How a Trump presidency could 'rock' the EV market - and bring Tesla prices way down

By Venessa Wong

The entry of Chinese automakers to the U.S. could 'bring massive price pressure to EVs,' one expert says

Tesla Inc. and other electric-vehicle makers stand to face major price competition if Donald Trump wins the presidential election and opens the U.S. to cars produced by Chinese manufacturers.

In his speech at the Republican National Convention on Thursday night, Trump expressed openness to Chinese automakers moving production to the U.S. from Mexico, which he said would create domestic auto jobs. Trump also threatened to levy tariffs on Mexican auto imports to impede the sale of foreign-made cars to U.S. drivers.

"Plants will be built in the United States, and our people are going to man those plants," Trump said. "If they don't agree with us, we'll put a tariff of approximately 100 to 200 percent on each car and they will be unsellable in the United States."

The Trump campaign and Tesla (TSLA) did not immediately respond to requests for comment.

Tesla Chief Executive Elon Musk has endorsed Trump's run for president, despite the Republican nominee's position against climate-change solutions and a view from Wall Street that a Trump term would be bad for the EV market overall.

"I can be persuasive," Musk said at a recent shareholder meeting. "I think he actually - a lot of his friends now have Teslas and they all love it. And he's a huge fan of the Cybertruck. So I think those may be contributing factors, yeah."

The potential entry of Chinese automakers to the U.S. would "bring massive price pressure to EVs and break the lower-price-point EV market wide open from a supply perspective," Pat Ryan, founder and CEO of the car-shopping app CoPilot, told MarketWatch.

As electric vehicles' share of new-car sales in the U.S. grew to 8% this year, from 7.2% a year ago, Tesla's market share declined to less than 50% last quarter, according to Cox Automotive.

"The overall competitive landscape for electric vehicles is intensifying. This increased competition is leading to continued price pressure, gradually boosting EV adoption," said Stephanie Valdez Streaty, director of industry insights at Cox Automotive, in a statement.

Already, EV prices, including for Teslas, have declined significantly over the last two years due to a supply glut and slowing demand. Musk, noting that many people live paycheck to paycheck, has reiterated the need to solve "the fundamental affordability question" as the company reduces prices.

Tesla's Model Y, one of the best-selling cars in the U.S. so far in 2024, now costs $49,990, down 20.6% from $62,990 in 2022, according to CoPilot data. The drop in used Tesla prices has been even more dramatic, with used Model Ys now selling for about $34,283, about half their price of $68,323 in 2022. Used Model 3s are selling for an average price of $25,906.

That may still not be low enough for some buyers, as interest rates remain high and many people remain under heavy financial pressure. The typical American household can only afford a $400 monthly car payment - or roughly a 60-month loan of $20,000 at current interest rates - based on household incomes and the budgeting standard to spend less than 10% of take-home pay on car payments, according to Cox Automotive Chief Economist Jonathan Smoke. Rising auto prices have moved up the average monthly payment to a much higher $756, according to June data from Cox Automotive.

China's BYD Co. Ltd. (HK:1211) (CN:002594) (BYDDY), now the largest electric-car maker in the world, has popularized lower-priced EVs. BYD's top-selling model is the Qin Plus, which sells for about $15,200 in China, while its new Seagull is about $10,000. While European and American brands do sell a few models in the U.S. that are built in China, there are significant barriers - mainly a 27.5% tariff on Chinese-made cars, according to Consumer Reports, which cited "bipartisan efforts to ban the import of Chinese-made vehicles altogether."

Tesla has manufacturing facilities in Fremont, Calif.; Austin, Texas; Sparks, Nev.; Buffalo, N.Y.; Shanghai; and Berlin.

If Chinese automakers manufacture in the U.S., it "could potentially rock the market and make EVs very cost-competitive," CoPilot's Ryan said. "That being said, those made in the U.S. are unlikely to be at the $25,000 price point" that would be affordable for many consumers.

As Trump introduced the idea of Chinese auto production in the U.S., he also criticized the Biden administration's investments in electric-vehicle infrastructure, which include $7.5 billion set aside to build more EV chargers. Trump, if elected, is expected to end federal tax incentives for EV buyers, while his running mate, Ohio Sen. J.D. Vance, supports rebates for gas vehicles instead.

The price gap between gas and electric cars is narrowing, but only because of the tax credits for buyers, noted Joseph Yoon, consumer-insights analyst at Edmunds. "Removing that tax credit will undoubtedly deter many buyers from even entertaining the option of a used electric, especially if we assume that a rollback of EV subsidies and programs includes a slowing of EV infrastructure improvements nationwide."

At the convention, Trump said: "I'm all for electric. They have their application. But if somebody wants to buy a gas-powered car, gasoline-powered car or a hybrid, they're going to be able to do it."

The Republican candidate pledged to lower energy prices in his convention speech. "We will drill, baby, drill," he said. "So much starts with energy. And remember, we have more liquid gold under our feet than any other country by far."

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-Venessa Wong

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07-20-24 0640ET

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