How Trump Could Upend Electric Car Sales
Federal Tax Credits for Electric Vehicles Face Potential Repeal
Many car buyers in the U.S. have depended on a $7,500 federal tax credit to make the high prices of electric vehicles (EVs) more palatable. With the incoming administration, there is uncertainty about the future of these incentives. Electric car sales are anticipated to fall by 27% if the credits are removed, with estimates suggesting a decline of 317,000 registrations annually without the subsidy.
Similar patterns have been observed globally. For instance, electric vehicle sales in Germany decreased by 27% after the government withdrew a $4,900 incentive. The prevailing sentiment is that removing a $7,500 credit would make it difficult to maintain current sales levels.
The tax credits are part of efforts to address climate change and support domestic manufacturing. Since January, these credits have facilitated the sale of 300,000 cars, amounting to $2 billion. However, the new-car market remains expensive, with electric vehicles averaging $56,900, which is $9,000 more than gasoline or hybrid cars.
Despite proposed policy changes threatening these tax benefits, some automakers might offset price increases with larger discounts to sustain sales, as demonstrated by year-end deals from various brands. The potential ending of credits could significantly impact pricing, affecting the fastest-growing segment in the auto industry.
The eligibility criteria for these credits are currently stringent, requiring cars to be assembled in North America and powered by batteries with materials sourced from certain countries. This has limited 13 models to qualify for the full credit. Consequently, leasing has become a popular option, accounting for 79% of EV transactions in October.
Should these tax credits be repealed or altered, it may only cause a temporary shift in sales dynamics. Automakers are investing heavily in EV and battery facilities, indicating their long-term commitment to the industry. Many stakeholders argue that incentivizing these investments is crucial to ensuring U.S. competitiveness against global players like China, which leads in EV production.
In any case, the debate over federal tax credits illustrates a broader discussion regarding the role of governmental support in fostering the growth of electric vehicles versus letting market forces prevail. “Do we want to build those cars and batteries in the U.S., or just import them from China?” is a question now pivotal to the future direction of the industry.