How Trump’s Economic Policies Could Reshape the Electric Vehicle Industry
President-elect Donald Trump has been clear about how he feels about electric vehicles: He’s anxious to do everything in his power to “end the electric vehicle mandate on day one” and kill off EVs that “don’t work.” For better or worse, the Trump transition team is already well into the planning phase of rolling back the hugely popular federal EV tax credits under President Joe Biden’s Inflation Reduction Act (IRA) that has helped drive more than $1 billion in EV sales across the country. The new administration is also looking to claw back any unspent money under the IRA, which could continue to push as much as $1.2 trillion into the economy over the next decade.
The move could be one of the first actions the new administration will enact to, in Trump’s words, “terminate” the IRA. The bill has pumped billions of dollars into red states like Georgia, North Carolina and Alabama, where large carmakers, including Hyundai, BMW (BMWYY), Volkswagen, Volvo and Toyota have plants that employ tens of thousands of locals. Clawing back on EV credits could throttle the EV industry in the U.S. while offering a significant opportunity to China.
One of the major complaints consumers have about EVs is their prices, which are on average around 16 percent higher than comparable gasoline vehicles. Eliminating the EV tax credits will unquestionably make electric cars even more out of reach for consumers.
“It is likely to slow sales and could affect automaker profitability. It will mean that consumers have to pay something closer to the actual cost without the subsidy,” Stephanie Brinley, a principal automotive analyst at S&P Global, told Observer via email. “Some automakers may choose to increase their own incentives to help keep momentum going. If they do, that is likely to make it even more difficult to reach profitability on EVs, at least in the short term.”
According to the most recent data from Kelley Blue Book, the average transaction price for new electric vehicles hovered around $56,902 in October. That’s nearly $8,300 more than the average price of all new passenger vehicles. Automobile sales this year have been relatively flat, but EVs represent the fastest-growing segment. Economists estimate killing off the EV tax credit alone will cause EV sales to drop by as much as 27 percent, resulting in 317,000 fewer electric vehicles registered annually.
New tariffs will make matters worse
In addition to cutting the federal tax incentives, Trump has also said he plans to implement very high tariffs on goods and materials coming from China, Canada and Mexico, where many large automakers like General Motors (GM) and Ford have plants that supply vehicles for both the American and global markets.
The U.S. is the world’s largest importer of EVs, according to the World Trade Organization. And every automaker relies heavily on imported materials, chips and battery technology from China. In the first four months of 2024 alone, the U.S. imported $4 billion worth of lithium-ion batteries from China, according to Bloomberg NEF. The Biden administration has kept many of the previous Trump-era tariffs in place on Chinese goods and heaped on a few more in the past year.
While many Americans said they voted for Trump because he promised to lower prices on goods and services, his proposed tariffs would actually cause tremendous price increases and deeply impact the workforce that relies on manufacturing jobs. Even Elon Musk, who donated more than $200 million to Trump’s presidential campaign, could be greatly affected by the cancellation of federal tax credits and new tariffs. (That is, of course, if Trump decides to apply the same rules to Musk and Tesla (TSLA) as he does to other automakers.)
In Woodruff, S.C., BMW is nearing completion of a massive 100-acre battery production facility near the BMW Spartanburg complex, which employs more than 11,000 workers to build the X series of vehicles like X3 and X5. BMW makes electric versions of those vehicles on the same assembly lines and ship to both U.S. and overseas consumers. BMW has an agreement with the Chinese EV battery maker CATL for its new electric vehicles coming next year.
While BMW said it won’t speculate about politics, BMW spokesperson Phil Dilanni noted via email that the company “does not base our long-term strategic decisions on political policies or incentives” and is following its long-term strategy to “produce relevant vehicles and establish supply chains locally, whenever possible.”
Should Trump get the Republican-led House and Senate to pass his proposed tariffs, the output at these U.S.-based plants could be significantly throttled, leading to potential layoffs and reduced shifts. It could also affect plans for future plants in red states, like the planned manufacturing site for the Volkswagen-owned Scout Motors in South Carolina and Rivian’s planned plant in Georgia.
“Republican lawmakers from states benefitting from the manufacturing credits available under the IRA will have to navigate between what is best economically for their states, what their constituents tell them they want and what the Republican Party wants,” S&P Global’s Brinley said. “If the manufacturing credits go away, it makes it more expensive for a components supplier or automaker to invest in U.S. manufacturing today.”
Without the incentives, automakers could reconsider their manufacturing plans and look for cheaper options closer to the markets where EVs are growing—places like China, Brinley added.
As U.S. Energy Secretary Jennifer Granholm told reporters at the COP29 climate conference in Baku a few weeks ago, “It would be so counterproductive. You eliminate these credits, and what do you do? You end up ceding the territory to other countries, particularly China.”
China currently makes more than half of the world’s EVs. Giving up ground in the electric transition, manufacturing and battery development would give China an edge in a growing industry that has improved the economies for many states that voted for Trump in the recent election.