New Bill To Kill EV Tax Credits Will Only Benefit One Brand

The first-mover advantage is something Tesla continues to capitalize on. It’s been over 20 years since the brand first launched, and no other automaker in the U.S. has even come close to challenging Tesla’s dominance in the EV space. Despite the growing competition, Tesla still holds a commanding market share, which hovers around 45%.

More: House Speaker Says EV Tax Credits Are Likely Finished

However, if House Republicans succeed in their push, the company’s position could be further strengthened, but at a cost to legacy automakers like Ford and GM. The reason? A looming change to the Federal Tax Credit that currently helps all EV makers sell vehicles.

The Current EV Tax Credit System

At the moment, those who buy a new or used EV in America might qualify for one of two credits. New car buyers can qualify for up to $7,500, and used car buyers can get up to $4,000. These credits are in addition to various state incentives, such as the $5,000 credit in Colorado and $3,500 in Massachusetts.

To be eligible, the vehicle must meet certain requirements, such as North American assembly and specific sourcing of battery materials. SUVs and pickups are eligible for the credit if priced under $80,000, while regular cars must be under $55,000. Income limits also apply: individuals making under $150,000 and couples under $300,000 qualify. For leased vehicles, the credit goes to the leasing company, which often (but not always) passes on the savings to customers, contributing to a rise in EV leases.

That might not seem like a huge chunk of change considering the price of some EVs, but in reality, it plays a huge role in sales. For instance, in 2022, before the introduction of the tax credit, 96,000 EVs were leased. By 2023, that number skyrocketed to nearly 600,000. But a recent budget bill released on Monday proposes ending both the new and used car credits, along with several other non-automotive tax incentives.

A Slower EV Adoption Could Hurt Major Automakers

According to a report from the New York Times, Cox Automotive’s Stephanie Valdez Streaty believes that almost a third of car sales in 2030 will be EVs if the credit stays as it is. However, should the government get rid of it, that figure could drop to just 20 percent. Slowing the adoption of EVs wouldn’t just be a potential backsliding for environmentalists, it could hit big automakers like GM and Ford in a big way.

Those brands are still trying to get to the point where their EV businesses are profitable. And their far from it with their numbers. On the other hand, Tesla hit that mark long ago, so while other players will need to sort out new strategies, it can continue to reap the benefits of being the first to market in the way it was.

Other legacy automakers, such as Toyota, Hyundai, and Kia, have made significant investments in U.S.-based EV production, but they too could face a major setback if the bill passes. The removal of these credits would undermine the financial viability of the incentives that made their business cases profitable.

EV Startups Face Even Greater Financial Pressure

Although Tesla would also be impacted by the removal of the tax credit, it stands to gain in ways its rivals cannot. While Tesla may be able to withstand lower sales, many of its competitors will not have that luxury and could be forced to shut down. Newcomers like Rivian and Lucid, for example, would face immense financial pressure as their sales figures don’t support a profitable business model.

Even smaller, more recent startups like Slate would likely have to review their entire business plan. What, after all, is the point of a tiny EV trucklet with 150 miles of range, no desirable mainstream features, and a price that is as high as a Ford Maverick?

In the grand scheme, while Tesla will undoubtedly be affected, the long-term payoff could be substantial. It may emerge as the dominant force in the EV market with little to no competition to contend with. In other words, instead of having 45% of the EV market’s 33% of car sales, it could end up with double that of the predicted 20%.

In the grand scheme, Tesla will undoubtedly face challenges, but the long-term payoff could be massive. It might emerge as the dominant force in the EV market with little to no competition to contend with in America. Instead of holding 45% of the EV market’s 33% share of total car sales, Tesla might dominate nearly the entire 20% share that EVs are expected to capture in the 2030s if tax credits vanish, while also further extending its technological lead in the field.

“What this does globally to the U.S. auto industry and its ability to compete – I think it’s going to hurt us,” Ms. Valdez Streaty said. “I think it’s going to slow us down, and we are already behind China.”