The future of the American auto industry — and what's parked in your driveway — could be shaped by negotiations on Capitol Hill right now.
That's because the version of what President Trump calls the "big, beautiful bill" that was passed by the House of Representatives last month includes sharp cuts to the tax credits designed to incentivize EV purchases.
President Joe Biden promoted a suite of policies meant to cut carbon emissions by boosting EV sales. That includes "sticks," like regulations that effectively require companies to build more EVs, as well as "carrots," the federal subsidies that sweetened the deal by providing financial incentives (to both car companies and buyers) to pivot toward battery-powered vehicles.
Trump has long signaled a desire to roll all of them back.
The House version of the bill, if it's embraced by the Senate, would bring a cleaver down on a great big pile of those carrots. That would affect new car buyers as soon as next year — and could reshape which cars are available on the market far into the future.
Consumer tax credits would phase out soon
Under the bill passed by the House, the consumer tax credit for new electric vehicles (worth up to $7,500) would phase out after 2026. But for most vehicles, it would actually become unavailable at the end of 2025, because it would only be available for vehicles made by automakers that have sold fewer than 200,000 EVs. (That's a return to how the tax credit was structured before the Biden administration.)
Meanwhile, the tax credit for used vehicles — which was created as part of the Inflation Reduction Act, Democrats' major climate law during the Biden administration — would be eliminated outright at the end of 2025. That credit was designed to expand the availability of EVs to middle- and lower-income families, addressing a longstanding critique of the tax credit: That it only helped well-off new car buyers. That credit is worth up to $4,000.
Tax credits that incentivize battery manufacturing would not be phased out as swiftly, but companies trying to claim them would face tighter restrictions on Chinese-made components and working with Chinese partner companies, which could make them more challenging to qualify for.
The legislation would also add a new $250 annual fee for EV drivers, imposed by the Federal Highway Administration. Such fees are hypothetically meant to correct for the fact that EV drivers don't pay gas taxes. However, Consumer Reports has calculated that the proposed fee is more than three times what a typical driver of a new gas-powered car pays in gas tax.
Republicans have long chafed at EV incentives
Many Republicans objected to the EV tax incentives passed as part of the IRA, declaring them wasteful spending. They've also argued that markets should determine which vehicles Americans drive, without the government incentivizing electric motors over engines.
Historically, the tax credits were critiqued for primarily helping wealthier car buyers. And that's true: New cars, and especially new EVs, are so expensive that they're out of reach for most Americans. But the IRA attempted to deal with that, both by adding income caps that kept wealthier people from qualifying, and creating the used vehicle credit, which brought cheaper cars into the mix.
Meanwhile, supporters of the credit say that Republicans have a different reason to eliminate these tax credits: The income tax cuts that Trump has promised are expensive. The current version of the bill extends multi-trillion cuts passed in 2017.
"That money's going to come from somewhere," says Levi McAllister, a partner at the law firm Morgan Lewis who advises companies on a range of topics related to electric vehicles. The EV tax credit, he says, is "certainly a ripe target."
Democrats in Congress have critiqued the Republican tax and spending package as being designed to benefit billionaires. The package overall helps the richest Americans and hurts the poorest, according to an analysis by the Congressional Budget Office.
Automakers brace for policy upheaval
Automakers knew that Trump's election would bring huge changes to EV policy. And many major carmakers support the push to pause or weaken regulations, pointing to weaker-than-expected consumer demand for zero-emission vehicles. But at the same time, they have warned that pulling subsidies and tax credits would only exacerbate a vehicle affordability problem, and put some manufacturing investments at risk.
It's easier to say goodbye to a stick than a carrot.
In a letter to Trump last fall, the U.S. trade group representing major automakers urged the incoming White House to "preserve auto-related provisions in the current tax code," arguing they "have fueled investment in domestic EV and battery manufacturing and increased good-paying jobs in automotive communities."
It's also challenging for the auto industry to make a rapid U-turn on EV production, when decisions about factories and vehicle designs have to be made years in advance.
U.S. jobs on the line
Some advocacy groups are still holding out hope that senators will preserve at least some of the IRA clean energy credits to bolster U.S. jobs — if not for the sake of climate change.
Those credits have incentivized billions of dollars' worth of new manufacturing projects, and most of the money, projects and jobs have gone to Republican-leaning districts. That's true for clean energy projects overall, and for EV-related jobs specifically.
Companies and advocacy groups alike have leaned heavily on the job implications when lobbying to keep these credits. "It's now up to the Senate to fix this big, ugly mess of a bill," Bob Keefe, the executive director of the nonpartisan, pro-environment business group E2, wrote in a statement in May. "With more than 400 major clean energy projects and our energy future hanging in the balance, we hope they'll put their constituents ahead of politics and make America great through action, not words."
McAllister says that while many EV makers and related companies had hoped that the jobs argument would protect the credits, they're not counting on it. "I think companies are finally starting to say, 'Hey, for us to plan, we need to assume all of this, all of it's going away,'" he says.
A rocky road ahead
Eliminating incentives could dramatically affect the pace of EV adoption. One Princeton study estimated that if the tax credits are repealed and federal emissions regulations are cut, as the White House has signaled it also plans to do, sales of EVs in 2030 could be 40% lower than they would have been if the existing policies stay in place.
From a business perspective, that would slow the timeline for factory expansions and make it more challenging for American automakers to compete with Chinese companies' EV innovations. And it would slow progress toward cutting transportation-related emissions, a key part of plans to reduce the damage caused by climate change.
But nobody expects this bill, if passed, to signal the end of the electric vehicle market in the U.S.
Companies started to invest in EVs before the IRA was passed, and they will keep investing in them. There's a small but committed market for them now, and companies believe better batteries and cheaper vehicles will win over new fans.
And even if the U.S. leans away from electric vehicles, the rest of the world is leaning in. Companies don't want to be left behind — at least, not too far behind.
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