Trump’s EV Tax Cut Repeal Could Stunt Auto Market Growth
TL/DR –
The Trump administration’s plan to end federal incentives for electric vehicles (EVs) will slow down, but not halt, the proliferation of battery-powered transportation in the US, say forecasts. The administration has sent a bill to President Trump’s desk that would end the tax credits of up to $7,500 for EV customers that were part of the 2022 Inflation Reduction Act. Global adoption is expected to exceed that of the US by 2040, potentially pushing the US out of the top three EV markets.
The Trump Administration’s Effect on Electric Vehicles
The Trump administration’s decision to eliminate federal incentives for electric vehicles (EVs) could slow down, but not halt, the progress of battery-powered transportation in the U.S., as per predictions.
On Thursday, a bill was forwarded to President Donald Trump by U.S. House Republicans that would remove tax credits of up to $7,500 for EV buyers, a part of the 2022 Inflation Reduction Act.
According to the White House, former President Joe Biden’s initiative was an empty promise. However, these tax credits have made the EV market far more robust and affordable compared to the time before their implementation. Their repeal, combined with other anti-EV policies by the Trump administration, could significantly impact sales.
A recent BloombergNEF report suggests that U.S. adoption is likely to lag behind the global average until 2040, dropping the country out of the top three EV markets. Comparatively, last year’s report showed the U.S. having higher-than-average sales from 2029 onwards.
Despite the removal of federal tax cuts, Elaine Buckberg, a former General Motors economist now at Harvard University’s Salata Institute for Climate and Sustainability, estimates that around 37% of new cars purchased in 2030 will be electric. This is a decrease from a forecasted 48% if the current incentives were maintained. The factors sustaining some of the demand are clear: Electric cars are better and cheaper than they used to be, and there are more models available.
According to Edmunds.com, the average price U.S. drivers pay for an EV has slightly decreased during the IRA era, from $64,700 in January 2023 to $59,900 in April, a 7.4% decline without adjusting for inflation. Furthermore, the range of options has significantly broadened.
When the IRA was implemented, there were 34 types of EVs available in the U.S., with only 11 models priced below the average vehicle price of $47,500. Now, there are twice as many electric models, and 19 cost less than the average price. EV incentives in 17 states could further reduce costs for some buyers.
Stephanie Valdez Streaty, a director at Cox Automotive, mentioned that car manufacturers and dealers offer discounts comparable or better than government incentives. For instance, dealer incentives on a Nissan Leaf can make the vehicle cost less than $20,000.
BNEF anticipates that U.S. EVs will be as affordable or cheaper than gas-powered vehicles by approximately 2028. A May JD Power survey indicates that nearly 60% of U.S. vehicle shoppers are “very” or “somewhat” likely to purchase an EV, a level unchanged from a year ago. Additionally, concerns about purchase price and cost of ownership have decreased over the past year.
However, the absence of federal incentives will notably affect the lower end of the market. Additionally, the Trump administration’s favoritism towards internal combustion models is evident in its freezing of a $5 billion federal plan to build charging stations and promises to lower tailpipe emission regulations.
Factoring in all these policy changes will reduce EV momentum even more than the IRA cuts. According to BNEF, just 27% of the U.S. market is predicted to be electric by 2030, a significant reduction from the 48% share estimated a year ago. Buckberg anticipates a similar slowdown.
Outside the U.S., EVs continue to grow, driven by lower battery prices and an influx of low-price models from Chinese factories. BNEF anticipates that one in four new cars sold this year will be electric, marking a 25% increase over 2024, and two-thirds of those sales will be in China.
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