Is the $7500 Federal EV Tax Credit Going Away Under Trump?

A longstanding electric vehicle (EV) incentive is on the cusp of disappearance, and Elon Musk, the owner of the world’s largest EV maker, is perfectly happy to see it go.

President-elect Donald Trump is reportedly planning to nix the $7,500 tax credit for EV buyers early into his administration, a move that could deeply harm certain legacy automakers. Reuters first reported the plan on Thursday.

Tesla, however, would be poised to benefits since those plans would hurt its rivals, while maintaining its dominance in the American market, and possibly even expanding its lead over competitors. Tesla is the only automaker making a profit on its EV sales in the U.S. Legacy automakers, like General Motor and Ford, are losing money on EV sales because they sell only a fraction of Tesla’s volume and are yet to achieve the economies of scale with their electric product lines that Tesla has mastered.

Musk, one of Trump’s most prominent backers and a new member of the Trump administration, has said that eliminating the tax credits could be “slightly” bad for his company, but that “long term” the move “probably actually helps Tesla.”

But why would ending a credit that incentivizes Americans to buy EVs be good for one company and not the others?

Tesla, having released its first car in 2008, has had longer than other companies to benefit from government subsidies that were created to encourage the development of electric vehicles.

In 2010, Tesla received a $465 million loan from the Department of Energy to produce electric vehicles and to develop a manufacturing facility in Fremont, California. The loan was paid off in 2013. The company also benefitted from nearly $3 billion from the credits offered to EV buyers, according to Subsidy Track’s database, which tracks subsidies from 2000 to today.

“Take away the subsidies. It will only help Tesla,” Musk, who was recently tapped to serve as the co-chair of Trump’s new Department of Government Efficiency, wrote on X, formerly Twitter, in July. “Also, remove subsidies from all industries!”

The rest of the industry disagrees.

In a Friday press release shared with Newsweek, Mike Murphy, the founder and CEO of the American EV Jobs Alliance, said the group would vocally oppose efforts to repeal Obama or Biden-era EV policies, adding that it would be “misguided” for an incoming Trump administration to do so and “ironic,” given that much of the new spending in the field happens to be in red states.

“This is very unfortunate news for American consumers and autoworkers who are benefitting from the $188 billion surge in new manufacturing capacity in the U.S. to design and manufacture the vehicles of the future and to compete globally,” Murphy said. “This means lost jobs, more pollution, and a strategic advantage to our competitors in a rapidly growing Chinese automotive industry.”

The Alliance for Automative Innovation, an industry group representing Ford, GM, Honda, Toyota, and others, also urged Congress to keep the tax credits in an October letter that called the rebate “critical to cementing the US as a global leader in the future of automotive technology and manufacturing.”

With that head start, Tesla has been able to soar ahead of other competitors. It’s market lead is so unshakable that even though an end to the tax credits would bring down the price of all EVs, Tesla would only see its profits reduced. Tesla’s rivals, on the other hand, would watch profits shrink while also reporting increased losses, making it even harder for them to enter the market and compete in the industry’s pricing war.

“Tesla has a significant advantage over most automakers in terms of manufacturing efficiency and scale, which gives its vehicles higher profit margins and greater resilience to removing the tax credit,” Paul Waatti, a manager at AutoPacific’s Product Analysis, told Newsweek.

In the third quarter of 2024, Tesla reported a pre-tax profit margin of 18 percent, double the industry average of 9 percent. High earnings are coming in even as Tesla’s vehicles are priced significantly lower than rival EVs. It’s most affordable car, the Model 3, is more than $14,000 cheaper than the average EV, according to data from Kelly Blue Book.

Of the nearly 600,000s EVs sold in the U.S. during the first two quarters of 2023, nearly half were made by Tesla, while just over 7 percent were made by Ford, the manufacturer with the second-highest number of EV sales.

“Legacy automakers are simultaneously tasked with maintaining ICE [internal combustion engines] portfolios and scaling a new EV business where profitability is already scarce, relying more on subsidies to make the business case pencil,” Waatti said.

To respond to those new losses, Tesla’s competitors may need to further pull back EV production to shift their focus back on ICE products, meaning less competition for Musk and another edge up in the EV pricing war his company waged after drastically slashing prices in the last year.

Tesla, which was forced to cut the prices of its vehicles when an earlier version of the tax credit phased out in 2019, probably would not have to do the same as other EV makers.

Even after the report of Trump’s proposed tax cut sent down shares of Tesla and other automakers, Musk’s 715 million shares and options to buy Tesla stock are still worth $42.7 billion more than than where they closed on Election Day. Tesla shares closed down 7 percent this week, while Rivian shares fell 5 percent.

What Are the EV Tax Credits?

As part of his administration’s goal of having 50 percent of all new vehicle sales be electric by 2030, President Joe Biden signed the expansive Inflation Reduction Act into law in August 2022 that included up to $7,500 in rebates for Americans who purchase new electric vehicles for the next decade. The law went into effect January 1, 2023.

Still, as of April 2023, those tax credits were only available for 14 models of electric cars and trucks, about 15 percent of the vehicles available for Americans to purchase. The administration expanded the list of qualifying vehicles to include at least 38 EV models.

The Biden White House said in a January fact sheet that EV sales have more than quadrupled since Biden took office, bringing the total number of EVs on the road to more than 4.5 million cars. The White House also said the president had made EVs more affordable, with prices down 20 percent from last year, and charging more accessible, with publicly available ports growing by over 70 percent.

“Without federal support, the growth of EV infrastructure in the U.S., such as charging stations, might slow, affecting EVs’ overall feasibility and attractiveness to consumers,” Waati said.

What Has Elon Musk Said About the Tax Credits?

Musk, however, has long held that Tesla doesn’t need federal rebates or charging support.

Asked about Biden’s infrastructure plan in 2021, Musk told the Wall Street Journal, “Honestly, I would just can this whole bill. Don’t pass it. That’s my recommendation.” He also called federal support for more charging stations “unnecessary” and pushed the government to get rid of subsidies for oil and gas as well.

“When we started Tesla, there were no EV subsidies and gasoline was super cheap,” Musk said during the WSJ’s CEO Council Summit. “We did not anticipate any subsidies, that came later and the $7500 tax credit came as a result, not of Tesla activity, but of General Motors lobbying for it.”

Tesla CFO Vaibhav Taneja echoed his boss’ position during a July earnings call, noting that while the company has taken advantage of federal support, “we always drive ourselves to say, OK, what if there is no IRA benefit? And how do we operate in that kind of an environment? Like Elon said, we definitely have a big advantage as compared to our competition on that front.”

During his campaign, Trump repeatedly vowed to kill what he called Biden’s “EV mandate.” No such mandate exists in federal law. Yet, last year, Tesla lobbied the government for the same regulations that that the political right has blasted. In a filing with the Environmental Protection Agency (EPA), Tesla said outright that an end to the manufacture of gasoline cars was “essential” to address the “rapidly escalating climate crisis.”

“Elon tends to say he’s hostile to subsidies while Tesla is gobbling them up like a hungry Godzilla,” Murphy told CNBC in August.

And though Musk and Trump are close now, there was a time Musk was critical of Trump’s climate change actions, or lack thereof. The Tesla CEO quit the Trump White House’s advisory panels five months into the Republican’s first term after the administration withdrew from the Paris Agreement, which Musk said at the time “is not good for America or the world.”

Do U.S. Consumers Want EV Tax Credits?

About six months after the $7,500 credit was signed into law, only 8 percent of U.S. adults said they or someone else in their household owns or leases an EV.

The poll, conducted by The Associated Press-NORC Center for Public Affairs Research and the Energy Policy Institute at the University of Chicago in February 2023, found that only 4 in 10 said they would be at least somewhat likely to buy an electric model the next time they buy a car.

More than a a year later, Americans were unmoved. The pollsters’ June 2024 survey showed that the number of Americans willing to go electric remained the same. The share of people who said they or someone else in their household owns or leases an EV went up a single point, to 9 percent.

It also seems like many consumers just might not be aware it exists.

A BlueLab Analytics poll conducted in August 2023—a year after the federal subsidies wee signed into law—showed that there were still 40 percent of Americans who did not know about the EV tax credit. Only 22 percent said they knew “a great deal” or “a good amount” about the incentive. Another 34 percent said they knew “a little.”

What About the EV Mandates Set by Blue States?

Even if Trump changes the current climate policies in place, there are 12 Democratic-led states that—beginning with 2026 or 2027 models—will require 35 percent of new cars to be electric. That means EV makers would need to double or triple their sales in just one year.

The mandates are part of the California Air Resources Board’s Advanced Clean Cars regulations that require 100 percent of new vehicle sales in California to be zero-emission models by 2035.

“If EV growth is stalled, meeting state-level ZEV mandates will also be more challenging for automakers,” Waatti said. “This likely leads to increased compliance costs for manufacturers and potential legal or regulatory conflicts between state and federal policies.”

As of this year, none of those states are in accordance with the CARB mandates. The only state on track to reach that goal is California, where EVs account for 27 percent of new car sales. In Colorado and Washington, EVs represent 22 percent and 20 percent of new retail sales, respectively. Other states lag much further behind. EVs represent just 9 percent and 5 percent of cars sold in Rhode Island and New Mexico, respectively, this year.

Jack Hollis, president of Toyota Motor North America, said last week that it “looks impossible” to meet the California-led mandates. During a virtual roundtable, he said it would be “unnatural” to funnel more EVs into an unwelcoming market, ultimately “limit[ing] a customer’s choice of the vehicles they want.”

“It’s going to distort the industry. It’s going to distort the business. Why? Because it’s unnatural to what the current demand in the marketplace is,” Hollis said.

The longtime auto executive said Toyota would prefer a single national standard across all 50 states so that “we can treat all customers, all dealers, equally, fairly, whatever that might be.”