Trump’s transition team aims to kill Biden EV tax credit

WASHINGTON – US President-elect Donald Trump’s transition team is planning to kill the US$7,500 (S$10,000) consumer tax credit for electric-vehicle (EV) purchases as part of broader tax-reform legislation, two sources with direct knowledge of the matter told Reuters.

Ending the tax credit could have grave implications for an already stalling US EV transition. Yet representatives of Tesla – by far the nation’s biggest EV maker – have told a Trump-transition committee they support ending the subsidy, said the two sources, speaking on condition of anonymity.

Tesla chief executive Elon Musk, one of Trump’s biggest backers and the world’s richest person, said in July that killing the subsidy might slightly hurt Tesla sales but would be “devastating” to its US EV competitors, which include legacy automakers such as General Motors.

Shares of Tesla ended nearly 6 per cent lower at US$311.18, while shares of smaller EV rival Rivian closed down 14 per cent at US$10.31. Lucid, another EV maker, tumbled 5 per cent to US$2.08.

Repealing the subsidy, a signature measure of Democratic President Joe Biden’s Inflation Reduction Act (IRA), is being discussed in meetings by an energy-policy transition team led by billionaire oilman Harold Hamm, founder of Continental Resources, and Republican North Dakota Governor Doug Burgum, the two sources said.

The group has met several times since Trump’s Nov 5 election victory, including at his Florida Mar-a-Lago club, where Mr Musk has also spent considerable time since the election.

Representatives of Tesla and Ford did not respond to requests for comment. GM and Stellantis declined to comment.

The Alliance for Automotive Innovation urged Congress in an Oct 15 letter to retain the EV tax credits, calling them “critical to cementing the US as a global leader” in future auto manufacturing.

US Energy Secretary Jennifer Granholm said on Nov 15 that cancelling the credits would make the US less competitive.

“It would be so counterproductive,” she told reporters at the COP29 climate conference in Baku when asked about the Reuters report. “You eliminate these credits, and what do you do? You end up ceding the territory to other countries, particularly China.”

The Trump transition team did not comment on the fate of the EV tax credit but said in a statement that the President-elect would deliver on “promises he made on the campaign trail”.

Trump campaigned on ending Mr Biden’s “EV mandate”, without spelling out specific targeted policies. The energy-focused transition team has determined some of Mr Biden’s clean-energy policies will be tough to end because they are popular and already funnelling money to Republican-dominated states, the sources said.

The team views the consumer EV credit as an easy target, believing that eliminating it would get broad consensus in a Republican-controlled Congress.

Trump could use the cost savings from killing the credit to help pay for the extension of trillions of dollars in tax cuts from his first term that are set to expire soon, the two sources said. Congressional Republicans plan to take up the broader tax Bill as one of their first actions.

Energy transition team members expect the Republican Congress will deploy a legislative measure known as reconciliation to avoid relying on Democratic votes. Mr Biden used the same tactic to pass the IRA.

Killing EV tax credits is strongly supported by Mr Hamm, a long-time Trump supporter, along with the broader oil-and-gas industry.

Trump promised while campaigning to boost US oil production, even as it has hit record highs, and to roll back Mr Biden’s clean-energy initiatives, which also include subsidies for wind and solar power and the mass production of hydrogen.

Shares of South Korean battery makers tanked on Nov 15 after the Reuters report. LG Energy Solution, a supplier for Tesla, General Motors and other automakers, fell as much as 10 per cent, while Samsung SDI lost 9.6 per cent.

Why Tesla could benefit

Tesla has historically been the biggest beneficiary of consumer EV subsidies passed by Mr Biden and previous administrations. It now may stand to gain from killing the incentive because that could hurt rising EV competitors more than Tesla.

Mr Musk himself pointed out as much in a July earnings call, saying losing the subsidy under Trump would “probably benefit Tesla” in the long term.

Tesla sold just under half of all US EVs in the third quarter, according to data from Cox Automotive. Other automakers with notable EV sales, such as GM, Ford and Hyundai, individually trail far behind. But Tesla’s US EV rivals collectively have steadily eroded its market share, which exceeded 80 per cent in the first quarter of 2020.

Mr Nicholas Mersch, portfolio manager at Purpose Investments, a Tesla investor, said Tesla can withstand a potential sales hit from losing subsidies because the automaker’s “engineering and manufacturing prowess” lowers its costs.

“Getting rid of the subsidy means that competitors can’t catch up and won’t be able to compete on a cost basis,” he said

Mr Musk and Tesla also stand to gain hugely from Biden policies that Trump will likely leave in place or strengthen – such as steep trade barriers blocking imports of Chinese EVs, including a 100 per cent tariff.

Chinese EV makers led by Tesla rival BYD have rocketed past the rest of the industry, with the help of generous government subsidies. EVs and hybrids have accounted for more than half of all cars sold in recent months in China, the world’s largest auto market.

Tesla is a major player in China but, like all foreign automakers, has been recently losing market share to home-grown players that sell EVs for as little as US$10,000.

Tesla “can’t beat Chinese EVs”, Mr Mersch said, but with Trump’s help may be able to keep them out of the US market.

Mr Mike Murphy, a long-time Republican strategist who runs the EV Politics Project – an advocacy group seeking bipartisan EV support – described ending the subsidy as a “Tesla first, everybody else second” policy.

He described the move as “really bad for American automakers” trying to catch up to the highly subsidised Chinese EV industry.

“The Trump administration is proving they have absolutely no interest in helping the US auto industry survive the coming Chinese invasion,” Mr Murphy said.

Why Detroit needs EV subsidies

Automakers in the US market have been bracing themselves for automotive-policy changes under Trump. Some could provide greater flexibility to build more gas-powered sport utility vehicles and trucks that generate big profits for the Detroit Three – General Motors, Ford and Jeep parent Stellantis.

But other changes, such as losing the EV tax credit, could cripple their nascent efforts to transition to electric vehicles.

Losing EV subsidies would make it tougher for Tesla’s struggling rivals to achieve profitability on those vehicles. GM, Ford, Hyundai and others are still ramping up EV production and scrambling to cut manufacturing costs.

Ford, which expects to record a US$5 billion loss on its EV and software operations in 2024, has previously relied on EV tax credits to boost demand from price-conscious consumers.

Yet even with the credits, demand for Ford’s F-150 Lightning electric pickup has faltered, leading Ford to idle the truck’s production to the year-end.

The United Auto Workers (UAW) labour union, which represents workers at the Detroit Three – but not Tesla – has supported Mr Biden’s pro-EV policies, including the US$7,500 incentive. In October, UAW president Shawn Fain slammed Trump’s threats to repeal the policies, saying “hundreds of thousands” of auto-industry jobs were at stake.

GM, which touts plans to boost EV production, previously said it had received US$800 million in separate EV manufacturing credits in 2024 – also enacted in Mr Biden’s IRA legislation – and expected that figure to grow.

GM recently said it planned to slash its annual EV losses in 2025 by between US$2 billion and US$4 billion, which would be more difficult without the tax credit.

In a push to further cut costs around EVs, GM and Hyundai in September announced a non-binding memorandum of understanding to work together. REUTERS