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

[November 26, 2024]  By TOM KRISHER

DETROIT (AP) — If President-elect Donald Trump makes good on his threat to kill federal tax credits for electric vehicle purchases, it's likely that fewer buyers will choose EVs.

Yet tax credits or not, auto companies show no intention of retreating from a steady transition away from gas-burning cars and trucks, especially given the enormous investment they have 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 campaigning for the presidency, Trump condemned the federal tax for EV buyers — up to $7,500 per vehicle — as part of a “green new scam” that would devastate the auto industry. His transition team is reportedly working on plans to abolish the tax credits and to roll back the more stringent fuel-economy rules that were pushed through by the Biden administration. It is far from clear, though, that the Trump administration could actually rescind the credits.

Trump's argument — one that most economists dispute — is that a rapid U.S. shift toward electric vehicles would lead to most EVs being made in China and would swell prices for America’s auto buyers. He has said he would redirect federal revenue recaptured from a canceled tax credit to build roads, bridges and dams.

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

Jonathan Chariff, an executive at Midway Ford in Miami, one of the company's top EV-selling dealers, said he thinks ending the tax credits would severely hurt sales. The credits reduce monthly payments, he noted, making an EV closer in price to a gasoline counterpart.

“It becomes more affordable,” he said. “Otherwise, those individuals won't be able to afford the payments.”

Chariff calculated that the $7,500 credit could shrink 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 with around $48,000 for a gasoline vehicle, according to Cox Automotive. (Though they cost more up front, EVs generally are cheaper to operate because maintenance costs are lower, and in most cases electricity is much cheaper than gasoline.)

To qualify for the credits, EVs must be built in North America. EVs that contain battery parts or minerals from China or any other nation that is deemed an economic or security threat to the United States qualify for only half the federal credit. Because of that restriction, most of the 75 EV models on sale in the U.S. are not eligible for the full credit. All EVs, though, can receive the full credit toward a lease — a benefit that Trump likely will target. Some plug-in gas-electric hybrids qualify for the credits, too.

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 on the campaign trail.”

Elon Musk, a close adviser to Trump and co-leader of a commission that intends to identify ways to vastly shrink the federal government, appears to be aligned with the president-elect in canceling the tax credits. Musk, the billionaire CEO of Tesla who spent an estimated $200 million to help elect Trump, has said that ending the credits would hurt his rival companies more than it would Tesla, the U.S. sales leader in EVs by far.

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

Tesla vehicles are displayed at the AutoMobility LA Auto Show,Thursday, Nov. 21, 2024, in Los Angeles. (AP Photo/Damian Dovarganes, File)

Even so, it might prove difficult for Trump to rescind 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 by which a president could decide whether or not to spend money Congress has appropriated. The president-elect has promoted the concept of “impoundment,” under which congressional appropriations set a ceiling — but not a floor — for spending federal money.

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

In any case, Helveston said he doubts Trump could persuade Republican lawmakers to remove the credits from the Inflation Reduction Act because so many congressional districts benefit from the tax breaks.

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

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

Research by J.D. Power shows that once people know about the tax credits, they're far more likely to consider an electric vehicle. In the meantime, federal subsides, not only for buyer tax credits but also for converting factories to EV production, are helping General Motors, Ford and Stellantis make the enormously expensive transition away from gasoline vehicles. It's also helping Detroit's Big Three compete with foreign rivals, notably Chinese automakers that received government subsidies and had a head start in developing EVs, said Sam Fiorani, a vice president at the consultancy AutoForecast Solutions.

At present, Ford and GM, while profitable overall, are losing money on EVs, unlike Tesla, though both expect their electric-vehicle operations to generate positive earnings in the coming years as costs ease and more vehicles are sold.

Eliminating the federal tax credits, Fiorani suggested, would “hurt the Detroit Three in the long run as they become less competitive against global players making the technological leaps” for electric vehicles,

GM, Ford and Stellantis all declined to comment, though their executives have said in the past that they will continue to develop EVs while still selling gasoline vehicles 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 that the U.S. “continues to lead in manufacturing 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 sped up construction of the huge plant near Savannah and is now building EVs in the United States to try to capitalize on the tax credits for buyers.

In the end, most automakers say their ambitious plans for transitioning to electric vehicles won't change regardless of policy changes in Washington.

“We plan for the long term, so political considerations aren’t a factor 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.

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