Tesla and Trump: How will electric cars fare under the next president?

Elon Musk comments on the influence of federal tax credits on the electric vehicle industry. Analysts speculate that regulation changes and political maneuvering could have a powerful impact on the low-emission auto industry.

With several middle-priced electric vehicles ready to hit the market – including the Chevrolet Bolt EV and the Tesla Model 3 – President-elect Donald Trump’s background as a climate-change denier and friend of the oil industry has raised concerns about the fledgling industry's future.

Analysts speculate that regulation changes and political maneuvering could have a powerful impact on the low-emission auto industry, which is closer than ever to tapping into the mainstream. Meanwhile, gas prices continue to fall, brewing a perfect storm for an oil resurgence.

And while the president-elect’s policy positions are still unclear, the uncertainty itself could prove problematic for the global auto industry.

In the final weeks of George W. Bush’s presidency, the Supreme Court ruled that the Environmental Protection Agency had a responsibility to regulate carbon dioxide emissions in motor vehicles. But the administration simply refused to issue new rules for average fuel economy. Until President Obama took office, automakers were forced to make billion-dollar development investments with no knowledge of where fuel economy standards would land.

If Trump’s administration supports changing laws on emission standards, fuel economy, or assembly-plant regulation, a similar situation could play out in 2017.

Analysts and prospective owners have expressed two primary concerns about the Trump administration’s possible impact on the electric auto industry: the first is tax incentives. Currently, consumers can receive a $7,500 federal tax credit for buying or leasing an electric car. But the Alliance of Automobile Manufacturers, an industry lobbying group, has already urged the Trump transition team to revise current standards.

John Voelcker, editor of GreenCarReports.com, wrote:

The second is the possibility that the Trump Administration will try to abolish the EPA waiver that has for more than three decades has granted California the right to set its own, stricter emission standards – including requirements for sales of zero-emission vehicles that are set to rise sharply starting in 2018.

If that happens, plug-in electric cars will be subject to a true test of market strength. Proponents have long argued that sales will increase when cheaper electric cars enter the market. The 2017 Chevrolet Bolt EV will hit dealers next summer. Tesla, Nissan, and Hyundai may debut “affordable” offerings by 2020.

Others speculate that Trump may pressure California to abolish its zero-emission vehicle (ZEV) mandate at the behest of US fossil fuel industry. Under state law, automakers must sell a certain number of electric vehicles or face a fine. Automakers who can’t are allowed to buy credits from other companies. Nine other states have adopted the measure.

Tesla in particular has an excess of credits to sell, since it produces only electric cars. Some analysts have suggested that the company may lose a significant revenue stream if ZEV credits were eliminated. But in a livestreamed meeting, Tesla CEO Elon Musk told shareholders that a Trump presidency wouldn’t hurt his company.

As it stands now, there is an oversupply of ZEV credits in the market. On Thursday, Musk said that Tesla usually makes only about 50 cents on the dollar for those credits.

“The incentives either don’t scale or are disadvantageous,” Musk said. “If General Motors or Ford or somebody else makes electric vehicles, they get to monetize their ZEV credit at 100 cents on the dollar, so if there are two ZEV credits per vehicle, General Motors would have a $5,000 cost advantage over Tesla.”

Removing those incentives, however, could slow product development elsewhere in the industry – and at a time of critical growth, that may be a cause for concern.

“We do believe there should be incentives and government incentives for electric vehicles, but we believe they should be there for the good of the industry and to accelerate the advent of sustainable transport,” Musk said.