Electric-Auto Aid Under Scrutiny
President Trump’s top economic adviser said the administration is looking to eliminate subsidies on electric cars, a move that could hamper the auto industry’s push to broaden the market for battery-powered vehicles.
“As a matter of our policy, we want to end all those subsidies,” Lawrence Kudlow said on Monday. “And by the way, other subsidies imposed during the Obama administration – renewables, etc. We are a free market.”
Last week, M. Trump said he is considering pulling all subsidies for General Motors Co., including for electric cars, although he didn’t specify what subsidies GM was receiving. The president’s threat followed the auto maker’s decision to lay off nearly 15,000 salaried and factory workers, including at plants in Ohio and Michigan.
On Monday, M. Kudlow said the president was referring to an Obama-era stimulus package that created a $7,500 consumer tax credit for the purchase of electric cars. He said the president’s considerations about revoking subsidies may not be directed specifically at GM, noting, “legally, you really can’t.”
It is unclear whether the president has the authority to take this type of action because the stimulus package was created by legislation.
The federal money for electric vehicles goes to consumers, effectively allowing car companies to lower the bottom-line cost of electric vehicles, which remain pricey relative to gasoline-powered cars. Hundreds of thousands of electric-car buyers since 2010 have received credits for buying vehicles from Tesla Inc., GM’s Chevrolet brand, Nissan Motor Co. and others.
M. Kudlow’s comments broaden the threat beyond GM to include the entire auto industry, which is investing heavily to develop hundreds of new electric models over the next decade.
Auto makers, parts suppliers and startups primarily are targeting their electric efforts primarily at China because of stringent government mandates for environmentally friendly cars.
But the U.S. factors into the industry’s longer-range plans for a global electric-car market. Elimination of the tax credit could hurt electric car adoption in the U.S., analysts say. But elimination of the tax credit on electric cars would hurt other car companies more than GM, analysts say. GM is nearing a sales cap of 200,000 electric cars per manufacturer, which begins a phaseout of the tax credit for its customers. Tesla hit the 200,000-vehicle limit in recent months, which means new Tesla buyers will get smaller tax credits in coming quarters before the incentive goes away entirely.
Other auto makers such as Volkswagen AG and Ford Motor Co. have said they plan to introduce many electric car models in coming years. If the tax credit remains in place, their customers would be eligible for the $7,500 incentive while GM’s and Tesla’s wouldn’t.
“If the president took a more drastic step and eliminated the credit for the entire industry…this could possibly even give GM an advantage,” Edmunds.com analyst Jeremy Acevedo said.
A study this year by consulting firm AlixPartners study said the global auto industry plans to spend about $255 billion to develop more than 200 electric models globally by 2023. Many of those are likely to be unprofitable because of the high battery costs, implying that subsidies may be needed to boost the market for electric cars.
M. Kudlow said GM’s recent decision to cut up to 14,800 jobs in the U.S. and Canada and end production at several North American factories continues to be a concern of the administration as well as international allies, including Canada’s prime minister, Justin Trudeau, who raised the issue during last week’s G-20 summit.
European auto tariffs continue to be an issue that the president is using “in his quiver of arrows” but nothing has been finalized yet. He and other White House officials will sit for an informal meeting on Tuesday with German auto executives to discuss a path forward, M. Kudlow said, noting that the Trump administration’s hope is that the Europeans agree to terms along the lines of Washington’s newly signed deal with Canada and Mexico, which preserved tariff-free trade among the countries while requiring a larger portion of a vehicle’s content to come from North America.
Larry Kudlow, director of the U.S. National Economic Council, speaks outside the White House on Monday.