Why EV Prices Could Rise Sharply During Trump’s Second Administration

President-elect Donald Trump’s second administration will likely see battery electric vehicle prices rise across the majority of the U.S. automotive market, sparing only Tesla thanks to its position in the market. Elon Musk’s decision to endorse his sophomore presidential bid was controversial; the former President has repeatedly criticized the Biden administration’s efforts to electrify the country’s transport sector and promised to get rid of the federal EV subsidies if elected.

Even though Trump toned down his anti-electric vehicle rhetoric after Musk’s endorsement, he is still set to eliminate the $7,500 federal tax credit for EV purchases that has facilitated a significant portion of the country’s electric vehicle sales. Musk noted in a statement posted on X that such a move could benefit Tesla by making it difficult for legacy automakers to introduce new electric cars to the market and compete with the Texas-based EV maker.

While Musk says he supports eliminating the tax credit, the vast majority of the American auto industry is vehemently opposed to the idea. An October letter from the Alliance for Automotive Innovation stressed that the tax credit shouldn’t be eliminated as it allows American carmakers to compete with Chinese automakers on a somewhat even footing.

Beijing has provided billions of dollars in subsidies to its auto sector over the past decade and continues to support the industry with massive subsidies. As a result, Chinese firms like BYD can mass produce electric cars at relatively low prices, allowing them to sell their EVs at much lower prices compared to their Western counterparts.

As electric cars are still more expensive compared to similar internal combustion engine (ICE) cars by a notable margin, federal subsidies and incentives have been key to boosting electric vehicle sales in the U.S. for the past decade. Even with subsidies, most carmakers in the West are selling electric cars at a loss, leaving Tesla as the only automaker in the U.S. profiting from electric vehicle sales.

If Trump gets rid of the $7,500 tax incentive, automakers would have to either make even greater losses to keep their EV divisions running or reduce their investment in electric cars. The Zero Emission Transportation Association (ZETA) is urging President-elect Donald Trump to consider retaining the incentive as it has also created employment opportunities in Republican-leaning states such as Georgia, Kentucky, Michigan, and Ohio.

Edmund analysts also note that losing the incentive without some form of replacement could jeopardize electric vehicle sales in the U.S. It would be interesting to see how the anticipated policy changes in the U.S. could impact foreign EV makers like VinFast Auto Ltd. (NASDAQ: VFS) that are eyeing the U.S. market.

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