The long run of EV incentives and emissions regulations looks uncertain under a brand new Presidential administration.
The auto industry has been experiencing more disruption and innovation than any period through the past 100 years.
Automakers are struggling to contend with the compounding impact of the transition to electric vehicles, tariffs, the rise of Chinese automakers, and a sophisticated web of presidency regulations across the globe. With President Trump entering the White House for his second term, the industry is bracing for much more upheaval. The query on everyone’s mind: Will Trump make the auto industry great again?
I see 3 ways by which the brand new Trump administration will reshape the present landscape:
- Emissions Regulations: A Double-Edged Sword
- EV Incentives: A Shifting Landscape
- Latest Tariffs: Widespread Concern
Let’s take a more in-depth take a look at these topics to grasp the potential impact:
Emissions Regulations: A Double-Edged Sword
One of the vital contentious issues facing the industry is emissions regulations. The Biden administration enacted aggressive recent standards to enhance industry fuel economy to over 50 miles per gallon by model yr 2031.
As our industry is delivering about 27 mpg, that’s like asking a automotive company to place a person on the moon. The federal government uses carrots and sticks to drive automaker compliance: those that miss the standards will face billions in penalties, but those that achieve the usual are rewarded by selling emissions credits to those that missed, making a wealth transfer inside the industry. Last yr, nearly $3 billion of Tesla’s profit was generated by selling emissions credits to corporations like Stellantis.
Trump has signaled he’ll likely reduce emissions standards, which may very well be good or bad news depending on the automaker. Firms like Ford, GM, and Hyundai, which invested billions in recent EV production facilities and R&D, prefer that the standards stay unchanged. Other brands like Stellantis, who paid billions to buy emissions credits last yr, will likely profit from less financial exposure. In November, an industry lobbyist group, the “Alliance for Automotive Innovation,” sent a letter to the incoming Trump administration asking for “stability and predictability in auto-related emissions standards.”
I imagine the advantages of reducing the aggressiveness of the standards will outweigh the downside of keeping them. Ford will report over $6 billion in losses from their EV division in 2024. VW offers a $149 monthly iD.4 2-year lease with $999 down. These kind of deals and associated financial losses are unsustainable. Hopefully, the brand new Trump administration will take a long-term approach that doesn’t force automakers to make your mind up between paying emissions fines or sustaining operational losses.
EV Incentives: A Shifting Landscape
Tax credits established under the Inflation Reduction Act (IRA) will likely face heightened scrutiny under the Trump administration. Over the past two years, the U.S. taxpayer has funded an estimated $77 billion price of loans, grants, and tax credits to support domestic EV battery production and $2 billion in 2024 to fund the $7,500 EV incentive for consumers.
Some legacy automotive corporations’ EV lease share of retail sales is over 70%, well above the everyday lease rate of 20% for ICE vehicles. The language within the IRA explicitly restricts incentive payments to high-income households and EVs with batteries produced outside North America. As a workaround, the Treasury Department agreed to supply the $7,500 incentive towards leases, whatever the household income or the battery’s country of origin. This ‘leasing loophole’ was created partly to appease Korean and Japanese automakers who’ve invested billions in U.S. EV manufacturing.
The incoming Trump administration has been vocal in its opposition to this loophole. It’s no coincidence that EV sales within the fourth quarter of 2024 were up 15% in comparison with the prior yr, as many consumers rushed to benefit from the $7,500 incentive before it gets revoked.
Sunsetting the leasing loophole will help automakers by reducing their exposure to heightened residual risk. Manheim auction data reveals the 3-year residual on an EV at 42% versus an ICE vehicle at 61%. By 2026, the variety of returned off-lease EVs might be up 230%, unleashing much more financial pain on the automakers as these vehicles are resold at losses. The automotive corporations may not acknowledge it publicly, but they might be joyful to see this leasing loophole closed.
Latest Tariffs: Widespread Concern
Automakers are lined as much as donate to Trump’s inauguration fund partly because they’re concerned about his aggressive posture on tariffs, specifically on vehicles produced in Mexico and Canada. Mexico produces 16% of all vehicles sold within the U.S., while Canada accounts for 7%. Not to say the $200 billion of auto parts made in Mexico and shipped to U.S. assembly plants and repair facilities. A possible 25% tariff would add $50 billion of incremental parts cost from Mexico. These costs would make their option to American consumers, leading to higher prices.
Latest tariffs will only compound the affordability crisis for auto shoppers. Last month, Kelley Blue Book reported the fourth-highest average MSRP sold at nearly $50,000. Vehicles within the cheaper compact sedan and SUV segments are primarily produced in Mexico. Latest tariffs may disproportionately affect the lower end of the market, forcing owners to carry their vehicles longer or purchase used cars.
Hopefully, the incoming Trump administration will use the specter of tariffs as leverage to perform other political goals and never as an actual policy with so many antagonistic effects.
Balancing Act: The Road Ahead
Undoubtedly, the Trump administration is trying to shake things up on this second term, and their policy decisions will affect the industry’s future. I’m sympathetic to the automaker’s plight as they try to balance the consistently shifting regulatory landscape every 4 years while making huge manufacturing investments, meeting the demands of automotive buyers and their shareholders.
Billions have already been deployed toward EV manufacturing, and the industry cannot walk away from it, but we want to search out a option to do that profitably. Collaboration between policymakers, industry stakeholders, and consumers might be essential to navigating the complexities and uncertainties of the road ahead. President Trump may have his work cut out for him.
This Article First Appeared At www.automotive-fleet.com
