Summary
- The BBB ends EV tax credits and home charger incentives by Sept 30, making many EVs costlier.
- Removing incentives and penalties will spike new EV sales pre-Sept, then cause a trough; used EV prices jump.
- Cutting support undermines US EV competitiveness, risks battery-belt jobs, and cedes leadership to China.
The Big Beautiful Bill will end EV tax incentives by 30 September, including on the installation of home charging equipment. Incentives for public EV charging infrastructure, as well as renewable energy generation, are being cut. It also removes the penalties on carmakers if they make gas guzzlers. It removes both the carrot and stick that supported cleaner cars, making gas cars cheaper, and many EVs more expensive, and all more difficult to charge.
The EV tax incentives have been in place since 2008, and the 2022 revisions currently give a tax rebate of up to $7,500 on purchasing certain new EVs, and $4,000 on used ones. These tax incentives apply to both BEVs and PHEVs, although there are very specific limitations on which vehicles and buyers they apply to.
Looking more broadly, in a world where EVs are rapidly increasing their share of the market and the future of transport is electric, America has dropped out of the race, leaving China to win. A sharper focus on the narrow US EV landscape shows EV sales will spike between now and September 30 — then they will hit a major trough. Used EV prices will spike, and lower-income buyers will have less access to affordable EVs, new or used.
The world is moving to EVs, but the US is no longer
Making US EVs less competitive
Dropping the EV tax incentive will have major implications in the more affordable EV market. The Chevy Equinox EV, starting at $33K, has shot out the lights in sales so far this year, while the Ford Mustang Mach-E, starting at $37K, has stalled. The Equinox, after the tax rebate, will come in at around $26K, a lot cheaper than the more basic Nissan Leaf. Take away the rebate, and the Equinox will go head-to-head with the likes of the base Hyundai Kona.
Volvo vs Tesla
With the tax rebate in place, both the Tesla Model Y and 3, and the Hyundai Ioniq 5 compete very favorably with the Mustang Mach-E. Remove the tax break and the Mach-E’s value-for-money equation improves immeasurably. The current opposition will have to compete against the likes of the Hyundai Ioniq 6, the new Toyota BZ, and the Volvo EX30.
The cars currently excluded are made outside the USA, or major components like batteries come from other countries. Their level of affordability would depend on whatever tariffs survive the vagaries of TACO.
The battery belt
The EV economy goes beyond cars
Huge industries have risen on the demands of electrification and clean energy, and in terms of EVs, the battery belt. After the supply chain disruptions of COVID, manufacturers started investing heavily in battery development and manufacture. They found the ideal set of parameters in Georgia, North and South Carolina, Tennessee, and Kentucky.
The so-called battery belt offered the perfect mixture of lots of affordable land, road and rail infrastructure, and skilled labor at affordable prices. These states were also seen as home to emerging R&D hubs, essential to high-tech industry.
Money and jobs
By 2023, more than $90-billion had been invested in this belt, and over 70,000 jobs were been created. When EV sales fall, as they will in the short term, or rise less slowly in the medium term, it will affect the battery belt, the billions invested in it, and the tens of thousands of jobs created to support its growth.
The battery belt runs through red states, and when politics do not align with the local economy, politics is usually the loser. We will see.
EVs not affected by the BBB
EVs are still more expensive on average than gas cars, but the gap is narrowing as EV battery prices fall. Just over 20 EV models currently qualify for the tax break, but there are now nearly 70 EV models in the US market, up from 34 in 2022. Over 60% of US buyers have a favorable view toward EVs, especially with purchase prices and cost of ownership falling rapidly. People are buying EVs, even when there is no tax incentive.
The trend is toward more expensive models, with fewer than a third costing less than the average price. So the rich get the nice cars, while the less wealthy get it in the shorts.
Global competitiveness
While the US is doing the equivalent of playing Age of Empires in reverse, EV market share is rocketing globally. China is by far the biggest car market in the world, and around half of new cars sold there are EVs. The Chinese EV industry is not staying in China, with Europe rapidly seeing (and buying) Chinese EVs. The rest of the world is following suit, with Chinese EV sales booming as near as Mexico.
People are buying Chinese EVs not because they are cheaper, which they are, but because their value proposition is so good. The best of Tesla can probably hold its own in EV technology, but not in the tech-price equation anymore.
By moving away from EVs and the infrastructure that supports its growth, the US has opted out of the biggest thing in automotive history since the Model T. American ingenuity has always started in the home market, from where it went to conquer the world. When the home market is throttled by ideology-driven policy, the US will lose the race.
US drivers want EVs, and they will get them. They just won’t be made with US technology.
