Key Insights and Impacts from the 2024 Election
The recent election has brought significant implications for the automotive industry, particularly for the electric vehicle (EV) market. From the potential loss of the $7,500 federal tax credit, the political and economic landscape is set to influence automakers and car buyers alike.
President-elect Donald Trump has expressed intentions to eliminate federal tax credits for EV purchases and to roll back stringent fuel-efficiency and emissions standards. I recently discussed some of these topics with a panel and this article explores the key trends and challenges in the EV space we discussed – along with highlighting what they mean for prospective EV buyers and the industry’s future.
The $7,500 EV Tax Credit: A Shifting Landscape
The $7,500 federal tax credit has been a critical tool in making EVs more accessible to mainstream buyers. However, with the potential elimination of this incentive, market dynamics could shift dramatically. We have seen a pullback in EV sales when incentives are removed from the market. Historical examples from markets like Germany and China suggest that removing subsidies can lead to immediate sales declines.
In the U.S., this could slow electric vehicle adoption, particularly for budget-conscious buyers considering models priced around $40,000 and below. Brands offering entry-priced EVs may face challenges in maintaining price parity with their gas-powered counterparts.
Luxury EV makers, on the other hand, are less likely to be affected, as their customers are typically less price-sensitive (and many times don’t qualify for the subsidies). Currently, Tesla has been the automaker to benefit the most from this version of the credit, partially due to their competitive price point, but also due to the incentives rewarding EVs made in the U.S.
While the potential elimination of the $7,500 credit is likely to affect Tesla’s sales in the short term, the company has historically done quite well without incentives. Plus, given Musk’s recent relationship with the Trump administration, Tesla is likely to benefit in other ways.
Challenges at the Dealership Level
One of the ongoing barriers to EV adoption is the disconnect with customers at the dealership level. Many dealerships lack the training and incentives to effectively sell EVs. In some areas, the lack of understanding or interest in promoting EVs often leads dealerships to steer customers toward traditional vehicles, despite growing consumer interest in electrification.
If the $7,500 credit does go away, this may actually make it easier for dealerships to sell EVs. It is difficult enough for many dealership staff to be in a position to educate car buyers about the advantages of EVs, but it’s even more difficult having to know which cars or people qualify for the incentives. I’ve seen firsthand where dealerships have lost deals because one electric car n a showroom may qualify for tax credits and another doesn’t. Additionally, the thought of saving $7,500 has drawn people into dealerships, only for buyers to find out they don’t qualify for the discounts.
The removal of the federal incentive could help simplify the electric car sales conversation for dealerships. Many automakers are heavily discounting EVs at the moment, which is already helping the affordability equation.
Leasing has also emerged as a key strategy for consumers navigating the uncertainties of EV ownership. Leasing offered an opportunity to try electric cars without committing to long-term ownership, allowing consumers to avoid concerns about depreciation and rapidly evolving technology. Leasing continues to be a bit of a loophole for EVs to still qualify for the $7,500 without meeting all of the other requirements of the IRA – at least for now.
Will the Used EV Tax Credit Go Away?
Leasing EVs fueled a growing inventory of used EVs which are now coming off-lease and entering the market. Over the next few years, more affordable, high-quality used EVs could make electrification accessible to a broader range of buyers, helping bridge the affordability gap for those priced out of new models.
Most people aren’t aware that there is currently also a $4,000 used EV tax credit. If you’re currently in the market for a car before the end of 2024 it’s worth exploring. Unfortunately, this too will likely get the ax in 2025.
State-Level Consumer EV Incentives
While this election was one-sided on the Federal level, there has been a response to the federal policy shift in certain states. Washington is implementing their own EV incentive programs, for instance. The state’s Department of Commerce launched an electric vehicle Instant Rebate Program, offering up to $9,000 off a new EV lease for low-income drivers.
Meanwhile, Colorado provides a tax credit of $5,000 for the purchase or lease of a new electric car with a an MSRP of up to $80,000, and can be combined with others, to total $7,500. These mean huge savings for those who qualify and can take advantage of these state and federal incentives before the end of the year as well.
Business and Manufacturing EV Incentives: Location, Jobs and Industry Commitments
Most of the headlines are around the $7,500 subsidy and other incentives that are consumer-facing. However, some of the largest incentives in the IRA were actually for domestic manufacturing of EV components like batteries. Changes could impact the financial viability of electric car and battery manufacturing projects that have already begun.
Interestingly, many electric car and battery manufacturing plants built by automakers are located in states that have benefited from significant job creation and economic growth. The benefits to local communities may encourage policymakers to maintain support for these subsidies.
Automakers have made substantial investments in EV and battery production facilities across the U.S., in states like Ohio, Tennessee, North Carolina, Wisconsin and Michigan. These existing commitments may continue to drive the industry's expansion, even amid changing policy landscapes. Many of these plants are being built in states that lean Republican – providing plenty of incentive to not just bring more jobs domestically, but also to states more friendly to the upcoming administration.
Policy Changes and New EV Prices
Discussions around tariffs and domestic manufacturing requirements could further influence the market. Policies aimed at encouraging North American production could lead to more local investment, but might result in higher vehicle prices for consumers as automakers adjust to these changes.
Republicans have also shared plans to roll back stringent fuel-efficiency and tailpipe emissions standards set during the Biden administration. These standards were designed to encourage automakers to increase electric vehicle production and reduce greenhouse gas emissions. Relaxing these regulations may reduce the pressure on manufacturers to produce EVs, potentially affecting the variety and availability of electric models in the market. Indeed, many automakers have announced pivoting plans to focus more on hybrids in the near term versus EVs.
The Future of EV Charging Infrastructure
The EV charging landscape is evolving rapidly, with utilization rates on the rise. This growth is driven not just by increased general electric vehicle adoption, but by changes in charging behavior, particularly among high-frequency users like ride-hailing drivers. Fast-charging networks are also improving their user experience, focusing on better station design, reliability, and pricing strategies.
The Biden administration’s NEVI program has improved the availability and reliability of EV charging networks. While the Inflation Reduction Act and some of its incentives, including the NEVI program, have been targets of Trump on the campaign trail, it seems likely the new administration will not be able to pull back the spending.
However, we may also be reaching a point where the subsidies that they needed are no longer needed. Increasing Competition from existing companies that are now offering DC fast charging may drive costs down even faster than subsidies can kick in.
Conclusion: The Road Ahead
The road to mass EV adoption is filled with challenges, but it is also paved with opportunities driven by innovation, and especially competition. While political uncertainty and shifting incentives may create temporary headwinds, the momentum behind EVs suggests that the industry is poised to continue its growth.
For car shoppers, now is a critical time to weigh the benefits of going electric with all of the incentives still available. With advancements in technology, improvements in charging infrastructure, and a growing market for used EVs, there are more options than ever to make the switch. Despite potential changes to subsidies and policies, the value proposition of EVs remains strong: offering a cleaner, more cost-effective, and enjoyable driving experience.
