A lot is being made of the subsidies given to EVs through the IRA that was passed under the Biden Administration. This is something that Trump has come out and said he would repeal.

Here is one of those examples of where campaign rhetoric and how things operate are two different things. Under the US system, the President doesn't have the authority to wave a magic wand and make things into law.

In this existence, we are dealing with a bill that was signed into law. That means that the law has to be repealed, or at least modified to accomplish what Trump was stating.

Laws have to start in the legislative branch. That means the United States Congress. The President cannot do anything without them.

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What Happens To The IRA?

There are basically 3 choices here:

• left unchanged
• completely eliminated
• modification

Another issue is how soon this happens? Many believe it will take place quickly. I do not think this is the case. There are a lot of other things that are higher on the list. Again, the President can influence the agenda in Congress, but he does not drive it.

In this instance, both houses of Congress look like they will be Trump's party. That said, the House of Representatives (if it is Republican since all votes arent tallied) will have a thin margin. That means that a small number of members, on any issue, who vote with the other side, could alter the outcome of a bill.

Of course, part of the responsibility of the leadership in these branches is writing bills that they can get through and having their fingers on the pulse of the other members.

So what happens here?

My guess is we end up seeing it modified.

Energy Stays, EV Subsidies Go

The IRA dealt with more than just EVs. While that garnered most of the attention, another important component is batteries. There are incentives for domestic battery production.

EV subsidies became a political issue. For this reason, wiping them away seems likely. It is a way to keep a campaign promise to the auto workers without really affecting things long term.

The impact of removing this is actually buffered in the handful of states that have their own subsidies.

What will not be removed is the battery component. This is something that is aligned with the goal of vastly increasing domestic battery production. On a global scale, the US trails in this area. The production has increased over the last few years.

The core argument for keeping the battery is it is necessary to keep up with China. This is obviously a hot button right now, and for good reason. There are many areas where the US is falling behind and playing catch up is crucial. The incentives help US battery production remain competitive.

How Does This Affect Tesla?

Elon Musk was actually against the IRA when it came out. He didn't feel it was necessary. The company was able to benefit from it but it is far from a requirement.

In fact, as long as the hybrid subsidies go (which I presume it will), then Tesla will be fine. Other automakers are losing a fortune on their battery electric vehicles. Tesla is actually making money.

At the same time, the battery incentive helps because Tesla is not only one of the largest consumers of batteries, it is also a top 10 manufacturer. The company is likely to keep moving up the ranks on this as the 4680 scales.

There might be some short term impact on vehicle sales but the does not change the trajectory of things over the medium or long term. Battery costs, in general, are coming down at such a pace that the credit lost will be offset in a few years even without any other cost reductions.

As for the time frame, I do not see this being approached until at least the Spring. Unless there is consensus quick, that would put the signing of whatever is passed around mid-year.

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