Manufacturer support will remain in place, but is the EV market mature enough to stand on its own two feet?
Our view is that while Trump will revoke EV consumer tax credits rapidly, the support for EV manufacturers in Biden’s IRA will remain in place. Crucially, a large part of the supported projects that have created a substantial number of jobs are concentrated in traditionally Republican states.
This is an important point, based upon our tracked announced projects, the Inflation Reduction Act supports EV manufacturing capacity investments that should result in 5 million EVs/year production capacity and battery manufacturing capacity investments that should reach 1 TWh in 2025.
Bringing our focus now to the removal of the IRA EV credit for consumers, we have reiterated the need for low-cost EVs in the US market to continue attracting new consumers, as many of the low-hanging EV enthusiasts have made the switch to electric already. At present, EV models that qualify for the EV credit are generally lower cost (Fig.14) and when the $7,500 credit is included, it is not uncommon for these EVs to be cheaper than the average ICE model within a specific vehicle category (see Flash Alert - Global 2Q EV Sales Summary: Strength in numbers as competition heats up - 25 July 2024). Furthermore, the $4,000 EV tax credit for purchases of used EVs is only applicable to transactions below $25,000.
As of July, the average new EV purchase price (paid at the dealership) was $56,520, some $8,000 dollars higher than the average for all new-vehicle prices of $48,400. However, when the average tax credit for an EV purchase is considered, the true price paid by the consumer for a new EV is 12% lower at $49,740. In our view, the increasing availability of more affordable EVs is the main driving factor behind the increasing absolute sales figures of EVs and recent history indicates that this is the case.
Quantifying the impact on gasoline demand should these IRA subsidies be removed is a question of calculating the medium-term drop in EV sales relative to what would have been expected in a scenario where subsidies continue.
To measure the potential impact on gasoline demand due to changes in EV adoption we have created an “Trump Extreme Scenario” whereby we imagine a complete rollback of the EPA emissions standards and total removal of EV-related subsidies. This scenario assumes no other policy changes. In quantitative terms we assume that by 2030 total plug-in sales would reach 3.2 million (19% of car sales) instead of 4.8 million in our base case. Overall, the impact by 2030 would be an increase in gasoline demand of 140 kb/d relative to our current base case scenario, with demand peaking in 2025 at 8.94 mmb/d before falling to 8.54 mmb/d in 2030.