Donald Trump’s transition team intends to eliminate the $7,500 consumer tax credit for EV purchases as part of larger tax-reform legislation, two individuals directly familiar with the situation have revealed. The already slow-moving transition to electric vehicles (EVs) in the United States may face even greater setbacks if this crucial incentive, part of President Joe Biden’s Inflation Reduction Act (IRA), is repealed. Trump’s team is planning to eliminate Biden’s EV tax credit, which could significantly impact the EV market in the U.S.

Officials from Tesla, the biggest EV manufacturer in the country, have shown support for eliminating the tax credit in spite of their reservations. Elon Musk, the CEO of Tesla, stated in July that although the action would have little effect on Tesla’s sales, it might be “devastating” for other American EV makers, such as Ford, General Motors, and Stellantis. The oil and gas sector and important members of Trump’s energy-policy transition team, such as Doug Burgum, the governor of North Dakota, and Harold Hamm, the founder of Continental Resources, are also in favor of ending the credit.

According to the team, a Republican-controlled Congress would find it simple to eliminate the subsidies, which might result in cost savings to extend Trump’s first term’s expiring tax cuts. However, U.S. Energy Secretary Jennifer Granholm and the Alliance for Automotive Innovation have criticized the idea, claiming that it would make the United States less competitive in the global car manufacturing market and give the country’s leadership to nations like China.

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Market and Industry Responses

Market dynamics have already been affected by the possible elimination of the EV tax credit. Following the announcement, shares of Rivian and Lucid fell 14% and 5%, respectively, while Tesla’s shares fell about 6%. Significant stock losses were also experienced by South Korean battery suppliers that supply major automakers, such as LG Energy Solution and Samsung SDI.

Without the subsidy, automakers like GM and Ford, who have depended on the tax credits to increase EV demand, may find it difficult to make the switch to EV manufacturing. For instance, even when credits were available, Ford recently paused the manufacture of its F-150 Lightning electric truck because of waning demand.

Since Tesla has a cost advantage thanks to its sophisticated manufacturing skills, the company may profit from the elimination of subsidies. According to Musk, removing the credit would make it more difficult for rivals to catch up, solidifying Tesla’s position in the market. Critics counter that such rules favor Tesla over the larger U.S. car sector, citing Republican strategist Mike Murphy as one example.

Broader Context and Future of EV Policy

As part of Trump’s larger campaign pledges, the transition team has underlined how crucial it is to reverse Biden’s renewable energy programs, such as solar, hydrogen, and wind subsidies. However, under Trump, some of Biden’s policies—like trade restrictions on Chinese EV imports—will probably be maintained or even enhanced.

The leader in the US EV industry, Tesla, nevertheless has difficulties overseas, especially in China, where government subsidies have allowed Indigenous EV producers like BYD to capture a sizable portion of the market. According to analysts, Trump’s team is planning to eliminate Biden’s EV tax credit, and his protectionist measures may help Tesla keep its place in the American market by reducing rivalry with Chinese manufacturers.

Although American automakers like Ford, GM, and Stellantis are vying for market share in their electric vehicle divisions, they still mostly rely on subsidies to cover their high production costs. This objective would become much more difficult if the $7,500 tax credit is eliminated, endangering thousands of jobs in the car sector and delaying the United States’ shift to sustainable transportation.

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