The end of the electric car
Abolishing the EV mandate means the end to high gasoline car prices
The era of the electric vehicle (EV) may finally be coming to an end. EVs were propped up starting nearly two decades ago, first with subsidies and then with mandates. Automakers who made gasoline cars had to pay penalties if they didn’t sell enough EVs, and sometimes those penalties had to be paid to their EV competitors. It was a way to lower prices on EVs below the free-market price, and the opposite for gasoline cars, thereby artificially increasing sales of EVs at the expense of making gasoline cars more expensive.
Trump 2.0 promises to end it immediately
All of this changes with Trump becoming President on January 20, 2025. He has made it clear that he intends to end the so-called “EV mandate” immediately, and his recent comments suggest it will be in the form of an executive order in the first days of becoming President.
We don’t know yet if or how this Trump executive order will be challenged with litigation, and when the automakers will deem the new rule certain for them to conduct a new type of business. Will it take days or weeks, or will it take months or years? I am assuming in this article that there is clarity relatively quickly, within days or weeks, not months and years -- but the principle still applies otherwise; it will just happen later.
US automaker actions after January 20, 2025
As soon as the automakers in the US market conclude that Trump’s abolition of the EV mandate is real, the reality changes dramatically for them. They no longer have to sell a single electric car in the US unless they want to. There will be no fines for selling gasoline vehicles, guzzlers or not. The Dodge Challenger V8 (or equivalent) will be back!
Electric car demand: From 9% today to 1% or less
As a result of EV subsidies, EV mandates and penalties on gasoline cars, EVs have grown in the US market from less than 1% of sales before 2011 to 9% in 2024. Consumers were presented with heavily subsidized EVs (a $75,000 EV might have been selling for barely $30,000 net of incentives) and more expensive gasoline cars to finance the EV mandate (a $20,000 gasoline car may have been selling for $35,000).
This kind of heavily skewed pricing is what induced consumers to buy EVs to the tune of 9% rather than 1% a dozen years prior. What happens when this pricing reverses? Obviously EV sales will decline dramatically, perhaps down to 1% or less.
Let’s say you’re an automaker…
As an automaker, after January 20, 2025, you are now confronted with a choice: There is this little slice of the automotive market that may be somewhere between 0.1% and 1.0% of the total. It is heavily oversupplied because of politically induced investments over the last decade. Do you want to serve this market or not? Every car you sell will likely lose money in the near term.
Many automakers may conclude that serving this 0.1% to 1.0% of the car market is simply not worth billions of dollars of investments, with zero potential profit. Most likely, they will write off this political waste and move on to sell cars that people actually are prepared to buy on an unsubsidized basis.
A few automakers may choose to still serve the EV market, looking to eventually break even in the quest to serve this 0.1% to 1.0% slice of the overall car market. They may keep one or two EV models around, such as an SUV and a van. I imagine companies such as Hyundai-Kia, General Motors and Volkswagen would pursue this niche option. Other automakers probably won’t.
Addressable market for EVs outside China
If you assume the generous estimate of EVs being 1% of the market, let’s see how many EVs you can sell in the US and the non-China world:
In the US, 1% of 16 million is 160,000 cars.
In the non-China world as a whole, 1% of 60 million cars is 600,000 cars.
Therefore, outside of China, I estimate that once the EV mandate is gone from the US (first) and Europe (second, maybe a year later), the addressable annual EV market will be no more than 600,000 cars globally (excluding China) and 160,000 tops in the US.
What about China?
It’s been clear for a few of years what is happening in China: All non-Chinese automakers are being squeezed out. Soon enough, the Chinese market will be supplied 99% by Chinese manufacturers. It will be its own automotive world. China may or may not have an EV mandate in some form, longer term -- but whatever it will be over there, it won’t involve non-Chinese companies selling those cars.
Therefore, the non-Chinese automakers will be measured in terms of what they will sell outside China. With a worldwide market size of roughly 90 million units, subtract 30 million for China and you have 60 million for the rest. EVs will likely be no more than 1% of those, or 600,000 units, assuming an end to the EV mandates in the various geographies -- first the US, then Europe and others.
Tesla’s market size: 200,000 units per year
Take Tesla (TSLA) for example. Like all other non-Chinese companies, it won’t sell cars in China. It will be competing for the 600,000 EVs sold outside China. Today it has around 11% global EV market share. Let’s be extremely generous and assume that it will triple that to 33% in a post-EV-mandate world.
That would mean Tesla would sell 200,000 EVs per year, a reduction of almost 90% from today’s 1.8 million per year. A spectacular collapse. Other EV-only automakers would face a similar fate.
Cheap gasoline cars return to the market
You may have seen in recent years that the least expensive gasoline cars have left the market. This includes Hyundai Accent, Kia Rio, Ford EcoSport, Chevrolet Spark, Toyota Yaris, Mazda 2 and many others. These are the kinds of cars that used to cost a lot less than the cheapest cars in the US market today. You can hardly find more than a single car or two with an MSRP below $20,000 in the US today.
There are indeed precious few cars available in the US market today for under $25,000. With the abolition of the EV mandate, I expect a long list of inexpensive gasoline cars to return to the US market, and that prices may fall to as low as $12,000 for the basic new car (plus tax).
New sales mix: 99% gasoline, 1% EV
With the market being flooded with hordes of cheap new gasoline cars in the $12,000 - $15,000 range, the US car market would blossom and units sold could sharply increase to over 20 million per year. The EV share would fall to 1% (at best) of that total, possibly as low as 0.1%.
Those old 20-40 year old clunkers still on US roads would quickly disappear now that the average American could afford to replace them with new cars. This would also have huge environmental and safety benefits.
How would this impact the US state EV mandates?
I describe this in my recent article:
Basically, once the US Federal EV mandate is abolished, the state mandates will become impossible to maintain as a practical and political matter, if not legal.
For the Trump December 2024 interview in which he says that abolishing the EV mandate will be a top “Day One” priority, watch this video, especially at the 6:35 mark: