New Challenges for German Automotive Industry Amid US Policy Changes
Recent developments in the U.S. automotive market have dealt a significant blow to German manufacturers, particularly Volkswagen and Stellantis, as new guidelines for electric vehicle (EV) subsidies are introduced. The impending administration of Donald Trump is expected to alter existing environmental initiatives favoring EVs, a move that raises concerns for European automakers.
Under the new regulations, the Volkswagen ID.4 will no longer qualify for the full tax credit of $7,500, as it has been removed from the list maintained by the U.S. Department of Energy and the Environmental Protection Agency. Similarly, the Audi Q5 plug-in hybrid, which previously received a subsidy of $3,750, has also been excluded from the eligibility list.
Stellantis, facing its own challenges, is not exempt from these changes. The company's Jeep plug-in hybrid models will no longer benefit from tax credits that previously provided up to $3,750 in financial relief. Following these announcements, shares in both Volkswagen and Stellantis experienced declines in the stock market, with Stellantis shares dropping by as much as 4.5% in Milan, while Volkswagen's stock also faced losses in Frankfurt.
The new policy changes favor vehicles manufactured in the U.S., with Hyundai seeing five of its models remain eligible for subsidies due to their domestic production. In stark contrast, the Tesla Cybertruck will receive full financial support starting in 2025, marking a significant advantage for the American automaker.
These updates are part of the Inflation Reduction Act (IRA), which aims to protect the U.S. economy through stringent requirements for sourcing battery components and raw materials domestically. Consequently, the number of EVs and plug-in hybrids eligible for tax incentives has decreased from 22 to 18 models.
Currently, none of Volkswagen's models or those from other German manufacturers appear on the updated list for 2025. While Bloomberg notes that the list may expand as manufacturers submit additional qualifying models, immediate repercussions are apparent for companies like Volkswagen. Despite this setback, Volkswagen recorded a 15.2% increase in U.S. sales for 2024, totaling approximately 379,000 vehicles, primarily driven by combustion engine models such as the Jetta and Atlas SUVs. Audi, however, saw a decline in sales, dropping 14% to 196,500 units.
It remains uncertain how these new regulations will impact the sales of Volkswagen and Audi in the U.S. market. The company has not yet provided clarity on why the ID.4 was removed from the subsidy list, particularly given that it is manufactured at the Chattanooga facility in Tennessee. Additionally, buyers of electric vehicles in the U.S. must navigate income and vehicle price limits, which can affect their eligibility for subsidies, currently set at $80,000.
