In recent years, sales of electric vehicles have increased in recent years due to a $7,500 tax credit from the federal government that will help reduce the cost of purchasing one.
But the budget bill released by House Republicans on Monday would end that tax credit. Their proposal would also place new restrictions on other tax credits that encourage automakers to invest tens of millions of dollars in new battery plants in the US.
By next year, the bill will eliminate a $7,500 tax credit for new electric vehicle buyers and a $4,000 credit that can be applied to second-hand cars and truck purchases.
If you sign the law, changes could potentially increase sales of electric vehicles in the coming months as consumers compete to take advantage of tax credits before they disappear. However, once credits are finished, sales are likely to slow or fall, analysts said.
“It definitely affects adoption and slows it down significantly,” said Stephanie Valdez Streaty, director of industry insights at research firm Cox Automotive.
Cox expects electric vehicles will account for 10% of all new vehicle purchases this year. If Congress does not make any changes to the tax credit, that number should rise by nearly a third by 2030, the company estimates.
However, if Congress abolishes credit, Valdez Streety said he expects to account for 20-24% of new car sales by 2030.
Losing credits would take another financial blow to automakers facing higher costs due to 25% tariffs on Trump's imported cars and auto parts.
Republican tax proposals will hurt many automakers who are competing to introduce new models. General and Ford motors can be particularly hit hard. Both have invested heavily in their factories and supply chains, hoping to eventually produce millions of electric vehicles a year.
GM has opened two battery plants in Ohio and Tennessee. The company built them through a joint venture with LG Energy Solution. Three battery plants are under construction in Ford. It is a complete factory in Michigan and a partnership with two Korean companies, SK-ON, Kentucky and Tennessee.
Both Detroit automakers are investing in their mining business to ensure domestic supply of lithium, a key battery material.
Tesla, the largest seller of electric vehicles in the United States, is also injured. The company's sales have been on sale in recent months due to consumer backlash against CEO Elon Musk, who played a prominent role in the Trump administration, as it does not introduce a new, more affordable model.
However, Tesla has several advantages. Most carmakers still lose money on electric vehicles, but Tesla makes money a year. As a result, if credits are finished, there may be more financial allowance to lower prices to support demand. The company also does not rely on imported parts more than other US automakers.
Other large automakers are competing to catch up with Tesla with electric vehicles, primarily in states that have elected many Republican lawmakers by building many new factories.
Toyota has built a battery factory in North Carolina. Hyundai will begin manufacturing electric vehicles at its Georgia plant, where it plans to produce batteries. Stellantis and partners are currently building two battery plants in Indiana. The states that host these plants are relying on them to create jobs that are thousands of paying.
If tax rules change dramatically, automakers can scrap, reduce or delay plans.
“If the government wants the US to compete with China and the world in the large EV market, and GM and Ford to make large, long-term investments in EV development and US-based production, we need to expand the tax credits from Doctrinea whiplash.”
China is the world's largest producer of electric vehicles and is the most important source of materials important for batteries and electric motors, such as processed lithium and rare earth minerals. The removal of the tax credit makes it much more difficult for the US auto industry to keep up.
“I think this will hurt us globally what this does to the US automotive industry and competitive capabilities,” Valdez Streaty said. “I think it's going to slow us down and we're already behind China.”
Ford and Stellantis declined to comment, similar to the policy group, the Automotive Innovation Alliance.
The federal government began offering $7,500 in credits under President Barack Obama, staying during President Trump's first term. The credits have been updated and expanded in the Inflation Reduction Act, signed into law by President Joseph R. Biden Jr.
Electric cars are more expensive than internal combustion vehicles, so credit was essential to get more people to buy them.
Credits are available for sports utility vehicles and pickup trucks for sale under $80,000, and sedans for under $55,000. The car must be assembled in North America, and the battery must meet the requirements for which country the battery material comes from. To qualify, individual buyers must earn under $150,000 a year, while couples need to earn under $300,000.
Many of these conditions do not apply to leased vehicles. However, those cars and truck tax credits are usually sent to companies that lease the car to individuals, the financial division of the automaker. Many leasing companies have given their savings to their customers. This is a practice that has seen a sharp rise in electric vehicle leases.
Around 595,000 electric vehicles were leased in 2024, according to Valdez Streety, up from around 96,000 in 2022, before leasing incentives became available.
