Impact of Shifting Electric Vehicle Regulations on U.S. Car Manufacturers
The first day of the latest U.S. presidential term saw the signing of an executive order aimed at dismantling the "electric vehicle mandate" and eliminating subsidies favoring EVs. This move has left car manufacturers trying to assess how this will affect their profitability.
Recently, regulatory authorities proposed to revoke a significant 2009 decree that established greenhouse gases as a public health hazard. The potential consequence is that car manufacturers may no longer need to monitor, manage, or disclose their greenhouse gas emissions.
This development comes after the approval of a new tax and spending bill. The bill is set to terminate the $7,500 tax credit for new EVs and $4,000 credit for used EVs after the end of September, from which car manufacturers have previously profited.
Changes in Regulatory Credits
The new law will also put an end to a clause that has been a significant source of revenue for U.S. EV manufacturers. Traditional car manufacturers that produce petrol-powered vehicles usually purchase regulatory credits from EV manufacturers to compensate for their tailpipe emissions. With the introduction of the new law, car manufacturers will have no incentive to buy these regulatory credits, marking a victory for petrol vehicles and a setback for EV manufacturers.
In light of these changes in the EV market, U.S. car manufacturers are reassessing their product offerings and estimating the financial impacts. Here are some insights from recent earnings calls regarding these softer regulations.
Car Manufacturer Insights
During a recent earnings call, the CEO of a well-known EV manufacturer indicated that the company is in a "strange transition phase," grappling with the loss of EV incentives in the U.S. The company's CFO added that the focus is now on manufacturing and delivering as many vehicles as possible in the U.S. before the tax credits expire in the fall. As a result, the introduction of the company's more affordable model will be slower than initially expected. Although the company has never based its business model on selling regulatory credits to other manufacturers, it expects lower revenue due to these changes.
A leading traditional car manufacturer's CFO anticipates challenges to EV profitability due to the removal of government incentives. He predicts a surge in EV sales before the expiration of the tax credits, followed by slower demand. Nevertheless, he expects the legislative changes to have a minimal impact on the company's 2025 results. Despite the company's diverse vehicle portfolio, EVs make up a small portion of its total vehicle sales.
The CEO of another renowned car manufacturer stated in a recent analyst call that the company had to significantly alter its EV spending and capital allocation due to softer regulations. This included delaying launches and canceling certain products. The company is now focusing on offering a range of hybrid cars, as the CEO believes this is what customers will want in the long term.
Another EV manufacturer doesn't anticipate any revenue from regulatory tax credits for the remainder of 2025. The company's CFO said that they had to lower their outlook for regulatory credit sales for the rest of 2025. The CEO added that while the changes in regulatory credits will mean a short-term reduction in cash flow, it could also result in less long-term competition in the EV market. This is because traditional manufacturers will have fewer motivations to invest in electrification.