Maybe Trump Won't Kill the EV Tax Credit After All -- Barrons.com

Al Root

One advocate is pushing the incoming Trump administration to keep the electric-vehicle purchase tax credit: the traditional auto industry.

That might surprise investors. Ford Motor and General Motors lose billions selling EVs and make many more billions selling traditional gasoline-powered vehicles. It is easy to imagine both want to sell gasoline-powered cars for as long as possible.

The automotive lobbying group Alliance for Automotive Innovation, which represents many traditional auto makers, is leading efforts to keep the credit, which amounts to up to $7,500 off a vehicle's purchase price.

There are a couple of reasons.

For starters, car companies don't like dealing with rapidly changing policies. They commit billions over decades to plan product lineups. It isn't easy to turn on a dime.

Second, auto makers see a trend. "Battery electric vehicles [BEVs] are coming, with or without the credit," says Freedom Capital Markets analyst Mike Ward. BEV adoption has gone slower than most investors, analysts, and companies expected, but BEV penetration of new car sales is still moving higher. "I'm sure manufacturers want to keep the credit...for BEVs to be successful the manufacturers need the vehicles to be profitable." Credits, which lower the price for consumers, help with that.

Ward says phasing out the credit over three to five years makes sense. A phase-out period gives auto makers security now while adding an incentive to speed up cost efficiencies.

China is a third, albeit tangential, reason to keep the credit. The country makes and sells the most BEVs and China's auto makers have received government support for years.

"America's immense subsidies for BEVs are not unique. China has also spent vast amounts of money subsidizing electric vehicles," wrote quantitative stock research firm Kailash Concepts in a November report.

China, similar to the U.S., uses purchase incentives as well as other policies -- including subsidies to battery and other component producers -- to make EVs more affordable.

"China's industrial policy has spawned hundreds of ruthless competitors forcing them to close the quality and design gap with their Western counterparts," added Kailash.

More EVs have eroded Tesla's market share. Tesla ended the third quarter with 48% of the U.S. BEV market share. It finished 2023 with about 55% share. In Europe, Tesla has accounted for about 16% of all BEVs sold through the end of October. That's down about 2 percentage points year over year.

Whether any of those reasons sway the Trump administration is hard to say. Still, the EV purchase tax credit might be around longer than investors currently expect.

Wall Street currently sees Tesla being hurt the least if the credit is lost. Elon Musk's company has the global scale and cost structure to be profitable without the credits. Of course, having the credit won't hurt Tesla. Shares of the EV maker were up 4.3% at $354.06 in midday trading while the S&P 500 and Dow Jones Industrial Average were up 0.2% and 0.6%, respectively.

One thing is certain. Investors expect a second Trump administration to benefit Tesla. Through midday trading, Tesla stock was up about 41% since the Nov. 5 election, adding about $330 in market value.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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November 22, 2024 14:12 ET (19:12 GMT)

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