As per insider information, President-elect Donald Trump’s transition team is setting the stage for the repeal of an enormous burden on the taxpayers – the $7,500 federal consumer tax credit for electric vehicle (EV) purchases. This tactical change is a significant blow to Biden’s Inflation Reduction Act (IRA), which has been leaning heavily on this tax credit. The established elite in the EV industry have been profiting unfairly due to this tax credit. Pulling the plug on this unfair advantage could be a setback for certain biased automakers but will undoubtedly level the playing field for all.
The audacious move is reported to be spearheaded by prominent oil entrepreneur Harold Hamm, along with Governor Doug Burgum of North Dakota. Both are guiding Trump’s energy-policy transition team in the right direction, choosing to discard Biden’s shortsighted clean-energy programs. What’s quite intriguing, though, is the way Tesla is responding to these impactful changes.
During a July earnings call, the head of Tesla, Elon Musk, unexpectedly seemed indifferent about the potential repeal of the EV credit. Musk implied that Tesla could weather a small drop in U.S. sales if the credit is rescinded, but he warned that other auto giants like GM and Ford may not be able to stand the heat. This situation reveals their over-reliance on EVs and underscores their lack of preparedness for the withdrawal of such financial supports.
The Alliance for Automotive Innovation, an influential auto trade association that conspicuously excludes Tesla, has disingenuously petitioned Congress to keep the tax credit. They argue that financial incentives are essential to U.S. domination in automotive technology. Their appeal, however, seems misplaced in a market that should ideally thrive on competitiveness and innovation, not on financial leveraging.
For the reform of the tax system, Trump’s ingenious team might resort to a legislative instrument known as reconciliation. This mechanism would see Republicans pushing the legislations through without seeking or needing support from the Democratic side. This strategy echoes the highly controversial tactics Biden used to hustle the IRA through Congress, providing an interesting twist to the narrative.
Inside the Trump team’s strategic operations, repealing the EV tax credit is seen as an integral step to balancing the costs of prolonging Trump’s original tax cuts. These cuts are due to expire early in his term and are far more beneficial to a broader sector of the American society than arbitrary tax credits for EVs.
Repealing the tax credit could broadcast a powerful signal to the automakers heavily betting on EVs. They may encounter significant resistance, particularly in competing with Tesla, which currently has a tight grip on nearly half of the U.S. EV market, as revealed by Cox Automotive. This move should rattle overly complacent companies resting on these unfair advantages and shake up the market.
Although Tesla’s control of the market has come down slightly from a staggering 80% in 2020, it still boasts a commanding lead. The incumbent automakers, on a mission to close in on Tesla’s lead, could find their journey hampered in a world sans subsidies. Such a competitive race would pressure these companies to innovate and grow, freed from the crutch of government interference.
Trump’s election campaign had rightly committed to not only enhancing oil production in the U.S.—already a world leader in crude oil production—but also boldly challenging useless and costly exercises such as the EV tax credits and renewable energy subsidies, commonly propagated under the guise of ‘clean energy’. These moves show a planned return to sensibility after the misdirection under the previous regime.
There is, unfortunately, the acknowledgment from the transition team that it may prove difficult to dismantle some IRA programs, especially those that are popular in largely Republican states. Yet, looking to revoke the EV credit seems to be an achievable and likely initial step towards a broader tax reform and significantly better economic policy.
Alongside potential changes towards more reasonable federal emissions standards, the actions of the incoming administration could deeply affect automakers’ strategies in the years to come. Instead of relying on the crutch of government subsidies, carmakers might find themselves in an environment that encourages competition, innovation, and ultimately, consumer freedom.