On Monday, the U.S. House of Representatives proposed lowering emissions requirements while also ending federal tax incentives pertaining to all-electric vehicles. This initiative is being led by House Republicans and would be executed under more comprehensive tax reform legislation.
The proposal is being reviewed by the House Ways and Means Committee at the time of this writing and seeks to end the $7,500 tax credit for new EVs and up to $4,000 credit for used models by the end of this year. However, the plan will allow a grace period (ending in 2027) that would permit automakers who had not yet reached 200,000 EV sales to continue taking advantage of the program.
Absent from the plan are any provisions to end federal subsidies of battery production, provided the work is being done without help from China. EV batteries produced within the United States would be fine. But any units manufactured under Chinese licenses or using components made by select Chinese companies will be deemed ineligible.
According to Reuters, this still sent some groups into a tizzy. While environmental organizations have become less enamored with EVs due to the ecological concerns surrounding the manufacturing and disposal of batteries, some of the largest entities still support them unconditionally. But it was the industry groups that had the most to say about the proposal thus far.
From Reuters:
The president of the Electric Drive Transportation Association, Genevieve Cullen, criticized the proposal, saying that plans “to abandon U.S. leadership in energy innovation by gutting federal investment in electrification are catastrophically short-sighted.”
The proposal, she said, would deliver “an enormous market advantage” to competitors like China and threaten U.S. manufacturing and jobs.
The U.S. Treasury in 2024 awarded more than $2 billion in point-of-sale rebates for EVs.
There is certainly a case to be made that the U.S. would be foolish to totally abandon embracing new technologies. But it could just as easily be argued that China still has the most to gain from global electrification, regardless of where the manufacturing takes place, due to how much of raw materials required for battery production pass through its borders. China presently holds a staggering 70 percent of the world lithium-ion battery manufacturing capacity. That effectively means Central Asia controls the global supply chain.
Ergo, China likewise benefited from the manufacturing incentives initiated under Joe Biden. But many of those joint ventures fell through as additional scrutiny was given to industry partnerships and those efforts have only ramped up under Trump. Still, billions upon billions in government subsidies have likewise gone to South Korean companies as part of subsequent joint ventures with U.S. brands to build batteries domestically. A significant amount of money is still technically being sent offshore to swiftly increase U.S. battery production and determining how much of that is necessary will be tricky for legislators who want to see more electric vehicles produced as soon as possible.
As part of the House proposal designed to curtain emissions and end EV tax credits, there are likewise provisions to eliminate some of the Department of Energy’s Advanced Technology Vehicles Manufacturing Loan Programs, including those pertaining to battery production.
Working against the House Republicans’ efforts is the fact that the automotive-related inclusions only represent a fraction of what’s in the larger bill. It’s not inconceivable that other components could serve to undermine its passing. This is ultimately a budget reconciliation bill and includes items pertaining to cutting back Medicaid, numerous welfare programs, and loads of environmental spending. Bipartisan support likewise seems to be lacking and isn’t anticipated to come up due to how much the proposal targets climate and “environmental justice” initiatives.
However, both the House of Representatives and Senate presently have Republican majorities. The likelihood of President Trump signing off on the legislation, should Congress pass it, is strong as well. He attempted to reduce U.S. fuel economy standards during his first term on the premise that it would allow manufacturers to build less complicated and more traditional vehicles boasting lower price tags. He contended that this would simultaneously boost American manufacturing, due to the fact that those products could be less reliant on foreign-made electronics.
Trump has tacitly supported ending EV tax credits in the past. But the assumption at the time was that they would eventually exhaust themselves as part of the vehicle quotas they were attached to. However, the 200,000 car limit was done away with during the Biden administration (which made pivoting America to EVs a major platform) and EV subsidies effectively became indefinite, if manufacturers could adhere to the content requirements. That latter aspect is likely something Team Trump would have probably supported. But the current administration seems more committed to ending the EV subsidies than ever.
While one might assume that Tesla CEO Elon Musk endorsing Trump during the 2024 campaign might discourage the president from wanting to end the EV tax credits, Musk has repeatedly come out against them. The assumed reasoning is that Tesla was the first automaker to manufacture enough electric vehicles to exhaust the quota and has little to gain by allowing legacy brands to continue benefiting from government subsidies.
The final angle to this ludicrously complicated issue pertains to how the automotive lobby ultimately responds. The industry is incredibly influential in terms of setting policy and has some deep pockets. Whether we’re discussing restrictions on imported trucks via the “Chicken Tax,” creating emissions loopholes via the “Footprint Rule,” extending EV subsidies, or securing billions of dollars in bailouts after going bankrupt in 2008, the automotive sector has a tendency of getting its way.
However, the industry cannot control everything and even the best-laid plans can sometimes backfire. For example, the response to aggressive emission mandates from Western governments was to have the auto lobby help carve out special exemptions for larger vehicles and subsidize electrification indefinitely. While this temporarily boosted profit margins on just about every vehicle sold, automakers are now confronting a situation where a large amount of new product is out of reach for the average customer.
Small, affordable vehicles boasting superior reliability have effectively evaporated from the North American market. Tiny, increasingly complex powertrains are simultaneously becoming the norm and mandated technologies help balloon MSRPs. The push toward EVs has likewise failed to progress at a pace industry leadership assumed would be financially viable. While nothing can be truly assured, much of the public has signaled they’re not altogether pleased with the direction the industry has been heading and we’re starting to see vehicle sales reflect that.
It’s plausible that the industry would absolutely embrace a reduction in emission requirements at this juncture. But there is still a lot of free money (for lack of a better term) from the taxpayers being left on the table if the subsidies are done away with. Meanwhile, the fact that this is all part of an expansive budget reconciliation bill means it’ll undoubtedly go through numerous changes before the matter is settled.
[Images: Volodymyr TVERDOKHLIB/Shutterstock; Michael Vi/Shutterstock; Elena Berd/Shutterstock]
