Trump's Tariffs, Tax Credit Repeal Threaten U.S. EV Industry

President Trump's policies have dealt a double blow to the U.S. electric vehicle (EV) industry, potentially causing economic instability in the red states. The first blow is a 25% tariff on imported whole vehicles and parts, which could increase the cost of EVs by up to $10,000. The second blow is the potential loss of tax credits for EV purchases, which could further dampen demand.

Trump has expressed that he is not concerned about the price increase, stating that the move is "worth it" to boost U.S. manufacturing. However, the tariff policy has a lesser-discussed consequence: it could severely impact the burgeoning EV sector within the U.S. automotive industry. Trump has vowed to repeal Biden's signature Inflation Reduction Act, which includes tax credits for EV purchases, in addition to the import tariffs. This double blow could stifle EV demand and related employment.

Some automakers, particularly Tesla, may remain relatively unscathed. Tesla sold over 600,000 vehicles in the U.S. last year, all produced in California or Texas factories. Tesla's high level of domestic production, from seats to motors, means it will face lower tariff expenses. Tesla CEO Elon Musk acknowledged the impact on Tesla, but the company's high domestic production rate means it will face lower tariff expenses.

Republicans view the cancellation of EV tax credits as a way to free up funds for Trump's tax cuts. Among Biden's pro-EV measures, tax credits are the most expensive for the government. A Harvard University study estimated that repealing this policy would save $168 billion over ten years.

However, if the tax credits used by most EV buyers are canceled, the industry will face a double blow, leading to economic instability in dozens of red-state districts across the U.S. A Princeton University study in March predicted that if tax credits are canceled, there will be no need for U.S. EV/battery factories to open after 2026, as EV demand will not support that capacity.

Republican lawmakers are closely monitoring these factories, as most U.S. EV/battery supply chain factories are located in their districts, primarily in rural or exurban areas of the Midwest and Southeast. Currently, Republicans are shifting from "immediate repeal" to "gradual phase-out" of tax credits.