Exclusive-Trump’s transition team aims to kill Biden’s EV tax credit By Reuters
By Jarrett Renshaw, Chris Kirkham, Nora Eckert
(Reuters) – President-elect Donald Trump’s team plans to kill a $7,500 consumer tax credit for electric vehicle purchases as part of a broader tax reform bill, two sources with direct knowledge of the matter told Reuters.
Eliminating the tax credit could have major implications for the already stagnant US EV transition. Yet representatives of Tesla (NASDAQ: ) — by far the largest EV maker in the country — have told Trump’s transition committee they support ending the subsidy, the two sources said, speaking on condition of anonymity.
Tesla CEO Elon Musk, one of Trump’s biggest supporters and the world’s richest man, said the subsidy killing would hurt Tesla’s sales a little but would “hurt a lot” at its US EV rivals, including moribund automakers like General Motors (NYSE). :).
Shares of Tesla ended nearly 6% lower at $311.18, while shares of smaller EV rival Rivian (NASDAQ: ) closed up 14% at $10.31. Lucid (NASDAQ: ), another EV maker, fell 5% to $2.08.
The withdrawal of subsidies, the signature measure of the Inflation Reduction Act (IRA) of the Democratic President, Joe Biden, is discussed in the meetings of the reform team on the energy policy led by the billionaire Harold Hamm, the founder of Continental Resources (NYSE:), and the Republican North. Dakota Governor Doug Burgum, both sources said.
The group has met several times since Trump won the November 5 election, including at his Florida club Mar-a-Lago, where Musk has spent much of his time since the election.
Representatives for Tesla and Ford (NYSE: ) did not respond to requests for comment. GM and Stellantis (NYSE: ) declined to comment.
The Alliance for Automotive Innovation urged Congress in a letter dated Oct. 15 to maintain EV tax credits, calling them “critical to strengthening the US as a world leader” in future auto manufacturing.
The Trump transition team did not comment on the end of the EV tax credit but said in a statement that the president-elect will fulfill “campaign promises.”
Trump campaigned to end Biden’s “EV mandate,” without specifying specific intended policies. The energy reform task force has determined that some of Biden’s clean energy policies will be difficult to undo because they are popular and already pouring money into Republican-controlled states, the sources said.
The group views the consumer EV credit as a simple matter, believing that ending it would gain broad support in the Republican-controlled Congress.
Trump could use debt-killing spending savings to help pay for an extension of billions of dollars in tax cuts from his first term, which is set to expire soon, the two sources said. Congressional Republicans plan to take up a comprehensive tax bill as one of their first acts.
Members of the power transition group expect the Republican Congress to use a legislative technique known as reconciliation to avoid relying on Democratic votes. Biden used a similar tactic to pass the IRA.
Killing EV tax credits is strongly supported by Hamm, a longtime Trump supporter, and the broader oil and gas industry.
Trump promised during the campaign to increase US oil production, which has reached record highs, and to roll back Biden’s clean energy plans, which include subsidies for wind and solar power and mass production of hydrogen.
WHY TESLA CAN PROFIT
Tesla has historically been a major beneficiary of consumer EV subsidies passed by Biden and previous administrations. And yet now it might benefit from killing the incentive because that would hurt its growing EV competitors more than Tesla.
Musk himself hinted as much on an earnings call in July, saying that losing funding under Trump “could 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 significant EV sales, such as GM, Ford and Hyundai (OTC: ), are lagging far behind. But Tesla’s US EV rivals have collectively eroded its market share, which exceeded 80% in the first quarter of 2020.
Nicholas Mersch, a portfolio manager at Purpose Investments, a Tesla investor, said Tesla can withstand the potential sales impact of losing funding because the automaker’s “engineering and manufacturing prowess” keeps its costs down.
“Eliminating the subsidy,” Mersch said, “means competitors won’t be able to reach the top and won’t be able to compete on cost.”
Musk and Tesla will also benefit greatly from Biden’s policies that Trump may leave in place or strengthen – such as tougher trade barriers blocking Chinese EV imports, including 100% tariffs.
Chinese EV makers led by Tesla rival BYD ( SZ: ) have tried to overtake the rest of the industry, with the help of generous government subsidies. Electric cars and hybrids have made up more than half of all cars sold in recent months in China, the world’s largest car market.
Tesla is a major player in China but, like all foreign automakers, it has recently lost market share to domestic players that sell EVs for as little as $10,000.
Tesla “can’t beat Chinese EVs,” Mersch said, but with Trump’s help it can keep them in the U.S. market.
Mike Murphy, a longtime Republican strategist who heads the EV Politics Project — a bipartisan advocacy group for EVs — described ending the subsidy as a “Tesla first, everyone else second” policy.
He described the move as “extremely bad for American automakers” trying to catch up with China’s heavily subsidized EV industry: “The Trump administration is proving that it has absolutely no interest in helping the American auto industry survive the coming Chinese onslaught,” he said.
WHY DETROIT NEEDS EV GRANTS
Automakers in the US market have been fighting for auto policy changes under Trump. Others would provide greater flexibility to build more gas-powered SUVs and trucks that generate huge profits for the Detroit Three – General Motors, Ford and Jeep parent Stellantis.
But other changes, such as the loss of the EV tax credit, could cripple their nascent efforts to switch to electric vehicles.
Losing the EV subsidy will make it difficult for Tesla’s rivals who are struggling to make a profit on those vehicles. GM, Ford, Hyundai and others are ramping up EV production and trying to reduce production costs.
Ford, which expects to record a $5 billion loss in its EV and software operations this year, has previously relied on EV tax credits to boost demand from price-conscious consumers. Even with the debt, demand for Ford’s F-150 Lightning electric vehicle has faltered, leading Ford to put production of the truck on hold at the end of the year.
The United Auto Workers union, which represents workers at the Detroit Three — but not Tesla — has backed Biden’s pro-EV policies, including a $7,500 incentive. Last month, UAW president Shawn Fain criticized Trump’s threats to overturn the policies, saying “hundreds of thousands” of auto industry jobs were at risk.
GM, which is touting plans to boost EV production, previously said it received $800 million in separate EV production credits this year — also included in Biden’s IRA law — and expects that amount to grow. GM recently said it plans to cut its annual EV losses next year to between $2 billion and $4 billion, which would be more difficult without the tax credit.
In an effort to reduce costs on EVs, GM and Hyundai in September announced a non-binding memorandum of understanding to work together.
