Electric vehicles could be a battleground issue for US presidential candidates, reflecting diametrically opposing views about global warming and how to address it. Former President Donald Trump has called EVs a “scam,” while Vice President Kamala Harris is expected to continue the special incentives for EVs created under the Joe Biden administration.

That’s the conclusion of several Morningstar analysts who follow the industry, which has suffered over the past year, as weak demand prompted Tesla to cut car prices, triggering more price cuts. Elevated interest rates offset the EV incentives under the 2022 Inflation Reduction Act. Consumers fretted about the high price of cars and their limited driving range, with many choosing hybrids over EVs.

Yet the transition to EVs, driven by the carbon transition, continues apace. Nearly one in five cars sold in 2023 was electric, according to the International Energy Agency. And the outlook for EVs may hinge less on the presidential election’s outcome and more on the outlook for driving range, interest rates, and affordability.

Indeed, the two candidates may be closer on EVs than they’ve been. Trump’s comments about EVs “have ranged from derisive to dismissive, but have become more supportive with recent substantial campaign funding” from Tesla TSLA CEO Elon Musk, says Jonathan Geurkink, a senior emerging technology analyst at PitchBook. 

Democrats, Republicans, and electric vehicles

The Inflation Reduction Act, signed by the Biden administration, contains numerous subsidies and provisions to stimulate domestic EV production and supply chains, all part of a larger effort to stem the greenhouse gas emissions that cause climate change. The Biden administration wants EVs to account for half of vehicles sold by 2030. A key element was a federal tax credit of as much as $7,500 for new EVs and up to $4,000 for used cars.

In the past year, the US also raised tariffs on Chinese EVs to 100%. “Going forward, Democrats are likely to support additional legislation to bolster domestic manufacturing of EVs,” says Geurkink. The EV credits help domestic manufacturing, and they bolstered market share for EVs. (Detractors carp that the tax breaks ensure that EV batteries in US cars are foreign-made.) “A continued Democratic administration would likely maintain those trade barriers to foster the domestic industry,” says Geurkink.

A Harris victory could spur the buildout of more charging stations and create more subsidies for consumers. Harris “may be looking to enact more policies to entice consumers rather than force automakers to switch to EVs,” says Seth Goldstein, a Morningstar strategist who covers Tesla.

What’s the Republican position? Trump is skeptical of climate change and, during his term, withdrew the US from the Paris Agreement to curb global warming. Trump supports domestic energy investment and has called EVs a “green scam” that hurts an industry dependent on internal combustion engines. Republicans also want to relax emissions standards like those in California, which demands that new cars and trucks sold by 2035 be electric or plug-in hybrids.

A Trump victory makes an Inflation Reduction Act repeal more likely. Still, the act received bipartisan support, and many of the projects and developments are unfolding in red states, Geurkink notes. That suggests to Geurkink that a Republican administration isn’t likely to gut projects funded under the act.

What the election means for Tesla

For all this, Trump has said he’ll consider hiring Musk, an avid supporter, as a White House advisor. That suggests his rhetoric toward EVs could stay just that.

Tesla has benefited from billions in regulatory carbon credits. In 2023, it made $1.79 billion from trading regulatory credits to other automakers unable to meet emission regulations in the US, Europe, and China. Under a Trump administration, Tesla will “enjoy additional largesse,” says Geurkink.

If the EV tax credit is repealed, Tesla “may see lower US sales, but likely not a huge impact as its cars are already priced at a premium level, meaning the current Tesla consumer is likely already willing to pay up for their vehicle,” says Goldstein. “By offering US consumers lower financing rates, Tesla has made the monthly payment on its vehicles more affordable, which wouldn’t change that much without the $7,500 subsidy.”

Is this priced into the current shares? Hard to tell. Tesla’s stock has been reacting more to its autonomous self-driving cars and Robotaxi developments in recent months than election news. “The market appears to be giving Tesla’s [full self-driving] and potential Robotaxi product more weight rather than reacting on election odds,” Goldstein says.

What the election means for other automakers

A repeal of the EV tax credit could certainly hurt legacy automakers, which have been bashed by high inventories, weakening demand, and competition from Japanese and South Korean manufacturers, as well as EV makers. In September, that led to a Morgan Stanley downgrade that roiled the sector, including Ford F and General Motors GM.

The auto industry once forecast that 2023 EV sales would grow 70%. Instead, they grew 50%.

Now, GM and Ford have both cut EV investments and increased investment in hybrids. Ford reduced the size of a planned battery plant and is investing in hybrids, in addition to EVs. GM also plans to reintroduce plug-in hybrids in North America. Stellantis STLA, meanwhile, recently announced it would spend $400 million on plans for EVs and hybrids at three Michigan factories.

One bright spot: Prices have fallen. The Tesla Model 3 costs around $40,000. That compares to $47,000 in early 2023. Leasing is also cheaper.

How about the rest of the EV ecosystem?

Since Harris would continue the Biden administration’s policies on trade and tariff policies, a Harris administration would probably support restrictions on specific strategic industries such as semiconductors and chip equipment and EVs to address competition with China, says Geurkink. Since the pandemic, Biden has also supported making global supply chains more resilient.

The Biden administration also kept or extended many of the Section 301 tariffs established under the Trump administration, says Geurkink: It “clearly sees tariffs as a means to support domestic industry and jobs regardless of the broader impact on the economy.” At the same time, heightened geopolitical risks suggest “increased efforts to reshore or ‘friendshore’ supply and trade relationships,” he says.

Trump has suggested tariffs would be a key policy tool. Says Geurkink: “The impact on global supply chains would be significant and pose challenges to planning and production.”

In private markets, money is flowing into emerging technologies for autonomous driving, particularly models using generative artificial intelligence. One beneficiary is privately held Waabi.

China, EVs, and the US election

EV sales are increasing globally. But they’re growing much more swiftly in China. More than one in three new car registrations in China was electric in 2023, over one in five in Europe, and one in 10 in the United States, according to the IEA. Indeed, record sales in China have lifted global sales growth. China has more than 100 EV manufacturers and exported nearly 1.6 million EVs in 2023, making it the world’s biggest exporter.

Thus, Chinese automakers like BYD BYDDY are looking to set up facilities in Mexico. The United States-Mexico-Canada Agreement, negotiated under Trump, aims for 75% of a car’s value to be “North American,” including parts, metals, and labor. In theory, auto companies that prove they source locally can export to the US from Mexico and Canada and circumvent various tariffs. That raises concerns for US trade.

Says Geurkink: “Chinese EV makers learned a lot from Tesla and on price performance are winning.” This year, the BYD Seagull hatchback cost $21,000 in Mexico, much cheaper than a US EV.

Says David Whiston, the auto analyst at Morningstar: “The Chinese are becoming much more formidable competitors even though they’re not selling to the US yet.” Will the US hit them with a tariff anyway? “That’s something to watch,” as Chinese automakers have wide cost advantages, he says.

Whiston remains a fan of GM, which is “performing better than Ford and Stellantis. They’re generating good cash flow and buying back a ton of stock.” He’s also a fan of Adient ADNT, the world’s largest seating supplier, and auto retailer CarMax KMX.

What will lift EV makers?

Goldstein predicts that EV demand “will rise substantially” when two key criteria are met. First, long-range EVs, which can go past 300 miles, “have to be sold in the affordable vehicle categories that cost just as much as internal combustion engine vehicles. Second, there must be fast EV chargers located at most travel plazas along highways and in cities so consumers feel confident they can take a road trip in an EV.” That could lift the fortunes of companies like ChargePoint Holdings CHPT and EVGo EVGO, both small, profitable companies. ChargePoint makes EV charging equipment, while EVGo builds charging stations. Any changes in incentives would impact demand for their products.

“All of it comes back to interest rates,” says Whiston. Fortunately, they’re on the way down.

And longer-term, the trajectory toward EV adoption continues. After all, pollution standards are growing ever tighter. According to a study by BloombergNEF, EVs accounted for 18% of global passenger-vehicle sales in 2023. It expects that to jump to 45% in 2030 and 73% in 2040.

“Over the long term, that’s still where we’re transitioning. It’s not that if Trump wins, EVs are dead,” says Brett Castelli, equity analyst at Morningstar.

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