Americans interested in taking advantage of current tax incentives to purchase an electric vehicle or improve the energy efficiency of their homes had better get a move on. Many of these subsidies, originally scheduled to last through 2032, are instead running out of gas over the next few months.
President Donald Trump’s recently enacted “one big beautiful bill” includes the early demise of federal support for adoption of alternative fuel vehicles and home improvements. Refundable credits for electric cars will evaporate on Sept. 30, and several home tax credits will expire on Dec. 31. Households will end up with higher energy bills as a result. But the true beneficiary of the policy shift is China.
The Inflation Reduction Act of 2022 extended and enhanced several tax credits to promote and accelerate the move to more sustainable sources of energy. Purchasers of electric vehicles can claim a refundable credit of up to $7,500 that may be applied to the down payment or purchase price of the car, subject to some restrictions. Qualifying vehicles include passenger cars with prices of $55,000 or less and SUVs or trucks less than $80,000. The credit also phases out for couples with adjusted gross incomes above $300,000. The rebate also applies to leased vehicles, and a credit of up to $4,000 is available for used cars. Under the new law, purchasers must take possession prior to Oct. 1 to qualify for the discount.
Home improvement credits for solar panels, efficient heating and air conditioning equipment, insulation and other upgrades will disappear on Dec. 31.
In addition to axing clean energy incentives, the administration is killing off the successful Energy Star program, a government initiative to improve energy efficiency that has saved consumers and businesses over $500 billion in energy costs and prevented the emission of 4 billion tons of greenhouse gases since its inception in 1992.
The elimination of support for clean energy and electric vehicles been framed in terms of supporting American petroleum and coal producers, many of whom were generous contributors to Trump’s campaign. But the abandonment of support for alternatives plays directly into Chinese hands and endangers the future of American auto manufacturers.
China realized early in the 21st century that electric vehicles were the future. Since then, the Chinese Communist Party has invested huge sums into the development of its indigenous auto industry with startling results.
China now produces three times as many total cars and light trucks as the U.S., more than America, Japan, Germany and South Korea combined. And its bet on electric vehicles has paid off big time. The Asian colossus now builds 70% of all the world’s EVs, while the U.S. makes just 5% (and shrinking). There are over 100 separate Chinese EV manufacturers the largest of which, BYD, sells twice as many cars as Tesla at half the price and offers an entry level model for under $10,000.
And unlike in the U.S., electric cars in China are already cheaper to buy and less expensive to operate than internal combustion vehicles, thanks to economies of scale and the country’s massive investment in charging infrastructure.
The story is similar in batteries. China dominates global production, claiming over 70% of all EV battery output and 80% of some minerals necessary for their production.
Given China’s aggressive state support of EVs, wind and solar power components, American manufacturers must rely on supportive policy and tax incentives to level the field until they become competitive. Instead, the U.S. has shifted into reverse.
American imports of Chinese cars were essentially prohibited by Biden era embargoes, so U.S. consumers have been shielded from exposure to these advanced vehicles while domestic manufacturers have largely avoided direct competition with them here at home. But America’s growing deficit in the EV space poses an existential crisis for U.S. carmakers, a fact known only too well by Detroit auto executives.
Jim Farley, CEO at Ford Motor Co., spoke of the urgency for U.S. automakers to become more competitive in electric vehicles.
“We’re in a global competition with China … and if we lose this, we do not have a future at Ford,” he said.
Farley bought five Chinese vehicles for his engineers to study. “It’s the most humbling thing I’ve ever seen … They are far superior in vehicle technology.”
For its part, General Motors once jockeyed with Volkswagen for the pole position as top-selling nameplate in China and once sold more cars there than in America. Today, GM is number 16 in China.
America’s withdrawal from engagement in clean technology is already reaping both environmental and economic consequences.
The U.S. had been on a path to reduce greenhouse gas emissions by nearly 40% below 2005 levels over the next five years, shy of the 50% reduction target under the Paris accords but significant, nonetheless. Current administration policy, including eliminating clean energy incentives and increasing subsidies for fossil fuels, will essentially halt that progress, according to a Princeton University study.
Retreat from global competition will also cost American jobs. Over $200 billion in clean energy and vehicle investments have already been plowed into U.S. manufacturing projects since 2022. According to research from the Rhodium Group, an additional $522 billion in private capital investment is at risk thanks to the elimination of federal support. Already this year, over $22 billion in project cancellations have been announced and billions more are on hold, with the potential to eliminate as many as 400,000 high-paying American jobs including 15,000 jobs in Tennessee. Ford’s massive Blue Oval City in west Tennessee, which planned to employ nearly 6,000, has delayed the completion of its battery project and reduced output targets for electric F150 trucks.
The politics of electric vehicles and alternative energy in general is complex, sometimes verging on tribal. But the national defense and economic security implications of surrendering American industrial leadership in these areas presents an existential threat, one that grows daily and is being celebrated in Beijing.
Christopher A. Hopkins, CFA, is a co-founder of Apogee Wealth Partners in Chattanooga.
