The budget reconciliation bill working through Congress in the US would eliminate the EV tax credit introduced under the Inflation Reduction Act (IRA).
First drafted by Republicans in early May, the ‘One, Big, Beautiful Bill’ was approved by the US House of Representatives on 22 May in a 215-214 vote. Measures included in the bill would scrap the $7,500 (£5,554) new-vehicle tax credit and $4,000 (£2,962) used-vehicle tax credit incentives on EVs introduced in 2022.
The EV tax credit had been due to expire end of 2032 but the new provision added to the Ways and Means Committee’s part of the bill accelerates the expiration to 31 December 2025.
BloombergNEF has called the bill — which still needs to clear the Senate before being signed into law by US president Donald Trump — “the nightmare scenario for US clean energy advocates.”
The reconciliation bill is meant to enable tax cuts promised by Trump, as well as ending Biden-era tax breaks. It will eliminate the IRA’s 30% production tax credit and investment tax credit (PTC/ITC) for all clean energy projects that do not begin construction within 60 days of its enactment. Projects that meet that deadline will need to be operational by 31 December 2028 in order to retain the credit.
Coverage of what this means for the wider clean energy market in the US is available on our sister sites, PV Tech and Energy-Storage.news.
The bill has significant implications for the EV ecosystem in the US, including automotive manufacturers and charging station providers. If passed, it would apply the clean vehicle tax credit exclusively to vehicles of which automakers have sold fewer than 200,000 units.
The old EV tax credit has been criticised by Republicans, alongside Biden-implemented tailpipe emissions rules, for restricting consumer choice.
Earlier this year, the House voted to repeal the waiver that allows California to set its own zero emissions vehicle (ZEV) mandate. The mandate was approved by the California Air Resources Board in 2022 and the US Environmental Protection Agency (EPA) granted the waiver as an addition to the 1970 Clean Air Act that allowed California to set its own pollution reduction policy.
The EPA itself faces drastic budget cuts from the White House, with its workforce shrinking to its smallest size since the 1980s and government funding to the organisation cut from $9.1 billion to $4.2 billion (£6.74 billion to £3.1 billion).
The Zero Emission Transportation Association’s (ZETA’s) executive director, Albert Gore, said: “The US battery and mineral supply chain — and the fast-growing EV manufacturing industry it feeds into — has created more than 240,000 jobs in every corner of the United States.”
He said that certainty provided by federal government support was a key driver behind investment in the US.
Tax credit elimination might not touch Tesla
Before the election, even those carmakers resistant to EV sales targets feared the removal of clean vehicle tax credits would harm the industry; having invested billions in meeting mandated EV sales targets, Toyota, Stellantis and Ford have pushed for current regulations in the US to be maintained.
During his election trail, Trump admitted he had “no choice” but to support EVs after receiving endorsement and funding from Elon Musk, the owner of technology firm Tesla.
However, the reconciliation bill would remove battery manufacturing subsidies, also introduced in 2022 as well as vehicle tax credit rollbacks, impacting two major parts of Tesla’s operations.
There is some debate over whether Tesla will feel the effect of the tax credit removal, as some commentators believe that brand loyalty will maintain its vehicle sales. Tesla is the leading EV and EV charger manufacturer in the US, with the country’s largest network of charging stations.
Due to the fact that all of its sales are zero emission vehicles, its profitability has been sustained in part by selling carbon credits to other automakers, as opposed to leveraging consumer incentives to drive sales figures.
Although this means its business in the US is not necessarily under threat, figures released at the beginning of May show that globally, Tesla sales are slumping. In April this year, 512 new Tesla-made cars were sold in the UK, down from 1,352 in April 2024, according to the Society of Motor Manufacturers and Traders (SMMT).
There would be less of a need for carbon credits were rules for automakers relaxed, though, and, as is the case for all chargepoint operators in the US, without demand from EV drivers, there is no return on investment for charging deployment and thus the business model fails.
Lower EV sales threaten highway funding
The wider reconciliation bill includes implementation of taxes on EVs to help contribute to the Highway Trust Fund (HTF), the fees and taxes paid by highway users to cover highway spending and maintenance.
The primary source of revenue for the HTF is the gas tax, which has not increased since 1993 and, in real terms, has declined by over 50%. Hypothetically, under the bill there would be a $250 annual fee for EVs, $100 annual fee for hybdrids and a $20 annual fee for all other vehicles.
The thinking is that as EVs replace gasoline vehicles, HTF revenue will drop further. However, even if that income were to be recouped through higher taxes for EV drivers, the Ways and Means package that disincentivises EV uptake reduces forecast EV adoption and thus reduces the revenue the policy would raise.
