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InsideEVs
Technology

America's EV Demand Could Dive 27% Without Tax Credits

  • The EV tax credit could face a repeal under the new presidential administration
  • This could cause this EV industry to take a 27% nose dive
  • Long-term EV adoption is expected to continue to rise, though significantly more slowly than if the credit remains intact

The $7,500 EV tax credit—the key to America's growing interest in electric cars—is on life support. President-elect Donald Trump has signaled interest in his incoming administration's desire to pull the plug on the time-of-sale credit made possible through the Inflation Reduction Act, and alarm bells are ringing for analysts who anticipate a significant drop-off of demand.

Specifically, experts are expecting the EV industry to take an immediate nose dive of around 27%, according to a new report from Bloomberg. That might not seem like much, considering that the overall market share is still under 10%. However, just picture 317,000 fewer EVs on the road each year, because that's the possibility.

Those number-crunching estimates come from Joseph Shapiro and Felix Tintelnot who are associate professors at UC Berkeley and Duke University, respectively. Both professionals are expecting the revocation of the tax credit—assuming the measure gets Trump's final sign-off as expected—to significantly deter progress in EV market penetration in the short term.

Shapiro, Tintelnot, and other experts also believe that the effect of wiping out the credit will be more of a ripple than a tidal wave on the gas industry. If it vanishes, it's expected that Americans would guzzle around 155 million gallons of gas the first year (an extra 0.12% compared to the 136 billion gallons consumed in the U.S. annually today) and a total of 7 billion more over a decade than if the credit were to remain active. Overall, that's just a marginal 5% bump, which is unlikely to pad the pockets of Big Oil enough to throw a parade.

The real headache comes as American automakers are struggling to build affordable EVs today. Take away one of the biggest incentives and cost-cutting measures and you will find legacy auto stuck in a perpetual panic of figuring out how to make its hundreds of billions of dollars of investments profitable. It's also important to recall that car prices were one of the largest drivers of inflation during Covid-era shortages—will effectively raise the barrier to entry of an EV by $7,500 (or potentially move those losses into the price of gas-powered cars) and re-spark a new round of cost increases across all industries?

Removing the credit isn't necessarily a knockout punch. Morgan Stanley analyst Adam Jonas expects the EV industry to continue growing in the long term. As a plus, it gives legacy automakers some time to catch up to dedicated EV makers like Tesla, who apparently no longer need the EV tax credit, according to the actions of its CEO. So, think of this more like the industry is taking the scenic route to its destination instead of the expressway.

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That being said, let's not sugarcoat the issue here. Removing the EV tax credit will set back the EV industry as a whole. Sure, luxury marques will probably remain largely unaffected. After all, most aren't getting the tax credit today. But more blue-collar brands, and those that have invested billions into building a plant in America (many of which aren't yet online) could rethink how they do business in a country with an unstable political climate.

And those mainstream models already struggling to compete with their gas-powered counterparts? Well, that could put many folks back into the same conundrum that the EV industry has been facing for many years: lack of selection and lack of competition.

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