California is already trying to head off any moves by newly elected President Donald Trump to cut subsidies for electric vehicles — the latest sign of uncertainty for electric cars next year that some analysts say potential buyers should now consider.
“The road ahead in 2025 looks pretty bumpy for EVs,” said Jay Turner, a professor of environmental studies at Wellesley College who studies the market. He called California Gov. Gavin Newsom’s announcement Monday that the state would close the gap if the new administration eliminates existing federal EV tax credits “good news for Californians.”
Some states, including Colorado and Massachusetts, already offer substantial support that electric car buyers can combine with that from the federal government, Turner noted. But after California’s own stimulus expired last year, the state’s new ultimatum would essentially replace the tax credits (of $7,500 for new electric cars and up to $4,000 for used ones) that the Biden administration put in place under the Inflation Reduction Act, should a the Republican controlled white House and Congress are destroying that aid.
“We are not returning to a clean transportation future — we are going to make it more affordable for people to drive vehicles that don’t pollute,” Newsom, a Democrat, said in a statement Monday.
Trump has criticized strict emissions standards and is likely to resume battles with California over the issue. During his campaign, he also indicated that he would consider eliminating EV rebates, saying, “Tax breaks and tax breaks are generally not a good thing.”
Trump’s transition team did not outline specific plans but said he would focus on “stopping attacks on gas-powered cars” during his new term. “President Trump will support the auto industry, creating space for both gas and electric vehicles,” spokeswoman Karoline Leavitt said in a statement.
Electric vehicle sales continue to break records, but this year’s uptake has been slower than expected, forcing many automakers to temper their plans for the electric transition.
In the meantime, subsidies like the IRA have helped the market. According to Cox Automotive, year-to-date sales of new electric vehicles reached 1 million units in October, with premiums representing at least 13.7% of the average transaction price. Used EV sales are up 63.5% this year, highlighting another problem: Manufacturers are still trying to figure out how many EVs to produce to meet demand without exceeding it, leaving some dealers with a glut of clean energy cars.
U.S. automakers want consumer incentives to remain largely intact, said Ivan Drury, director of insights at Edmunds. But so far, industry experts see “virtually no indication” that Trump and Republican lawmakers want to leave the IRA rebate program alone.
“We know that of the options available, it is the most likely to go away. The only question is: how quickly, how much and what should you do about it?” Drury said.
The answer may vary depending on the location and budget of potential buyers, but anyone who has been looking at an electric car lately should consider taking action quickly, he said. Even without knowing what the Trump administration and Congress will do, manufacturers will likely produce fewer electric cars next year to better match demand, Drury said, which would likely translate into fewer rebates.
And right now, “it’s model year sales season,” he noted. This means that buyers can combine existing tax credits with the large discounts that will be offered over the next three months. Drury estimated that at least 4 out of 5 electric vehicles currently in dealerships are 2024 models.
“If I were a buyer, I would move before the end of the year,” Turner said. Even if the credits aren’t repealed by Congress, the Trump White House could “sharply limit which electric vehicles qualify for the tax credit through administrative actions,” he said, such as tightening rules around foreign battery purchases .
One wild card in the next phase of the EV wars: tariffs, which Trump threatened to raise on goods from China, Mexico and Canada on his first day in office Monday, likely pushing up car prices.
Another question mark surrounds Tesla. The company’s CEO, Elon Musk, played a major role in Trump’s re-election campaign and will help lead a new Department of Government Efficiency, a role that has the potential to create unprecedented conflicts of interest. Musk has previously called for “eliminating subsidies” for electric vehicles, saying: “It will only help Tesla.” The automaker’s shares have soared since Trump’s victory as investors bet the company would benefit after he takes power.
Hours after Newsom announced his proposal Monday, Bloomberg News reported that his office planned to exclude Teslas from any state rebate program, citing an idea to cap proposed aid based on automakers’ EV market shares. A spokesperson for the governor’s office told NBC News that “under a potential market cap, and depending on what the cap is, there is a possibility that Tesla and other automakers could be excluded,” but cautioned that the idea “needs to be negotiated with the legislature. ‘ and ‘is intended to promote competition in the market.’
Drury said there is reason to believe Musk is right to imagine his company will do relatively well if the federal credit disappears.
“It will hurt every automaker except Tesla,” he said. “The tax credit is intended to leverage adoption, to convince people that this is the right choice.” While rivals are eating away at Tesla’s market share, the electric-only automaker still dominates the U.S. market, and the company “doesn’t need that with its customer base there,” Drury said of the incentive.
For those who may be more risk-averse, he suggests leasing an electric car instead.
The current federal tax credit also applies to leases, and some dealers are exploiting a loophole that allows EV renters to qualify for the full $7,500 credit without meeting income or manufacturer requirements. In many cases, dealers will apply these savings directly to the term of the lease agreement, Drury said, effectively reducing customers’ monthly payments.
In a recent Edmunds analysis of mid-range cars leased this year, the average monthly payment for electric cars, after taking tax credits into account, was $428, much lower than the $572 for vehicles with gas engines. For a 36-month lease, that’s an average savings of more than $5,000.
“If the tax break goes away and it’s a significant amount of money being used by dealers, you’re going to upset them quite a bit for a while,” Drury said. “Some will say, ‘Well, great, no one bought them.’ But you won’t have more happy dealers.”
However, buyers who act before such changes may have reason to smile afterwards.
This article was originally published on NBCNews.com
