What a Trump second term would mean for the EV industry in the United States

If Donald Trump is re-elected in 2024 and the Republicans hold one or both houses of Congress, his administration's focus on rolling back clean energy and EV policies could significantly impact state and federal initiatives. This includes dismantling policies and funding programs crucial to the deployment of EV infrastructure and clean energy projects.

I want to provide three views on this:

1. The worst case (this one)
2. The likely and upside cases (next one)
3. What should the industry do to prepare for any of these cases (3rd one)

This is not aimed to be in any way a partisan exercise. It is just a way to say - this may be the reality for the industry - what should we expect, and what should we do.

Federal Influence on State Regulations

Preemption and Legal Challenges:

• Revoking Waivers: The administration could direct the EPA to revoke California’s waiver under the Clean Air Act, which allows the state to set stricter emissions standards than the federal government.
• Litigation: The federal government could initiate legal challenges against state regulations like California’s Advanced Clean Fuel (ACF) regulation, claiming they conflict with federal law or exceed state authority.

Regulatory Actions:

• Executive Orders: Trump has pledged to issue executive orders to eliminate EV mandates and other regulations that support EV infrastructure and emissions standards on his first day in office. It is important to note that in this case "mandates" is a general term he is using for the "theme" of a Biden administration being supportive of EVs.
• EPA and Agency Directives: Federal agencies might be directed to prioritize fossil fuel production and reduce support for renewable energy projects, impacting states' ability to implement stricter regulations.

Expanding Executive Power

Increased Political Appointments:

• Reclassification of Civil Service Positions: Reclassifying positions as political appointments would allow the executive branch to exert more direct control over federal agencies.
• Centralized Decision-Making: This shift could streamline the implementation of the president's policies but reduce checks and balances within federal governance.

Policy Implementation and Rollbacks:

• Regulatory Changes: With greater control over agencies, the administration could expedite the rollback of existing regulations and implement new policies without significant internal resistance.
• Accelerated Deregulation: This could involve removing restrictions on fossil fuel production and reducing support for renewable energy projects.

State-Level Responses

Legal Defense: States like California would likely defend their ACF regulations in court, leveraging their coalition with other states that have adopted similar standards.

State Legislation and Funding: States might pass their own funding initiatives and seek alternative funding sources to support clean energy projects, mitigating the impact of reduced federal support.

Federal Funding Flow and Impact on Programs

To give some context to this, it is important to understand how money flows to programs in the US.

Federal Funding Flow:

• Federal Budget: Allocated by Congress, impacting various federal departments such as the Department of Energy (DOE) and Department of Transportation (DOT).
• Department Allocation: Federal departments distribute funds through grants, loans, and programs to state and local governments, private sector entities, and non-profits.
• State and Local Distribution: States receive federal funds directly for specific programs or via block grants, which can then be distributed to local governments and entities.

Key DOE Funding Programs Directly Impacting EVs

Vehicle Technologies Office (VTO):

• Program Cuts: The VTO focuses on advancing the development of energy-efficient and environmentally friendly transportation technologies, including electric vehicles (EVs). Funding cuts to VTO programs could hinder the development and deployment of advanced EV technologies.
• Research and Development: This includes funding for research in battery technology, electric drive systems, and vehicle electrification.

Advanced Research Projects Agency-Energy (ARPA-E):

• Program Cuts: ARPA-E supports the development of cutting-edge energy technologies. Projects aimed at improving EV battery performance and reducing costs could be particularly vulnerable to budget cuts.
• Innovative Projects: ARPA-E funds high-risk, high-reward projects that have the potential to transform the energy landscape, including numerous initiatives related to electric vehicles.

Clean Cities Coalitions:

• Impact on Local Initiatives: The DOE funds Clean Cities Coalitions, which work at the local level to promote clean energy initiatives, including EV adoption and infrastructure development. Reduced support for these coalitions could significantly impact local EV programs.

Energy Storage Grand Challenge:

• Battery Innovation: This program aims to accelerate the development, commercialization, and utilization of next-generation energy storage technologies, crucial for EV advancement. Budget cuts could slow progress in improving EV battery technologies.

Impact on the $20 Billion Clean Energy Investment Competition

The Biden-Harris Administration launched a historic $20 billion competition to catalyze investment in clean energy projects:

• Allocation vs. Spending: While much of this funding has been allocated, it has not yet been fully spent. A Trump administration could potentially halt the disbursement of these funds, reallocating or rescinding them before they are fully utilized.
• Risk of Clawback: If funds have been committed but not yet disbursed, there is a risk they could be clawed back. This would disrupt ongoing and planned clean energy projects, impacting progress towards national climate goals.

Support for Core Product Development and Tariffs

Support for Vehicle and Battery Development:

• Reduced R&D Funding: Federal support for research and development of EV technologies and batteries, including grants and tax incentives, could be significantly reduced. This would impact the ability of companies to innovate and bring new technologies to market.
• Increased Tariffs: A Trump administration might reintroduce or increase tariffs on imported EVs and battery technologies, aiming to protect domestic industries. This could increase costs for consumers and slow the adoption of EVs in the U.S. market. Tariffs seem to be a bipartisan area, so the additionality of Trump in this area may not be major.
• Supply Chain Disruptions: Tariffs could also disrupt global supply chains, making it more difficult and expensive for manufacturers to source components and materials necessary for EV production.

Tax credits relating to charging infrastructure installation and domestic manufacturing

Tax Credits introduced under the IRA will play huge role not only in supporting domestic manufacturing but also in funding projects like installation of EV charging infrastructure. Under the current framework established by the Inflation Reduction Act (IRA), several key tax credits are available that impact both areas:

1. EV Charging Projects: The Alternative Fuel Refueling Property tax credit, which was extended through December 31, 2032, provides a 30% credit for the cost of purchasing and installing EV charging equipment. This applies to many organizations, including municipalities and other tax-exempt entities
2. Domestic Manufacturing: In addition to the tax credits for EV charging infrastructure, the Qualifying Advanced Energy Project Tax Credit (48C) is another critical component. It offers a 30% investment tax credit for projects that support clean energy manufacturing, including EVs and battery production. This tax credit is a key driver for building a robust domestic supply chain, ensuring that manufacturing remains competitive and aligned with U.S. clean energy goals.

These tax credits are interconnected in that they provide essential support both for the infrastructure needed to facilitate EV adoption and for the manufacturing base necessary to sustain it. The removal or reduction of these credits could have significant consequences, not just for manufacturers but also for municipalities and other entities relying on these incentives to finance their EV projects (Kiplinger.com) (IRS) (Alternative Fuels Data Center).

The power to roll back or alter tax credits, such as those supporting EV infrastructure and domestic manufacturing is not easily available to a new administration. The following are the potential avenues:?

• Reversing Tax Credits through Congress: The tax credits established under the Inflation Reduction Act (IRA), like the Alternative Fuel Refueling Property tax credit and the Qualifying Advanced Energy Project Tax Credit (48C), are part of federal law. To rescind or significantly alter these credits, the Trump administration would need the support of Congress to pass new legislation that either repeals or amends these provisions. If Republicans control both houses of Congress, it would be more feasible to pass such legislation.
• Budget Reconciliation: Another possible route is through the budget reconciliation process, which allows for expedited consideration of certain tax, spending, and debt limit legislation. This process can be used to modify or eliminate tax credits, but it requires only a simple majority in the Senate. However, the scope of changes that can be made under reconciliation is limited to budgetary impacts.

• Regulatory Delays and Rulemaking: Even without changing the law directly, a Trump administration could direct federal agencies like the IRS or the Department of Energy (DOE) to slow the implementation of these tax credits or reinterpret the rules governing their application. This could involve delaying the issuance of necessary guidance or creating more stringent requirements for eligibility, effectively reducing the availability or impact of the credits.
• Executive Orders: While an executive order cannot directly change the law, it can influence how existing laws are implemented. For example, Trump could issue an executive order directing federal agencies to prioritize fossil fuel projects or cut support for clean energy initiatives, indirectly affecting the availability and effectiveness of tax credits for EV and clean energy projects.

As it can be seen the tax credit may be relatively hard to change, unless both houses are controlled. In addition, any attempt to roll back these credits would likely face significant legal and political challenges. States, municipalities, and industry stakeholders who benefit from these credits might challenge such actions in court, arguing that they exceed the executive branch's authority or violate existing laws. Moreover, such moves could be politically unpopular, especially in states that have invested heavily in clean energy and EV infrastructure.

In summary, while a Trump administration could attempt to roll back or reduce these tax credits, doing so would likely require significant legislative action and could face substantial legal and political hurdles. The extent of this power depends on the makeup of Congress and the administration's ability to navigate the complex legislative and regulatory landscape

Potential Support for Fossil Fuels Under a Trump Administration and Its Impact on EV Competitiveness

If Donald Trump were re-elected in 2024, there is a significant likelihood that his administration would pursue policies favoring the fossil fuel industry, which could directly impact the competitiveness of electric vehicles (EVs). Trump's past rhetoric, including the well-known phrase "drill baby drill," underscores his commitment to expanding domestic oil and gas production. This approach could manifest in several ways:

Increased Fossil Fuel Production and Incentives

Under a Trump administration, we could expect an increase in incentives for fossil fuel production. This might include:

• Tax Breaks and Subsidies: The administration could reinstate or expand tax breaks and subsidies for oil, coal, and natural gas companies, making fossil fuels cheaper and more competitive relative to clean energy alternatives like EVs
• Expansion of Drilling: Policies could be introduced to expand drilling on federal lands and offshore, further boosting domestic oil and gas supplies. This would align with Trump's previous administration, where such activities were encouraged to achieve energy independence
• Relaxation of Environmental Regulations: Deregulation efforts might focus on easing environmental protections, such as emissions standards and restrictions on methane leaks, which would lower operational costs for fossil fuel companies. These savings could, in turn, be passed on to consumers in the form of lower energy prices

Impact on EV Competitiveness

The support for fossil fuels could negatively impact the competitiveness of EVs in several ways:

• Lower Gas Prices: Increased fossil fuel production could lead to lower gasoline prices, reducing the economic incentive for consumers to switch to EVs. The cost savings from driving an EV might diminish if gas prices drop significantly
• Shift in Consumer Perception: If fossil fuels become more prevalent and affordable, consumer interest in EVs could wane, especially if EV-related incentives are reduced or eliminated simultaneously. This could slow the transition to cleaner transportation options.
• Investment Shifts: Increased government support for fossil fuels might divert investments away from renewable energy and EV infrastructure. If the market perceives fossil fuels as a more stable or profitable sector under the administration, this could lead to a reduction in funding for clean energy projects

Additional Impacts If Republicans Hold Both Houses

Legislative Changes:

• Repeal or Modification of Key Legislation: With control of both the House and Senate, Republicans could push through legislation to repeal or significantly alter key laws supporting clean energy and EVs, such as the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA).
• Amendments to the Clean Air Act: Republicans could introduce amendments to the Clean Air Act to limit states’ abilities to set their own stricter emissions standards, directly targeting California's ACF regulation and similar initiatives.

Increased Budget Cuts:

• Deeper Cuts to Federal Programs: Control of both houses would enable more aggressive budget cuts to federal programs supporting clean energy and EV infrastructure.
• Policy Riders and Conditions: Legislation could include policy riders that restrict how federal funds can be used, making it more difficult for states to access federal support for clean energy projects without complying with new federal conditions.

Strengthened Executive Orders:

• Broader Use of Executive Orders: With legislative backing, the administration could issue more sweeping executive orders to roll back existing regulations and implement new policies.
• Institutional Changes: Legislative support could facilitate structural changes within federal agencies, consolidating power and aligning agency operations more closely with the administration's agenda.

This is a wider-ranging look at the potential impacts. Again, this is the worse case view of what is possible, however, it is important to note that Trump has made EV's a target in multiple speeches, so many of these measures may get priority.

References:

• MIT Technology Review, "Trump’s second term could derail the global climate fight"
• E&E News by POLITICO, "How Trump 2.0 could transform DOE"
• Carbon Brief, "Analysis: Trump election win could add 4bn tonnes to US emissions by 2030"
• Mother Jones, "Donald Trump's Energy Plans 'Potentially Disastrous' for the Climate"
• T. Rowe Price, "Policy matters: U.S. election could impact renewables and electric vehicles"
• Department of Energy, "Energy Storage Grand Challenge"