive deals to move EV inventory. That includes Tesla, whose price cuts took a toll on its profitability in the first half of 2024.

• This makes it difficult to separate the impact tax credits have had on demand from that of the industry’s own incentives.

Bottom line: Whatever happens in the coming months, now is the time for American consumers interested in EVs to visit their dealership. Should tax credits end, they will have missed an opportunity to save thousands on their purchase, one that is unlikely to ever return if it is repealed.

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