Auto industry’s shift toward EVs is expected to go on despite Trump threat to kill tax credits

DETROIT– If newly elected President Donald Trump makes good on his threat to eliminate federal tax credits for purchasing electric vehicles, it is likely that fewer buyers will opt for electric vehicles.

But tax breaks or not, auto companies have no plans to back down from a steady transition away from gas-burning cars and trucks, especially considering the massive investments they’ve already made: Since 2021, the industry has spent at least $160 billion on planning, designing and building electric vehicles, according to the Center for Auto Research.

In his presidential campaign, Trump condemned the federal tax on EV buyers – up to $7,500 per vehicle – as part of a “green new scam” That would destroy the auto industry. His transition team is reportedly working on plans to eliminate tax credits and roll back stricter fuel economy rules implemented by the Biden administration. However, it is far from clear that the Trump administration could actually rescind the credits.

Trump’s argument — one that most economists dispute — is that a rapid U.S. shift to electric vehicles would result in most electric vehicles being made in China, which would raise prices for American car buyers. He has said he would redirect federal revenue from a canceled tax credit to building roads, bridges and dams.

Ending the credits, which were a key provision of President Joe Biden’s Inflation Reduction Act, would almost certainly reduce electric vehicle sales, which have been growing in the United States this year, although not nearly as fast as automakers expected . The slowing growth has forced almost all auto companies to scale back production of electric vehicles and delay construction of battery factories that are no longer needed to handle a more gradual transition.

Jonathan Chariff, a director at Midway Ford in Miami, one of the company’s largest EV-selling dealers, said he thinks ending the tax breaks would seriously hurt sales. The credits lower monthly payments, he noted, bringing an electric car closer in price to a gasoline counterpart.

“It will become more affordable,” he says. “Otherwise, these individuals would not be able to afford the payments.”

Chariff calculated that the $7,500 credit could lower a buyer’s monthly payment by between $200 and $250, allowing many to afford an EV. On average, electric vehicles sell for about $57,000, compared to about $48,000 for a gasoline car, according to Cox Automotive. (Although they cost more upfront, electric vehicles are generally cheaper to run because maintenance costs are lower and electricity is much cheaper than gasoline in most cases.)

To qualify for the credits, EVs must be built in North America. EVs that contain battery parts or minerals from China or another country considered an economic or security threat to the United States are eligible for only half the federal credit. Because of that restriction, most of the 75 EV models on sale in the US are not eligible for the full credit. However, all electric vehicles can receive full credit toward a lease — a benefit Trump is likely to focus on. Some plug-in gas-electric hybrids are also eligible for the credits.

Asked about the president-elect’s opposition to EV tax credits, Trump’s transition team would say only that he has “a mandate to implement the promises he made during the campaign.”

Elon Musk, a close adviser to Trump and co-leader of a committee that plans to find ways to massively shrink the federal government, appears to be aligned with the newly elected president on repealing the tax credits. Musk, the billionaire CEO of Tesla who has a estimated at $200 million to help elect Trump, has said ending the credits would hurt his rival companies more than Tesla, by far the U.S. sales leader in electric cars.

“I think it would be devastating to our competitors and would hurt Tesla somewhat,” he said.

Still, it could be difficult for Trump to repeal the credits without help from the new Republican-led Congress, many of whose members represent districts where the EV credit is popular. Trump has floated the idea of ​​using a constitutional theory that would allow a president to decide whether to spend money appropriated by Congress. The president-elect has promoted the concept of “sequestration,” in which Congress’s appropriations provide a ceiling — but not a floor — on the spending of federal money.

John Helveston, an assistant professor at George Washington University who studies electric vehicles and policy, said that in his view the impoundment theory would not apply in this circumstance because the EV tax credits affect government revenue and are not an appropriation .

Regardless, Helveston said he doubts Trump can convince Republican lawmakers to eliminate the Inflation Reduction Act credits because so many congressional districts benefit from the tax breaks.

“Reducing the EV tax credit makes it harder for the battery factory in their city to sell their product,” he noted.

A 1974 federal law prohibits a president from substituting his own view on spending programs, said David Rapallo, an associate professor of law at Georgetown University. If Trump were to revoke the tax credits, Rapallo said, it would be challenged in court.

Research by JD Power shows that once people are aware of the tax credits, they are much more likely to consider an electric car. Meanwhile, federal subsidies, not only for tax breaks for buyers but also for converting factories to produce electric vehicles, are helping General Motors, Ford and Stellantis make the hugely expensive switch from gasoline vehicles. It also helps Detroit’s Big Three compete with foreign rivals, especially Chinese automakers that received government subsidies and had a head start in developing electric vehicles, said Sam Fiorani, a vice president at the consulting firm AutoForecast Solutions.

Currently Although Ford and GM are generally profitable, they are losing money on electric vehicles, unlike Tesla, although both expect their electric vehicle businesses to generate positive revenues in the coming years as costs decline and more vehicles are sold.

Eliminating federal tax breaks, Fiorani suggested, would “hurt the Detroit Three in the long run by making them less competitive against global players making the technological leaps” for electric vehicles.

GM, Ford and Stellantis all declined to comment, although their executives have said in the past that they will continue developing electric cars while still selling gasoline cars and hybrids. The Alliance for Automotive Innovation, a trade group that represents most automakers, has written to Trump in support of the tax credits, arguing that they help ensure the U.S. “continues to lead in manufacturing that is critical to our national and economic security.”

Hyundai, the Korean automaker, which has spent more than $7 billion on an EV factory in Georgia, could also suffer. The company accelerated construction from its massive factory near Savannah and is now building electric vehicles in the United States to try to take advantage of tax breaks for buyers.

Ultimately, most automakers say their ambitious plans for the transition to electric vehicles won’t change regardless of policy changes in Washington.

“We plan for the long term, so political considerations play no role in how we approach product development or capital investments,” said David Christ, vice president of Toyota North America, which is building a battery factory in North Carolina.

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AP writers Fatima Hussein in Washington and Jeff Amy in Atlanta contributed to this report.