First things first: the federal electric vehicle tax credit is still in effect. She was not eliminated with the stroke of Donald Trump’s pen, because she cannot be. The tax credit – $7,500 for a new electric vehicle, $4,500 for a used vehicle – was passed by Congress as part of the Inflation Reduction Act, and it would take another act of Congress to remove it.
Now the bad news: At Trump’s urging, Congress will most likely eliminate the tax credit in the near future. Republican lawmakers have tried several times in the past to eliminate the credit, most recently in July 2024. But with Democrats in control of the Senate and Joe Biden in the White House, none of those efforts have been successful.
The Republicans now have total control of Washington. And the tax credit seems doomed to the dustbin. But it will take time, as will Trump’s efforts to repeal tailpipe emissions rules. It will involve reaching agreements, drafting laws, soliciting public comments, scheduling hearings, and much more. How long that takes depends on how aggressively Trump and the Republicans want to be in unwinding Biden’s EV legacy. It is very likely that the slow pace of Congress, as well as some Republican reluctance, will result in the incentive still being written into the tax code by the end of the year.
How long that takes depends on how aggressive Trump and the Republicans want to be in unwinding Biden’s EV legacy.
The first day of Trump’s executive order blitzkrieg gives some indication of what lies ahead for the auto industry. So does a menu of potential spending offsets proposed by House Republicans, which includes new fees for electric vehicles and the elimination of a tax credit loophole for leasing them. For better or worse, Biden has made electric vehicles the centerpiece of his multitrillion-dollar effort to reduce carbon emissions, and now Trump and the Republicans aim to reverse as much as they can. Ultimately, their efforts will make purchasing and owning an electric vehicle more expensive, which will have profound impacts on the auto industry, consumers and the environment.
“It will be hard to say how the auto industry will respond to this,” said Kathy Harris, director of clean vehicles at the Natural Resources Defense Council. “But I think what we’ve seen is that these regulations for decades, as the EPA has put them out, have really brought significant benefits not only to the auto industry, but also to Americans, to their wallets and public health. GOOD.”
You’ll notice that the auto industry doesn’t seem particularly enthusiastic about the changes. While all of Silicon Valley’s billionaire tycoons gathered to celebrate Trump’s inauguration, Detroit’s Big Three automakers kept their distance. The only one who made the trip to Washington to kiss the ring was Stellantis chairman John Elkann – and even he split before the inauguration to go back to Italy to hang out with F1 star Lewis Hamilton. (Who could blame him?)
Automakers are pleading for stability, but they probably won’t get everything. Trump’s threats to eliminate incentives for electric vehicles could dampen sales, but the president’s plan to impose 25% tariffs on Mexico and Canada could prove even more disastrous. Global supply chains are extremely complex, passing through many different countries and crossing borders, and new fees could force companies to begin the arduous process of re-engineering these lines. Trump’s position is that the tariffs will force automakers to import more manufactured goods into the United States and create jobs. But most experts predict price increases — and if cars become more expensive, sales will fall, forcing dealers, suppliers and manufacturers to start considering job cuts.
Automakers are pleading for stability, but they probably won’t get everything.
Trump could face resistance from his own party. A letter sent to House Speaker Mike Johnson in August 2024, signed by 18 Republicans, warned that “(p)mature repeal of energy tax credits…would harm private investment and halt development already in progress “. Members represent states with some of the highest levels of clean energy investments through the IRA.
It certainly doesn’t help that the auto industry was already trying to put out multiple fires before Trump even put pen to paper. The pandemic-era sales boom has given way to a post-Covid slowdown, and many businesses are hungover. After cutting nearly 9,000 jobs, Nissan is attempting to merge with Honda to strengthen itself against fast-growing Chinese automakers. Volkswagen is struggling to keep its factories open in Europe, while investing billions of dollars in a new joint venture with struggling Rivian. Stellantis CEO resigned after sales plunge. Even Tesla, the only automaker to fully align with Trump, experienced its first sales decline in more than a decade. And while CEO Elon Musk makes what German newspapers have called Nazi salutes, the Tesla brand is losing billions of dollars in value.
It certainly doesn’t help that the auto industry was already trying to put out multiple fires before Trump even put pen to paper.
Although most of the executive orders were nothing more than a source of shock and awe, they also trigger more significant policy changes to come. In addition to the electric vehicle tax credit, Trump is also targeting Biden’s tailpipe emissions and fuel economy standards, as well as California’s waiver under the Clean Air Act to set its own rules. ’emission. He attempted most of this during his first term, with mixed results.
“The executive order simply directs agencies to review the regulations,” Harris said. “So I think within 30 days is the deadline for agencies to report back with a list of regulations to review.”
What happens next is anyone’s guess. Will electric vehicle sales stagnate? Will VW acquire Rivian? Will the Nissan-Honda merger fail? Will Stellantis go bankrupt? Will Republican lawmakers, whose districts actively benefit from Biden’s investments in electric vehicles, force Trump to reconsider cutting incentives for electric vehicles? Will Musk stay in Trump’s good graces long enough to cash out?
The only thing we can count on is legal challenges. Trump’s first-day executive orders do not include any concrete policy action on the electric vehicle tax credit, emissions rules or manufacturing incentives. But once these start to take shape, you can be sure that a wave of lawsuits will follow.