Newly elected US President Donald Trump may be ‘best buddies’ with electric car czar Elon Musk, but that hasn’t stopped him announcing a sweeping array of changes to reduce support for the electric car industry.
In his first days back in office Trump has signed an executive order titled ‘Unleashing American Energy’ that prioritizes the fossil fuel industry and slashes federal government support for electric cars. Under the order the US government will no longer offer tax credits for EV purchases and Trump will also stop his predecessor, Joe Biden’s, plans for a US$5 billion investment in a national charging network.
This change actually has a direct impact on Tesla, which currently includes the US$7500 government tax credit into the advertised cost of its cars on its US website. Without the incentive the cost of a Model 3 increases by more than US$200 per month, which is probably not want Tesla executives want after recording its first sales decline in 2024.
While the news will be good for fans of petrol-powered cars, regardless of your political views this news puts the American automotive industry into a difficult position. Under the Biden administration the car industry agreed to a non-binding aspirational goal of achieving half of all new car sales being electric vehicles (EVs) by 2030. Therefore, that has been the priority for the US industry, with General Motors, Ford, Stellantis and more investing billions to achieve that target.
Putting aside Trump’s claim that eliminating the “electric vehicle (EV) mandate” would “promote true consumer choice,” which ignores the fact this was a non-binding goal and therefore consumers still had freedom to choose, the sudden and dramatic change will force the US auto industry to pivot once again.
Changing plans for a car company as big as General Motors and Ford is not the work of a moment, or even a four-year presidential term, and will leave the car industry with a tough choice to make. Do they switch back to a focus on petrol-power (as diesel is unpopular in the US market) or carry on with the already-established EV plans without the previous government support in the hope that the market will continue to shift that way over time?
New models take years to develop and EVs cost even more as they require significant investment in newer technology, but with the global trend shifting that way in the coming decades, if not the short-term, losing ground on the rest of the world could be a case of ‘short-term gain, long-term pain.’
Making this decision more difficult is the rising Chinese car industry knows that EVs are its best path to catching up on nearly a century of American and European dominance of the car industry globally. The Chinese government is continuing to support EVs both domestically and around the world, with many of the most affordable electric cars around the world coming from brands like MG and BYD.
While it’s an easier scenario in the US, where there are plans to simply ban them from sale, that’s not the case in other markets, particularly Australia, where Chinese and American cars compete side-by-side. Put simply, if the US industry focuses on the domestic market it runs the risk of falling dramatically behind the rest of the world if the EV upward trend continues beyond Trump’s presidential term.
In Australia it will likely have less of an impact as the American brands here are largely focused on petrol-powered models, namely Chevrolet, Ram and Ford (although the latter is taking a lot more plug-in hybrids from Europe). Cadillac is the brand that could be impacted the most, with General Motors’ luxury division focused on global expansion with its EV models.
The unintended consequence could be a ‘free kick’ for the Chinese brands that are already established in the Australian market, and those considering entering, which will be able to invest more confidently in EVs throughout the remainder of this decade and into the 2030s.
What do you think – Is the US Government right to cut back on EV incentives or does chopping and changing plans hamper big companies like GM and Ford?
