As Biden's presidential term comes to an end, the torch is being placed back into Trump's hands for the next four years. The incoming administration's transition team is readying a sweeping set of policy changes that are more akin to a U-Turn than fostering progress, and a huge focus of the Trump team is on electric cars. Unlike the Biden administration, Trump isn't so hot on the idea of subsidizing the EV industry, and that means a number of policy changes could undo the headway made by the Inflation Reduction Act.
Welcome back to Critical Materials, your daily roundup for all things electric and automotive tech. Today, we're chatting about Trump's official plans for EVs during his incoming term, the surprising strategy automakers are taking to meet EU's 2025 emissions requirements, and a glimpse into what happens if Mercedes can't grow market share in China. Let's Jump in.
30%: Trump's EV Playbook Is A U-Turn
After weeks of speculation and what-ifs following the U.S. presidential election, the future of the country's EV strategy has finally been spelled out in black and white.
Reuters recently got an exclusive look at the recommendations drawn up by president-elect Donald Trump's transition team. Let's just say it's a masterclass in ripping up the roadmap, lighting it on fire and then burying it in the backyard. The plans include cutting off federal support for EVs and charging infrastructure, tariffs on critical battery materials and rolling back emission standards that have been pushing the envelope forward on EV adoption.
First up is the call to eliminate the $7,500 EV tax credit. Rumors of this being on the chopping block have existed for months, but it seems all but written in stone now. While this will undoubtedly hurt some consumers by making models unaffordable at full price, it's also pulling the rug out from underneath of automakers that have already invested billions by breaking ground on domestic factories just to qualify for the tax credit.
Domestic-ification is still clearly important. The team says that it plans to recommend tariffs on battery materials from all countries—not just China—in an attempt to boost domestic production. Reuters says that the document recommends negotiating individual exemptions with certain trading partners.
It doesn't stop there, either. That critical funding being used to prop up the nation's EV charging infrastructure? Gone. Instead, the incoming administration is recommending that that money be redirected to national-defense priorities like securing battery minerals and components independent of China. The Trump team is sending a clear signal that defense priorities are a non-negotiable while the consumer side of EVs will just work itself out.
And, of course, there's the rollback of emission standards. The Trump team is reportedly looking to revoke the fuel economy standards set under the Biden administration, and will allow for 25% more tailpipe emissions. California is also set to lose its ability to set clean air regulations for the states that follow its guidance across the country, assuming the administration can win what will surely be a long court battle on that front.
This all spells bad news for the accelerated adoption of EVs across the country. Consumers are left to fend for themselves to drive up adoption while automakers, who have already lit piles of cash on fire to align with the outgoing administration's guidance, have seeming done it for naught. As for manufacturing, automakers have been preparing for a domestic focus on electrification, but the supply chain might not be ready for the shock about to be imposed on it.
Buckle up, folks, because the next chapter of the move to EVs is going to be bumpy.
60%: Automakers Flip-Flop EV Pricing Ahead Of Strict Emission Targets
Europe's automakers are in a tough spot right now. Europe's new carbon dioxide emission rules go into effect next month. That means shuffling the deck to ensure they sell more EVs and fewer ICE cars to reach a fleet-wide ratio that puts them in compliance with new rules—and it looks like it's resulting in a surprising benefit to would-be EV buyers.
The new emission requirements dictate specific fleet-wide CO2 targets that automakers need to achieve by next year in order to avoid racking up heavy penalties. This means hitting a sales ratio of at least 20% EV-to-ICE. The problem is, automakers aren't anywhere near that just yet. In fact, EV sales made up just 13% of new passenger car sales in Europe in 2024 so far. So with shrinking subsidies and weak demand for battery power, car manufacturers know they need to take drastic measures.
Volkswagen, Stellantis and Renault have all taken on the same strategy to become compliant: lower EV prices. I know that sounds like a no brainer, but it comes with an asterisk. Not only are EV prices going down, but combustion prices are going up. That means lowering the barrier of entry to electrification and narrowing the gap to achieve closer price parity for the consumer. The hope is that this is enough to push on-the-fence buyers into enough EVs to hit that sweet 20% target.
This plan has been seemingly in the works for months. For example, Volkswagen lowered the price of the all-electric ID.3 below $31,500 (30,000 EUR) in October with the caveat that all new purchases would be delivered after January 1st—after the new rules take affect. However, these types of discounts are projected to hit automaker's bottom line hard. It's estimated that these discounts alone could cost the industry a combined $5.1 billion.
As for price hikes, we're not talking thousands, here. Renault and Peugeot recently hiked the price of some gas powertrains a few hundred Euros while keeping hybrid prices steady, which is likely a similar approach that other OEMs will take. It would seem that automakers may not just be looking to incentivize EV sales, but also hedge their bets just in case that emission target can't be met.
After all, for every 1 gram of CO2 per kilometer over Europe's threshold, automakers will be fined roughly $100 (95 EUR) per vehicle sold.
In theory, using a consumer's wallet to influence their purchasing decisions is a proven tactic. Everybody loves a good deal, and those who have been considering an EV but wary over higher prices may decide that it's finally time to bite the bullet as price parity grows closer—even if that happens artificially. But for automakers this isn't about starting a price war. They can choose to either light money on fire by paying regulatory fines, or light money on fire to achieve a greater road presence with its EVs. Which would you choose?
90%: China's EV Market Will Be 'Fatal' To Mercedes-Benz If It Can't Win Back Growth
Mercedes-Benz is losing its footing in the Chinese EV market. That probably sounds familiar, and it should considering that China's domestic auto market has exploded over the last decade. Many non-Chinese players are quickly finding out that they can't easily compete against even the newest players that have entered the market. Now Mercedes' works council chief says that a failure to regain this crucial market could be a "fatal" blow to the brand.
"We would not be satisfied with any less than two million cars a year—we need that to use our German sites to capacity," Mercedes works council chief Ergun Lumali told local news on Monday. "It would be fatal if we as a company relied on significantly lower numbers in the long-term."
Lumali's two million figure refers to the brand's total annual passenger vehicle output, which is down 14.3% from its 2019 sales figures of nearly 2.4 million units. Mercedes' global sales have been declining since that peak, the only exception being a slight uptick of 3,300 units year-over-year in 2023. Analysts believe that one of the main reasons the brand is seeing a decrease in sales is weakness in the Chinese EV market, its sales training behind other luxury marques like BMW.
CEO Ola Kaellenius planned for lower volumes. In 2020, Kaellenius made the decision to push Mercedes more upmarket. This was expected to cut costs up to 20% by 2025, which would help to pad profits while cutting down on overall sales volume. Unfortunately, that seems to have backfired, as luxury EVs haven't taken off like Kaellenius projected, especially since domestic manufacturers are offering more bang-for-buck when compared to luxury imports from Germany and elsewhere.
"We need growth, growth, growth," said Lumali, pointing blame at leadership's misguided plans. "New strategies are needed."
Here's the thing—it's not just luxury names that are suffering. Even blue-collar U.S. brands like General Motors have found that China is becoming so competitive that it had to take a $5 billion hit. Japanese brands are struggling too as they've been absolutely trounced by China's home-grown EV manufacturers over the past few quarters. The stronghold that global brands have on China is flatlining and that's a big, big problem for the brands that rely on the market for a vast majority of their sales volume.
Mercedes sold just under 1.5 million cars during the first three quarters of 2024. It expects to close out the year with less than its 2023 sales of 2,043,800 units—and as Lumali pointed out, if the brand wants to keep factory output at a sustainable level for workers and income, it needs to find a strategy that increases volume substantially in a very short time.
100%: Will You Rush To Buy An EV?
With the Trump transition team's plans being all but solidified, it seems that EV buying is transitioning into a seller's market for...well, for as long as the EV incentives like the EV tax credit can be utilized. While the team itself hasn't expressed when it plans to recommend these changes, Trump has made his desire to clear that his intention is to move forward with administrative policy changes very early on after inauguration.
This puts the purchase of a new EV on a time clock for many buyers. And for others—maybe those who don't need a new car but would like one—if they don't act sooner rather than later, they could miss out on a $7,500 discount.
So will you move forward with a new EV purchase in the near future given these policy changes? Let me know in the comments.
