According to sources that spoke to Reuters, President-elect Donald Trump intends to dismantle the $7,500 electric vehicle (EV) tax credit—which could have implications far beyond individual car buyers and be a major setback for the American automotive industry.
The proposed rollback is part of a broader tax reform strategy aimed at prioritizing fossil fuel energy and preserving funds for expiring tax cuts under the Tax Cuts and Jobs Act (TCJA). Eliminating the EV tax credit could have far-reaching consequences, however, and will likely push US automakers further behind in the race toward an electric future when the sector becomes dominated by countries that actively support their EV industries.
The credit has played a crucial role in accelerating the adoption of EVs in the US, making EVs more affordable and price-competitive with internal combustion engine vehicles. Without subsidies, the path toward a competitive American EV industry becomes murkier. Tesla may stand to gain from the removal, but legacy automakers and emerging EV companies could be left struggling to stay competitive.
Global Disadvantage
Over the last decade, the automative industry has undergone a shift toward EVs—and countries are vying to craft policy to compete in the new space. Countries such as China and members of the European Unionheavily subsidize their EV sectors, providing incentives and resources to build robust EV manufacturing infrastructures. Up until now, the US has been competitive in that space.
If the US eliminates the $7,500 tax credit, it risks putting American automakers at a disadvantage globally. Without comparable support, US automakers face the challenge of both competing with lower-priced foreign EVs and covering the high upfront costs of EV research and development (R&D) —without the benefit of subsidies.
Coupled with the current broken state of R&D expensing, that is a recipe for disaster. The TCJA replaced the long-standing practice of immediate expensing for R&D costs under Section 174 with a burdensome five-year amortization requirement which took effect in 2022. This shift has already led to a $12 billion drop in R&D spending in its first year and has significantly reduced the cash flow available for companies to reinvest in innovation. Meanwhile, global competitors like China and the UK are offering enhanced incentives, such as deductions of up to 200% and “super deductions” for smaller enterprises. The broader lack of support across the tax code could lead to higher EV prices, decreasing demand and forcing American automakers to scale back fleet electrification ambitions.
Ultimately, removing the EV tax credit will signal a retreat from global EV leadership—stalling the US in a crucial sector where innovation and jobs are moving at a rapid pace. This policy could effectively “offshore” American automotive innovation, allowing competitors to gain market share not through competition but through US policy ceding the market.
Job Losses
The EV credit has been a catalyst for both consumer adoption and fostering innovation and job creation in the US automotive sector. US automakers like Ford, Stellantis and GM are investing billions in electrification, with plans to transition a significant share of their fleets to electric.
The transition is expensive and made possible in part by consumer incentives that drive projected consumer demand and justify investments in domestic EV production and R&D. By eliminating the EV tax credit, the Trump administration risks pulling the rug out from under domestic EV manufacturers.
Future job creation is also at stake—the growth of the EV industry has led to a surge in employment opportunities. The growth is not limited to automakers themselves, but includes suppliers, battery manufacturers, and related technology companies specializing in EV-related products. High-quality, future-focused jobs may be at stake if automakers scale back EV operations.
Potential Benefits to Tesla
While many US automakers may lose ground if the EV tax credit is eliminated—Tesla may benefit. The Texas-based manufacturer holds a unique position in the market, with lower production costs and a stronghold on EV technology it can likely endure the loss of consumer-side incentives. Other automakers, particularly legacy brands like Ford and GM, as well as smaller startups like Rivian and Lucid, may suffer.
Smaller EV companies rely on the tax credit to make their vehicles affordable and priced competitively for consumers. In a post-credit marketplace, they may face higher prices, lower sales, and a diminished ability to employ the economy of scale to compete on cost.
A Tesla-dominated market could mean fewer options for consumers and less pressure within the industry to innovate. If the goal is to foster a robust American EV marketplace, eliminating the credit is not the answer.
Environmental Setbacks
Beyond the threat to automakers and jobs, the elimination of the EV tax credit risks derailing US progress toward environmental and climate goals—which, frankly, may be the point. EVs are a cornerstone of strategies to reduce greenhouse gas emissions, with transportation being one of the largest contributors to carbon pollution. By making EVs a less competitive choice for consumers, the transition to cleaner transportation may be significantly slowed.
Simply put, without financial incentives, many price-sensitive consumers that would choose an EV may be inclined to stick with gas-powered vehicles—which are generally cheaper in terms of initial purchase price, despite higher long-term costs. This shift could delay broader adoption of EVs and lead to higher cumulative emissions.
Greater adoption drives down costs, improves infrastructure, accelerates technological advancements, and makes the rolling out of electric charging infrastructure more profitable for private industry. Without the EV credit, this virtuous cycle could stall, leaving the US lagging further behind.
Outlook
The Trump administration’s proposal to eliminate the EV tax credit may look like a cost-cutting measure on short-term budgets, but its implications go far beyond single year or even single presidential term budget concerns.
The decision will risk undermining US automakers’ ability to compete in the global EV market, slowing domestic innovation, and reducing opportunities for American workers. Entrenching Tesla’s dominance by leaving smaller EV startups and legacy automakers struggling to compete in a marketplace already influenced by earlier credit regimes could have long-lasting deleterious effects on the American automobile industry.
The EV tax credit has been more than just a consumer incentive—it has been a strategic investment in the future of American industry, innovation, and sustainability. Eliminating it would mean surrendering leadership in a critical technological race, risking long-term harm to the U.S. economy and its ability to compete on the global stage.
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