- Automakers are uncertain about the future of the Inflation Reduction Act and the EV tax credit.
- If it’s repealed, manufacturers are calling for a multi-year phase-out.
- An instant repeal could cost the U.S. thousands of jobs and billions of dollars, plus an uncertain future of American position in the global EV race, they argue.
Automakers have spent the last few years betting billions on the EV race. New factories, robust supply chains and big battery plans peppered not just across the globe, but also planted deep within America’s auto manufacturing belts. But now, with President Trump at the helm and Tesla CEO Elon Musk on a wild cost-cutting mission across the government, the EV tax credit is poised to be gutted.
Needless to say, manufacturers are scrambling to soften the blow that Trump warned could be coming since before he was elected in November. The latest pitch? According to Bloomberg, automakers are petitioning the federal government that if the repeal of the Inflation Reduction Act is inevitable, just don’t pull the rug out on them. Instead, they’re asking for elements like the EV tax credit to be phased out over several years.
Photo by: InsideEVs
To be clear, this is a delicate dance. Automakers need to stay on Trump’s good side—especially with the U.S. government playing a game of tariff-chicken with Canada and Mexico. But these manufacturers also can’t just ignore the fact that incentives for their most competitive EVs could disappear overnight.
Executives at General Motors and Ford have been making the rounds in Washington to advocate for automakers. For example, GM CEO Mary Barra recently met with Trump to discuss tariffs and how administrative policies could affect the U.S. auto industry. Ford CEO Jim Farley is slated to meet with Congress this week—his second trip to Washington in three weeks—to talk business.
“We have the potential repeal of various IRA elements,” said Farley at an investor conference in New York on Tuesday, according to Bloomberg. “We’ve already sunk capital. And many of those jobs will be at risk if the IRA is repealed, [if] big parts of it [are] repealed.”
A Slow Exit
It would seem that the auto industry really isn’t sure what’s going to happen with the IRA, including the EV tax credit. They have been hedging their respective bets, though. Hyundai was one of those companies that significantly upped its spending on political lobbying when Trump vowed to nuke EV subsidies last year. But an uncertain future means continuing to pressure those passing the laws for a potentially favorable outcome.
The argument being made isn’t just about the free money automakers are getting (although that may certainly sweeten the deal). Car companies made big decisions based on the promise of government funding and if that goes away, the industry could be in a world of hurt.
A gradual phase-out would allow automakers time to lower EV costs. Battery prices are a prime example. While they’re slated to continue to fall through the top of the decade, the battery pack still makes up a significant chunk of an EV’s cost. Certain EVs are only competitive because of the tax credit, meaning that eliminating the incentive could result in car companies making the decision to take a huge loss on the model, or maybe to simply discontinue it entirely.
Keeping the credits in place may also protect thousands of jobs. The battery belt—the stretch of states between the midwest and southeast U.S. that benefit from new and planned battery factories—has become a hub for EV manufacturing. Many of these jobs have come into fruition simply because the IRA’s tax incentives. Should those incentives go away without warning, those jobs could be at risk. Data from the American EV Jobs Alliance shows that the U.S. has invested $200 billion to create 200,000 EV-related jobs across 12 states (meaning, an average cost of $1 million per position).
An instant repeal would also put the U.S. at an even further disadvantage in the ongoing EV spat between the U.S. and China. The IRA helped to build a more robust supply chain that utilizes domestic manufacturing and sourcing, reducing the reliance of Chinese components and battery materials. A sharp rise in cost and looser sourcing requirements could lead to an influx of Chinese EVs in the U.S.—something that the IRA (and tariffs) were meant to protect against.
“It’s messed up. But I would say, if you must eliminate it, have a ramp down,” said Kia America COO Steve Center, in an interview with InsideEVs in November. He continued: “A lot of other companies have spent a lot of money trying to comply with the regulations. Don’t keep changing the regulations.”
Is Anyone Listening?
Automakers are pleading, but it’s unclear if Trump or Congress are actually listening.
Trump hasn’t hid his skepticism towards EVs and EV-related subsidies. And his bubbling bromance with Elon Musk, who also called for ending all subsidies, doesn’t inspire confidence that the tax credit is sticking around.
House Republicans are will be essential deciding whether or not key pieces of the IRA are repealed. This leaves automakers to play defense and convince lawmakers of the IRA’s necessity. There’s evidence they may be hesitant to repeal, it though: 19 of the 25 major automaker battery and manufacturing plants being stood up are in GOP-controlled congressional districts. Many of the remaining plants, according to Bloomberg, are in states that supported the Trump presidency in the November election.
Should the IRA be repealed or cut in an official capacity, it will likely come as part of a reconciliation bill. This means that lawmakers will be forced to weigh the benefits of the job losses against Trump’s priorities and campaign promises.
Automakers know they’re walking a thin tightrope. EV production needs to keep moving forward and executives need to do what they do best: lead in uncertain times. The current administration seems eager to roll back incentives, but if done too quickly, EV adoption could be stalled, jobs killed and the U.S. auto industry left behind while the rest of the world pushes forward. If it does happen, automakers will have no choice but to adjust quickly or risk losing billions in investments that can’t be easily walked back.
