Trump wants to cancel subsidies for electric vehicles. Why did Musk, who made 4.6 billion from it, say he was willing?

Just like sodium meets water, when Musk meets Trump, something is bound to explode between these two top internet celebrities.

On August 19, Trump publicly stated that if elected, Musk might get a position in the government, perhaps a cabinet position or a consultant. Musk quickly said on social media: I am willing to serve.

What happened in the Six Dynasties? It was nothing but private schemes of factions.

This kind of private transactions is a normal phenomenon in the American political ecology, and many leaders move back and forth between senior government officials and corporate executives.

On July 14, Musk had publicly stated that he would fully support Trump's campaign.

However, it was somewhat unexpected that Musk publicly expressed his willingness to accept Trump's invitation this time, because on the same day that he invited Musk, Trump also said another thing: if elected, he would consider canceling the $7,500 tax deduction policy for purchasing electric vehicles.

This touches on Musk’s core interests.

Musk, a representative figure of American high-tech, was originally a supporter of the Democratic Party. He turned to support the Republican Party and Trump, and the direct trigger was that his son became a "daughter". But now Trump's hostile attitude towards electric vehicles is likely to hit the overall development of electric vehicles in the United States. Why is Musk still willing to ally with Trump?

Let’s first take a look at where Trump’s $7,500 tax break for electric vehicles came from.

The United States is one of the first countries in the world to propose the development of new energy vehicles, starting in the first oil crisis in the 1970s.

The Energy Policy Act of 2005 stipulates that purchases of hybrid vehicles can enjoy a tax rebate of up to $3,400. The Energy Enhancement and Expansion Act of 2008 and the American Recovery and Reinvestment Act of 2009 excluded non-plug-in hybrid electric vehicles (HEVs) from the subsidy scope, and clarified "new energy vehicles" as pure electric, plug-in hybrid and hydrogen fuel vehicles, while increasing the tax rebate amount to a maximum of $7,500.

In 2022, Biden signed the Inflation Reduction Act, further clarifying the $7,500 as a "purchase subsidy" and that people can enjoy the subsidy even if they do not pay personal income tax.

How much money can Tesla get from these subsidy policies?

According to data provided by authoritative US agencies, as of May 2024, Tesla has received subsidies of up to $4.635 billion in the past 12 months alone. What does this mean? In 2023, Tesla's net profit was only $14.997 billion.

If Trump comes to power and cancels this subsidy, the blow to Tesla can be imagined.

But Musk's attitude towards this matter is very strange. As early as July 22, in response to Trump's remarks that "Biden's electric vehicle policy will end on his first day in office," Musk stated that Tesla does not rely on subsidies to survive, and it is Tesla's competitors that really rely on these subsidies.

Subsidies account for one-third of Tesla's net profit, but Musk said he doesn't care. This is indeed a bit unbelievable. As the saying goes, there must be something wrong when things are abnormal. This is actually a classic problem in the American political ecology. What is the difference between the Donkey and the Elephant?

The Democratic Party advocates big government and small market, while the Republican Party advocates small government and big market. To put it bluntly, the electric vehicle subsidy is a "visible hand" that uses administrative means to intervene in a certain industry. In China, this is generally called "macro-control."

Although Trump seems to be a heretic, in fact, many of his propositions are not out of line with the Republican Party's long-standing industrial policies and political ideas. Since Musk wants to support the Republican Party, he will not go against the Republican Party's political tradition.

Secondly, what Trump wants is to "make America great again", and his goal is to make cars produced in the U.S. From Trump's previous speeches, it can be seen that he not only opposes Chinese car companies to build factories in Mexico, but also opposes the three Detroit giants (GM, Ford, and Stellantis Group) to build factories in Mexico. However, if these manufacturers build factories in the United States, whether they produce electric vehicles or fuel vehicles, Trump supports it.

Earlier, when answering reporters' questions, Trump made it clear that he welcomes automakers from China and other countries to build factories in the United States, but if they build factories in Mexico, high tariffs will be imposed.

If Trump is really elected and implements these policies, it will provide more room for development of the US electric vehicle industry.

Biden opposes for the sake of opposing, while Trump opposes selectively.

The 2022 Inflation Reduction Act includes provisions that electric vehicles using Chinese batteries will not be eligible for subsidies in 2024, and electric vehicles using any key mineral raw materials from China will not be eligible for subsidies in 2025. If these policies are overturned by Trump, it means that Chinese parts manufacturers may enter the United States, which is good news for Tesla.

As early as a few months ago, the market had heard that Germany's local new energy vehicle supply chain was incomplete and Musk was forced to purchase parts from China to supply the Berlin factory. If parts manufacturers such as CATL build factories in the United States, it will greatly reduce Tesla's procurement costs.

For Musk, the small loss caused by the cancellation of the $7,500 subsidy is completely incomparable to the mature supply chain from China. One is short-term benefit and the other is long-term development.

Of course, Musk’s indifference to Trump’s remarks on “canceling subsidies for electric vehicles” also contains a little business common sense: Who is more dependent on subsidies?

In 2023, electric vehicle sales in the United States reached 1.189 million, a record high, of which Tesla's market share was as high as 55%; in the second quarter of 2024, Tesla's market share in the United States fell to 49.7%, but still had an absolute advantage.

In other words, it will be difficult for Tesla to have a decent competitor in the US new energy market in the short term.

The cancellation of subsidies will at most mean a little less money for Musk, but for those new energy manufacturers that are still in the start-up stage, it will be a disaster.

Canceling subsidies actually strengthens Tesla's existing advantages.

This may be the main reason why Musk doesn't care about Trump's remarks on canceling electric vehicle subsidies. Who knows if the two of them are playing a double game, Trump gets the votes of fuel vehicle tycoons, Musk makes it impossible for competitors to rise from now on, and the public thinks that the market competition has been fair from now on.

There are gains and losses. It seems that this is a good thing to kill three birds with one stone, but who will be the "bird" in the end? Obviously, it can only be the future of the American electric vehicle industry. However, there is no need to worry too much. Americans who are good at deindustrialization never consider what will happen in the future.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.