EVs and the election: Here's how the $7,500 tax credit might change if Trump wins

By Victor Reklaitis

Plus: What to make of the Elon Musk-Donald Trump 'bromance,' and what Kamala Harris has been saying about the auto industry

While Donald Trump continues to blast Democrats over their policies that favor electric vehicles, the Republican presidential nominee's approach to EVs has shown signs of shifting over the last few months.

For starters, his rhetoric on EVs has softened after Elon Musk, the chief executive of industry pioneer Tesla Inc. (TSLA), endorsed the former president in July. In an example of his gentler tone, Trump said at a campaign event Friday in Michigan that "electric cars are wonderful, but not for everybody." In the past, he often derided their driving range and didn't offer such compliments.

Another key development has been Trump's selection of Sen. J.D. Vance of Ohio as his running mate. This decision has brought fresh attention to Vance's 2023 proposal to replace Democrats' tax credit of up to $7,500 for buyers of new EVs with a tax credit also worth up to $7,500 - but for buyers of new gasoline- (RB00) or diesel-powered vehicles.

Vehicles would have to be assembled in the U.S. - hybrids would qualify - and the level of credit would depend on the vehicle's payload capacity and seating capacity. Free-market types have raised concerns about the GOP senator's proposal, known as the Drive American Act.

"My worry is that the Trump-Vance ticket is still going to embrace the tax-credit subsidy as a concept that will just apply to different things," said Travis Fisher, director of energy XLE and environmental policy studies at the Cato Institute, a libertarian think tank. Fisher told MarketWatch that his preference is for no subsidies of any kind, because they're "bound to be abused, and the money is probably going to go to the wrong places, even if you have means testing."

Meanwhile, Trump's new relationship with Musk, the billionaire entrepreneur, shouldn't get blown out of proportion, according to analysts at Beacon Policy Advisors. "Our view is that the bromance between Trump and Elon is being somewhat over-exaggerated," said Beacon analyst Maxwell Shulman.

Some worst-case scenarios for the EV industry now may be off the table, but Trump and Republican members of Congress still are hoping to end the $7,500 EV tax credit next year and roll back a regulation on tailpipe emissions, Shulman told MarketWatch. Republicans often describe that regulation - which aims to have EVs make up 50% of U.S. sales of new vehicles by 2030 - as an "EV mandate."

Musk could be supporting Trump because he views Chinese EV companies, not domestic rivals, as Tesla's real competition and expects the former president would take a particularly hard line against Beijing, according to Shulman. Plus, the Tesla boss likely appreciates Trump's promises of lower corporate taxes and deregulation.

How EV policies play in Michigan

During his visit to Michigan last Friday, Trump told his audience that their "car industry will be as big relatively as it was 60 years ago" if he wins a second term.

"By the way, we win Michigan, we win the whole thing, like in 2016," he added.

He also promised tariffs of 100% to 200% on cars imported into the U.S. from Mexico to encourage automakers to put their plants in the U.S., though that would unravel the U.S.-Mexico-Canada Agreement on trade that Trump himself championed while in office.

Musk said in late July that Tesla had paused its plans for a factory in Mexico given Trump's calls for tariffs. Chinese EV maker BYD (HK:1211) said in early September that it has not delayed any decision regarding a planned factory in Mexico, denying an earlier report that it was postponing developments on that front until after the U.S. elections on Nov. 5.

Democratic presidential nominee Kamala Harris criticized Trump before his visit to the Wolverine State, saying in a statement that the GOP nominee is "telling the same old lies about how he'll fight for working people, including those in Michigan." She added that she had been "one of only 10 senators to vote against USMCA," because she "knew it was not sufficient to protect our country and its workers." She also said: "Trusting Donald Trump again is a risk America's autoworkers cannot afford."

While Harris has taken President Joe Biden's spot at the top of the Democratic ticket, Beacon's Shulman says his shop doesn't see much difference between the two of them on EV policy. The $7,500 EV tax credit stems from Democrats' Inflation Reduction Act of 2022, and Harris has touted her tiebreaking vote in favor of that measure.

There has been talk that her selection of Minnesota Gov. Tim Walz could be bullish for green energy ICLN, but Shulman said the vice presidential pick is typically not that meaningful when it comes to an administration's policies.

EV policy has become a highly partisan issue, and a recent poll from the Detroit News and a local news station found that's the case in Michigan, where Ford (F), General Motors (GM) and Stellantis (STLA) unit Chrysler all have their headquarters. The survey found that 59% of voters who identify as strong Republicans don't think it's important for Michigan to lead the nation in EV production, but 73% of strong Democrats said it's important, while independent voters were split.

Harris has an edge of 1.4 points over Trump in Michigan polls, according to a RealClearPolitics average of surveys. In top swing states overall - meaning Michigan and six other battlegrounds that are likely to decide the White House race - RCP's polling averages have been showing a very close contest.

-Victor Reklaitis

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10-01-24 1022ET

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