Why the US Should Retain the Federal EV Tax Credit

President-elect D. Trump’s second administration could have major repercussions for America’s nascent battery electric vehicle (BEVs) industry. The incoming president has made his disdain for Biden’s EV-related investments clear, and his administration is set to get rid of the $7,500 federal tax credit for EV purchases.

The credit has been a godsend for both consumers and automakers by making electric cars more affordable for buyers and helping carmakers sell their often pricey electric cars. However, Trump is opposed to all things related to green energy, BEVs included, and has vowed to reverse all of the outgoing administration’s EV policies once he assumes office.

Eliminating the federal tax credit would deal a major blow to the U.S. EV sector, especially now that lower-than-expected demand and slow sales are forcing many carmakers to rethink their electrification plans. In addition to making electric vehicles virtually unaffordable for the majority of regular drivers and slowing down auto electrification in the country, eliminating the federal tax credit would have a negative effect on manufacturing jobs, the national economy, and clean air.

America’s EV segment is still in its infancy and will need significant monetary support from the government to get past its growing pains and begin to actively compete with fossil-fuel-powered cars. China has spent the past decade and a half pumping hundreds of billions of dollars into its domestic EV industry and other related segments and now dominates the global EV supply chain.

Without government support, America’s BEV segment will likely be doomed to high prices for even the most entry-level EVs, coupled with falling demand and dwindling profits for automakers. Electric cars are still way too expensive for the average American driver and EV sales will undoubtedly fall once the federal tax credit isn’t available and buyers turn to petrol and diesel-powered cars.

The U.S. Treasury Department notes that EV buyers saved more than $600 million ($6,900 per EV) from January to March 2024 after the Biden administration allowed buyers to use the credit at the point of sale rather than having to buy at full price and wait for up to several months for the tax credit to kick in.

If Trump eliminates the credit, electric vehicle ownership will be limited to the wealthy as budget-conscious Americans just won’t be able to afford them. And with this admittedly small portion of the market already satiated after over a decade, automakers will likely struggle to generate additional sales from the wealthy and ‘early adopter market’. Appealing to the average American household through affordable prices will be key to the auto industry reaching mass EV adoption and finally earning a profit from their EV lines.

Startups like Workhorse Group Inc. (NASDAQ: WKHS) will be following the policy decisions of the incoming administration to see how their operations and projections could be impacted by any policy pivots.

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