EV shares continued to drop on Wednesday. Lucid down 5%; Rivian, Li Auto down over 3%; Tesla down 1.4%.
President Donald Trump vowed to eliminate the electric-vehicle mandate in his inaugural address. There is no mandate. His statement can mean a few things for Tesla and the U.S. auto industry.
"We will end the Green New Deal, and we will revoke the electric-vehicle mandate, saving our auto industry and keeping my sacred pledge to our great American auto workers," said Trump in a speech from the Capitol. "You'll be able to buy the car of your choice."
The "mandate" refers to Environmental Protection Agency (EPA) rules requiring auto makers to sell all battery electric vehicles to avoid hefty emissions-related fines. Trump can relax EPA emissions standards in a rule-making process.
That doesn't end the mandate entirely. The California Air Resources Board, or CARB, regulates Californian emissions, and several other states follow its standards.
Trump could attempt to eliminate a federal waiver that allows California to pre-empt the EPA. If Trump wins, that would mean EPA standards govern all states. Ending CARB's authority to regulate state emissions would require a lengthy legal process.
A federal challenge to CARB could have a big impact on Tesla. CARB standards are the source of a significant portion of Tesla's zero-emission vehicle, or ZEV, credits that it sells for producing more than its shares of ZEVs. Credit sales have generated almost $10 billion in sales for Tesla since the end of 2018. That is roughly 25% of the $36 billion in operating profit Tesla has reported in the same span.
They also play a key role for EV start-ups: Rivian Automotive is projecting $300 million in 2024 credit sales. The "potential for a disruption in regulatory credit pricing" is one reason BofA Securities analyst John Murphy recently downgraded Rivian stock to Hold from Buy.
Ending the mandate, and "the Green New Deal" could also mean removing the federal EV-purchase tax credit worth up to $7,500 for qualifying EV purchases. Removing that completely will require legislation. The Biden Inflation Reduction Act was passed through a filibuster-proof budget reconciliation process. Undoing it would likely require simple majority votes in the House and Senate.
Easing EPA standards isn't all that bad for the domestic auto industry. Ideally, it will better match EV demand with EV regulations.
Americans bought about 1.3 million all-electric cars in 2024, accounting for about 8% of all new cars sold. Current EPA standards imply that roughly half of new-vehicle sales will be all-electric by 2032. That implies about 27% average annual EV sales growth between 2024 and 2032. That's an aggressive growth rate, considering that U.S. EV sales grew by about 7% in 2024.
Investors can't know exactly what is coming, but they can be sure the incoming Trump administration won't be as friendly to EVs as the outgoing Biden administration.
