Biden’s EV tax credits are a ripe target for gutting if Trump wins

It’s never been cheaper to buy an electric vehicle in the U.S., thanks largely to tax credits in President Joe Biden’s signature climate law worth $7,500 apiece. 

Those incentives may be on borrowed time.

Former President Donald Trump and other Republicans have made no secret of their animosity toward pro-EV policies. And the tax credits now helping underwrite many U.S. electric vehicle purchases are top targets if Republicans win the White House or strengthen their grip on Capitol Hill in November. 

Of all the incentives in Democrats’ Inflation Reduction Act, they are “hands down the most exposed, no matter how you look at it,” said James Lucier, managing director at research group Capital Alpha Partners.

While it’s unlikely Republicans would mount a wholesale congressional attack on the IRA — which devoted hundreds of billions of dollars to climate and clean energy initiatives —  a GOP president could easily rewrite Treasury Department rules to make the law’s tax credits harder to claim. In Congress, especially if Republicans keep their hold on the House and gain control of the Senate, pressure to cut spending to stay within the federal debt limit could put crosshairs on EV incentives that have ballooned in cost as vehicle sales and leases have soared.

The election will test the durability and popularity of not just EV incentives, but the entire IRA, which Democrats designed to stoke an American manufacturing renaissance while also fighting climate change. Congressional Republicans have already signaled they would seek to claw back any unspent money the 2022 law allocated to an array of government programs, including an Energy Department office that has guaranteed loans for manufacturing battery components and deploying technology to detect releases of methane, a potent greenhouse gas. A greenhouse gas reduction program administered by the Environmental Protection Agency is another target for Republicans, who’ve dubbed it a “$27 billion slush fund.” 

How much the IRA is attacked would depend on the balance of power in Washington — as well as Republicans’ willingness to go after policies now benefiting red states. 

“It’s not a slam dunk that all of these subsidies will be clawed back,” said Tom Pyle, the president of the American Energy Alliance, a free-market advocacy group. “But I think there will be a vigorous attempt.”

Champions of the IRA — including President Joe Biden, congressional Democrats and renewable energy developers — are counting on the wave of manufacturing investments and jobs it’s unleashed to engender goodwill and help shield it from attacks in Washington. 

After all, other divisive laws that passed on near-party lines, including the Affordable Care Act, known as Obamacare, and Trump’s 2017 tax overhaul have endured long after politicians made campaign trail vows to repeal them. Tax breaks also are known for having unusual longevity in Washington, where even controversial incentives manage to stay on the books year after year. 

“We think of the tax credits as kind of the most sticky policy tool that’s available,” said Charlotte Jenkins, a senior associate with research firm Capstone LLC. “Historically, there hasn’t really been a rollback of existing energy tax credits, and for that to happen would be unprecedented.”

Electric vehicle supporters even have a made-for-Republicans pitch: You may never drive a Tesla or a Chevy Bolt, but the world is embracing EVs, and these credits are key to ensuring the US competes with China and other nations in making them. Plus, domestic battery and mineral requirements help foster supply chains critical for national security. 

“These are going to have a massive impact on creating — largely out of whole cloth — a domestic mineral production, mineral processing and mineral recycling industry in the United States that will fuel batteries for decades to come,” said Albert Gore, executive director of the Zero Emission Transportation Association and the former vice president’s son. 

Trump relentlessly attacks electric cars on the campaign trail, mocking their performance in sub-zero temperatures and insisting that in the future, despite U.S. investment, “all of these cars will be manufactured in foreign lands.” If elected, Trump says, he’ll immediately undo what he falsely calls Biden’s “EV mandate” —  an EPA proposal to limit auto pollution that would compel two-thirds of cars and light trucks sold in 2032 to be electric models. During his first term in the White House, Trump asked Congress to kill an earlier, smaller version of the EV tax credit. 

If he gets a second term, Trump would have wide discretion to undermine EV tax credits through administrative action so that fewer cars would qualify. It would be relatively simple for the Treasury Department to rewrite its rules governing both the 30D tax credit for consumers buying EVs and the 45W credit targeting commercial fleets. 

“I’d be amazed if there wasn’t rewritten guidance sitting on someone’s computer as we speak,” said Mike McKenna, a Republican energy strategist and veteran of the Trump White House. 

The Treasury Department would have to go through a formal rulemaking process, with proposals to rescind and replace previous policies subject to public comment before being finalized. And those administrative changes would be a target for litigation. But tax lawyers and regulatory experts said the agency would have latitude to reinterpret any policies seen as subjective interpretations of the text of the IRA. 

The Treasury could do away with current policies that effectively exempt leased vehicles from restrictions on where the cars are made, the source of their battery materials and how much money consumers make. Those exceptions have been derided as the “leasing loophole” by Senator Joe Manchin, a West Virginia Democrat, and other lawmakers as flouting the IRA’s intent. 

The administration also could rewrite rules to further discourage foreign investment in supply chains for mineral and battery manufacturing, while boosting North American assembly and sourcing requirements. That would shrink the already small pool of cars — fewer than a dozen now — that qualify for the full $7,500 credit. 

“A more protectionist version” of the credits with “greater limitations on imported battery components and critical minerals are the sorts of things you might see,” said Kevin Book, managing director at ClearView Energy Partners LLC. “It would slow down the green transition” and “also be entirely consistent with the protectionist leanings of today’s Republican Party.”

Such changes would cut unevenly across the auto industry, said Corey Cantor, an analyst with BloombergNEF. An end to the leasing exemption, for instance, could particularly affect Hyundai Motor Co.’s Kia and other cars that are being leased more heavily now. 

On Capitol Hill, Republicans who are seeing firsthand the benefits of greater EV sales — and new manufacturing facilities in their districts, spurred by the credits’ existing domestic assembly requirements — would likely resist efforts to undo all of the incentives. Red states are expected to reap most of the manufacturing investments stemming from the IRA, analyses have shown.

“Republicans will be reluctant to tear out the IRA root and branch,” Lucier said. “There will be a lot of projects in Republican districts they do not want to uproot.”

The commercial and consumer-facing EV credits help nurture domestic demand for the electric models that is critical to sustain investments in battery manufacturing facilities in Georgia, Tennessee and other states with Republican lawmakers in Congress. 

“The question for Republicans would be: ‘Do you want to disrupt jobs in potentially red states?'” Cantor said. Stepping back on domestic U.S. tax credits would mean “harming a lot of those companies trying to onshore to North America” and compete with China. 

Even so, Congress will be under special pressure to cut costs in 2025 — and that could increase the risk for the EV credits. Their projected price tag has soared, according to analyses by the Joint Committee on Taxation, Goldman Sachs, the Brookings Institution and others. One study put the cost as much as 3,500% higher than original expectations, largely because of the leasing exemption. Lawmakers could trim some of the incentives for electric vehicles and EV chargers — as well as other costly IRA provisions —  as a way to offset other spending, including the renewal of some expiring Trump-era tax cuts next year.

“There are people who will cheerfully scavenge that legislation for cash,” said McKenna, the Republican energy strategist. 

Changes shrinking the availability of EV tax credits could dampen the growth of demand in the short term, but EV analysts and enthusiasts say it’s unlikely to stall the transition in a meaningful way. 

“The fundamental story around the transition still remains: The pressure is coming very much from industry actors,” said Cantor, “not just policymakers.”