President Donald Trump has fired the first salvo in a war with BMW, Mercedes and VW that could play right into Tesla and GM’s hands when it comes to the Federal Tax Incentives on electric cars.
We think the odds are getting shorter on the Federal Tax Incentives getting a total overhaul and it could be just a byproduct of a much bigger battle.
President upset with imports
Trump is in Europe and Der Spiegel, a leading German newspaper, quoted him as saying behind closed doors: “The Germans are bad, very bad. Look at the millions of cars they sell in the US. It’s terrible. We’re going to stop that.”
The President has already criticized Japan’s Toyota Motor Corp and GM itself, for building cars in Mexico and then selling them on US soil.
The inference is clear: Trump is going to intervene in the US car industry and attempt to push the cause of domestically produced cars. He can’t really do this with rhetoric. The only tools at his disposal are tax breaks and incentives.
And then there’s the Federal Tax Incentive…
One deadline that is looming large for Tesla and GM is the end of the Federal Tax Incentive program for electric vehicles. Both marques should hit 200,000 sales in Q2 of 2018, which will set the wheels in motion for the end of their respective tax incentives.
From that moment on, both manufacturers would, theoretically, be at a competitive disadvantage and will have to fight tooth and nail with marques that were late to the EV party.
Those marques, including BMW, Mercedes and VW, will get to enjoy their respective tax breaks when it actually counts. You could argue they have played their hand to perfection under the current rules and rode the petrol train right until the end before pulling out their tax break that will make their rivals look more expensive.
Are the current rules fair? No…
But the current rules suck when it comes to fair play. So, could Donald Trump play the white knight and come in to overturn this piece of legislation? We think he could.
GM is one of the biggest companies in America and Tesla is the poster child for the US automotive industry and tech. At the same time, the President of the United States is picking a fight with all of their major competitors and their respective nations.
Germany is fighting back
“The U.S. president doesn’t argue based on facts but instead comes to conclusions based on alternative facts like how many cars are currently parked on a New York road or at the Trump Tower,” said Director of the University of Duisberg-Essen’s Center for Automotive Research.
Far more interesting will be the response from German Chancellor, Angela Merkel, and you can be sure that it is coming. Trump is consistently picking a fight with Europe’s most powerful nation. It might be a passive aggressive fight, it might be little comments that slowly mount over time, but it’s a fight nonetheless.
Trump is deeply unhappy with Germany’s high trade surplus as he believes it has a knock-on effect on the American economy. He has already threatened to impose a 35% import tax on luxury cars that were built elsewhere.
Dieselgate is still a fresh wound
The US has also imposed its biggest fine in history on VW for the Dieselgate scandal. While the hostilities are still veiled, they’re definitely there.
The import tax suggestion could be a clumsy and possibly empty threat to force the manufacturers to boost their US presence and provide jobs for American citizens. But we think Trump might be painting himself into a corner that he possibly hasn’t even seen coming.
Tesla and GM have an opportunity
Elon Musk is part of the president’s advisory board. You better believe GM has access to Trump, too, and this disagreement with the German car industry is an opportunity for them both. Now is the time to get this Federal Tax Incentive overwritten with new legislation.
Trump can see himself as an arbiter of justice, removing a wholly unfair and anti-business piece of legislation that could hobble two of America’s most forward-thinking car manufacturers. He can also give the German car industry a black eye in the process.
Now there will be a lot of negotiations between now and then. If the Federal tax incentive and other benefits are worth fighting for then BMW, Mercedes and more could ramp up their US presence and build factories in Silicon Valley, Nevada and the Southern States.
We will never know the full story
There are so many hidden agendas in terms of employment, land sales, redevelopment of brownfield sites and more that we will never know the full truth of what is about to come and the real purpose behind Trump’s outlandish claims about how he intends to change the global car industry.
We do know, though, that the Federal Tax Incentive legislation can be rewritten. The way things are going, we think it will be.
So as a byproduct of Donald Trump’s war on imports, two homegrown US companies could get the extended tax break that they arguably deserve.
If it’s going to happen, it will happen soon.