The U.S. Congress has begun negotiations over the 2025 budget, and House Speaker Mike Johnson hinted at the potential elimination of the 7,500 USD federal tax credit for electric vehicle purchases. This statement could significantly impact the electric vehicle industry, raising concerns among both industry players and consumers.
In a press conference earlier in May, Johnson stated that there is a greater likelihood that they will eliminate the tax credit rather than maintain it. They will have to see how the budget negotiations unfold. He explained that this move is part of efforts to address the deficit caused by President Donald Trump’s tax cuts.
Restructuring of Subsidies
The electric vehicle tax credit, established under the Inflation Reduction Act (IRA), allows consumers to receive up to 7,500 USD in refunds, contingent on using U.S.-made batteries and North American critical minerals. This program aims to encourage electric vehicle purchases among low- and middle-income consumers and to stimulate the domestic electric vehicle and battery industries. However, Republicans argue that the federal government is facing increasing financial burdens and that a review is necessary.
The U.S. government has estimated that it issued approximately 2 billion USD in tax credits this year alone, and it urgently needs to find funding to offset the more than 4.5 trillion USD deficit projected over the next decade due to Trump’s tax cuts.
Direct Hit On Tesla, Rivian, and Other EV Companies
If the electric vehicle tax credit is eliminated, companies like Tesla will likely suffer immediate repercussions. Rivian and Lucid, in particular, are preparing to launch mid-range models and may struggle to maintain price competitiveness.
The automotive industry worries about a sharp decline in consumer demand, and some voices are calling for a grace period to ease the shock of eliminating the tax credit. Reports indicate that Republicans are also considering imposing a separate federal fee upon electric vehicle registration.
The final version of the budget is expected to pass between late May and late July. The industry feels compelled to completely revise its sales strategies and pricing policies for the second half of the year, depending on the fate of the tax credit.
This issue represents a political decision that could shake the ecosystem of the U.S. electric vehicle industry and has the potential to ripple through the global automotive market.
First, the electric vehicle tax credit has been a key policy that significantly boosted electric vehicle demand among U.S. consumers in the short term. Notably, the Tesla Model 3 and Model Y benefited from nearly a 10% reduction in effective purchase prices due to the tax credit, while Rivian has adjusted some of its vehicle batteries and assembly methods to meet the tax credit requirements. If the tax credit disappears, these corporate strategies could be fundamentally shaken.
This move also sends a warning signal to global automakers. General Motors, Ford, and Hyundai Motor Group (including Hyundai and Kia) have all expanded their North American manufacturing and battery production investments, crafting U.S. market strategies based on the IRA incentives. If these incentives become uncertain, future investment decisions may be impacted.
Above all, since Republicans view the transition to eco-friendly vehicles as part of a progressive agenda and are shaking the institutional foundation, it is likely that related regulations and benefits will continue to be embroiled in political debates. For consumers, this could undermine their trust in the government regarding the transition to future vehicles.
The growth of the electric vehicle market relies not only on technology and production capacity but also on the consistency of policies. This discussion could serve as a bellwether for U.S. electric vehicle demand and significantly influence the strategic realignment of global manufacturers.
