Tax-reform legislation being planned by President-elect Donald Trump's transition team to revoke an up to $7,500 consumer tax credit for plug-in electric vehicles would do more damage to the Detroit Three's electrification prospects, analysts say, than to a Tesla Inc. led by Trump ally Elon Musk.

Reuters first reported the plans, citing unnamed sources. The tax credit has been a boon to electric vehicle sales in light of their affordability challenges. Revoking that could further stall demand for EVs, whose sales growth already has been slowing, and challenge legacy automakers' ability to meet fuel economy and carbon emission regulations if they are not altered, putting investments and jobs at risk.

"We’re looking at lagging demand, and removing the incentive will suppress that even further," said Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions LLC. "The current capacity for EVs is higher than the current level of demand. Removing any incentives to increase demand will push out the transition even further, taking it longer for all these companies to get their money back from their investments."

The plan is a sign of the increasingly visible relationship between the president-elect and Tesla's Musk, considered the world's richest man who even was pictured in a Trump family photo on election night. Musk's involvement in the administration, experts say, could jeopardize automotive safety enforcement, the stability of EV sales for the Detroit Three automakers and challenge efforts to protect U.S. autoworker jobs in negotiations over tariffs and trade with Mexico.

"It’s a bromance, which is going to have major implications for Detroit, to the Beltway, and for Tesla," said Daniel Ives, analyst for wealth management firm Wedbush Securities Inc.

Representatives for Tesla — which holds nearly half of the U.S. EV market — support killing the plug-in vehicle subsidy, according to the Reuters report. Although Tesla benefits from the tax credit, too, and has three models that qualify, the credits are a greater advantage for other automakers by making their vehicles, many of which aren't profitable, more affordable. Tesla has already achieved the scale and cost structure to produce EVs profitably.

"Tesla has such a big cost advantage in EVs," said David Whiston, an analyst at financial services firm Morningstar Inc. "Getting rid of that tax credit wouldn’t necessarily hurt them."

Tesla's lower-cost models source batteries from China, which means they don't qualify for the $7,500 incentive unless the vehicle is leased. The Inflation Reduction Act signed into law by President Joe Biden in 2022 outlines sourcing requirements for the plug-in vehicles and their components to qualify for the subsidy when purchased.

"Foreign EVs will be more competitive," Fiorani said. "They won’t have the local incentive to build them here unless another tariff is put on Korean- or German-built EVs."

Chevrolet has five vehicles that qualify for the $7,500, Cadillac has one, Chrysler has one and Ford has one. Two Jeeps, one Ford and one Lincoln meet the requirements for a $3,750 tax credit.

Friday is the last day of production of the Ford F-150 Lightning truck until the new year as the Dearborn, Michigan, automaker seeks to preserve profitability as it projects a $5 billion loss from its Model e EV unit for 2024. General Motors Co. has said in the fourth quarter it expects its EVs will be "variable profit positive," meaning they can start to cover the cost of production.

If the tax credit disappears, though, automakers might have to make up the difference, Fiorani said, which would further delay profitability.

Paul Zimmermann, vice president and dealership partner of Matick Automotive Group with GM and Toyota stores in Metro Detroit, said the group leases around 95% of the EVs it sells since the federal tax credits make the lease offers very appealing to customers with savings of $200 to $300 a month.

"So, would it hurt EV sales? Yeah, all of a sudden, a $350 payment is now $662 or $558," he said of losing the incentive.

The automakers recognize their future is EVs, but it's a bumpy road to get there as battery costs remain high, charging infrastructure is built out and consumers become more educated on alternative powertrains. Fewer incentives could slow adoption further, and complicate plans for automakers investing billions of dollars into EVs. But losing the tax credit may not be all bad news, Ives said.

"In the eyes of the Street, especially when it comes to GM, that’s bullish," he said. "The Street wants to see them pull back on their EV initiatives. That’s the wild jigsaw puzzle. It's a dog-ate-the-homework excuse to slow down the EV strategy. In theory, they wanted to slow things down, but they already cemented in their goals. If tax credits get taken away, they can shrug their shoulders. It’s more profitable for them on ICE."

Tesla shares closed at $311.18 on Thursday, down 5.8% following the Reuters report. GM closed down 0.2% at $57.62, Ford Motor Co. stock decreased by 0.3% to $11.07 and Stellantis NV shares in New York rose 1.9% to $13.37. EV maker Rivian Automotive Inc. closed at $10.31, down 14%.

Ford, Stellantis and Rivian declined to comment on the potential tax credit elimination. The Detroit News left a request for comment with a GM representative.

The EV tax credit was established in late 2008 at the end of the George W. Bush administration amid a deepening collapse of the American auto industry. The Biden administration with the IRA, the Democratic president's signature legislative achievement on fighting climate change, reformed the incentive, including eliminating a cap that only Tesla and GM had hit at the time.

Trump this week said he would nominate Musk to lead a new Department of Government Efficiency with Vivek Ramaswamy, a pharmaceutical company entrepreneur who sought the Republican nomination for president. The department, which would have to be created and funded by Congress, is charged with addressing the country's $6.5 trillion budget with the mandate to "dismantle Government Bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure Federal Agencies" by Independence Day 2026, according to a statement released from Trump's transition team.

"This will send shockwaves through the system, and anyone involved in Government waste, which is a lot of people!" Musk said in a statement.

Many have questioned the potential conflict of interest that could stem from Musk's involvement and speculated that Musk’s favor with the president-elect could yield lucrative government contracts and a favorable regulatory environment for the tech mogul’s business ventures in industries from telecommunications to space exploration. But for Tesla’s consumer auto business, industry experts say the impact will be mixed.

It may appear an odd partnership. Musk and Tesla have popularized EVs, while Trump has decried government efforts to promote them, criticizing increasing fuel economy and carbon emission regulations as EV "mandates," saying he would get rid of incentives and suggesting U.S. automakers shouldn't worry about competing with Chinese EVs.

"It's a strategic poker bet for the ages on Trump," said Ives, noting the Tesla CEO was on the outs in the union labor-loyal Biden administration. "They iced Musk and Tesla out. That would be like not inviting Michael Jordan to an NBA Hall of Fame dinner. It came back to bite them. Musk now goes from basically the background to having a huge seat at the table."

Environmental regulations

Cutting the EV consumer tax credit wouldn't address the pressure on automakers with respect to complying with aggressive federal fuel economy and greenhouse gas tailpipe emissions regulations that were adopted under Biden. Although those don't call for a specific kind of powertrain, auto executives have said they can't meet those requirements without EVs. Noncompliance would prevent a company from selling their vehicles here.

Trump has suggested rollbacks. He could prevent the ramp-up of Biden requirements from model year 2027 to 2032 from taking effect and try to revoke California's waiver to set its own rules. That rulemaking process, however, can be more lengthy.

The U.S. Supreme Court's decision this summer to overturn the landmark 1984 decision in Chevron v. Natural Resources Defense Council could create an easier path through the courts. Chevron held if Congress hasn't directly addressed the question at the center of a dispute, a court had to uphold the agency’s interpretation of the statute as long as it was reasonable.

The last time Congress set a fuel economy standard was in the Energy Independence and Security Act of 2007, which called for a 35 mpg fuel economy standard for passenger cars and light trucks by 2020. Rules finalized by the National Highway Traffic Safety Administration this year call for a corporate average fuel economy of 53.5 mpg by 2032.

Trump has nominated former New York Rep. Lee Zeldin to lead the Environmental Protection Agency. He has emphasized using the EPA to boost economic prosperity and pursue energy independence. Musk himself is a frequent critic of government regulations, even as the current structure's carbon credit trading system supported profitability at Tesla.

Backing off one of the biggest pressures on automakers to increase EV sales would mean less competition for Tesla: The slashing of regulations “certainly defends their position,” said Mark Wakefield, global automotive market lead at the management consultancy AlixPartners LLP. “It puts some distance between automakers trying to catch up to Tesla's cost structure and scale.”

The company first became profitable in 2020, partially thanks to the sale of federal and state-level credits accrued by only producing zero-emission EVs. Tesla sold $1.6 billion in credits that year, according to a company filing to the Securities and Exchange Commission.

Those sales could decline or vanish altogether in a more permissive regulatory environment with less need for credits, but Tesla no longer depends on credits to stay in the black.

For the past decade, Tesla has made far more revenue from auto sales and leases than from credits. And as the company has reduced its costs to make each vehicle, credit sales have played a smaller role in driving profits.

“It's a couple hundred million dollars,” Wakefield said, noting that Tesla has the best cost position of any EV maker in the country. “It helps, but it doesn't mean the business turns unprofitable (without them).”

Kathy Harris, director of the Natural Resource Defense Council's clean vehicles program, suggested a federal reversal on EVs would undercut companies that have tried to close that gap.

“Automakers were actually there at the event announcing the adoption of the new EPA standards. I think this really shows that the automakers are on board,” she said. “They're investing billions of dollars. We're seeing more of these investments come online in the U.S. So, it's a really critical time to ensure that we're continuing that positive drive forward.”

Autonomy and safety

Profit positive for Tesla, on the other hand, could be what happens around autonomous driving. Creating a national standard would offer consistency over a patchwork of differing state regulations: "Fifty states doing their own thing is a nightmare for product planning," Whiston said.

Additionally, structural changes could pave the way for the technology to be launched more easily. Tesla offers its "full self-driving" semi-autonomous driving feature for $8,000, or $99 per month. Last month, the company unveiled its artificial intelligence-equipped Cybercab, a wheel-less, pedal-less robotaxi that won't launch until at least 2026.

"That's the game-changer," Ives said. "Because autonomous FSD, if that gets fast-tracked, it unlocks a $1 trillion valuation related to AI. That is the reason Tesla’s stock has done what it has done. When you look at the transportation agencies, Musk has gone from the hunted to the hunter. Anything Tesla did was caught up in red tape and a regulatory spiral. And now Musk is going to have a big say in those same agencies that oversee him."

Some venture capitalists and start-up founders see the potential regulatory pullback as an action that could usher in a golden age of innovation. It, however, is a cause for concern among consumer watchdogs.

Defect investigations dropped to all-time lows under the first Trump term, said Michael Brooks, executive director for the Center for Auto Safety. It's unlikely the National Highway Traffic Safety Administration will be able to complete its collection and analysis of information in its investigation into Tesla FSD and issue a decision before Trump is inaugurated on Jan. 20. The investigation followed four crashes, including a fatal incident in 2023.

"Their rulemaking, enforcement, research ... all of that is under threat, particularly when you see Musk cutting the federal budget," Brooks said of NHTSA and other transportation regulatory agencies. "There will be more dangerous vehicles on the road."

Trade and US jobs

Trump has also emphasized tariffs as a way to promote domestic manufacturing and has promised to renegotiate the United States-Mexico-Canada trade agreement created under his previous term.

Of particular concern is Chinese automakers like BYD Co. opening a plant in Mexico and importing product into the United States tariff-free. China-built EVs, which the Chinese government subsidizes, face a 100% duty. Although domestic automotive executives have recognized their companies will have to compete with the Chinese internationally, tariffs could serve as protection as the U.S. industry builds up its EV scale and supply chains.

But for years Mexico's lower-cost labor market has attracted auto assembly investment even from domestic manufacturers. Tesla this summer paused plans for a battery plant in Mexico until after the election following Trump's pledge to put a 100% tariff on vehicles built in Mexico.

"Maybe Elon can convince Trump to lay off tariffs on at least parts within North America," Whiston said. "That'll be easier for everybody's supply chains."

Most recently, Stellantis has said it will expand overflow production of the Ram 1500 to its plant in Saltillo, Mexico. The United Auto Workers has objected, but the Detroit-based union that endorsed Vice President Kamala Harris for the presidency over Trump is unlikely to have much sway in the next administration, Whiston said.

UAW President Shawn Fain, in a phone interview last week, told The Detroit News Musk's relationship with Trump is a concern for the union.

"We know Elon Musk is anti-union as hell, and laughs about firing striking workers," Fain said. "But you know that we're not going to let relationships hinder the mission, and the mission is simply to bring economic and social justice to working-class people, improve our livelihoods where we have livable wages, adequate health care, retirement security, and not have to work seven days a week, or two or three jobs to get it. And where we can find common ground, we're going to work like hell with whoever's willing to work with us."

Only time will ultimately tell what sort of an impact a sitting automotive CEO holding a position in government will have on the industry.

"It’s only the first chapter in this soap opera," Ives said. "Get the popcorn out."

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