The Zhitong Finance App learned that 2025 is predicted to be a year where the electric vehicle industry faces major challenges, and investors in the automotive industry, including Tesla (TSLA.US), need to prepare. The reason is that Trump is likely to remove the car purchase tax credit of up to $7,500 per electric vehicle. This is equivalent to directly increasing the purchase price of electric vehicles and is expected to significantly curb consumer demand.

The German market data provides a clear example. As of November, German consumers had purchased a total of 347,048 electric vehicles, a year-on-year decrease of about 26%. Over the same period, overall car sales were almost the same as in 2024. Meanwhile, the share of pure electric vehicles in new vehicle sales fell from 18% in 2023 to 13% in 2024.

The main driver of this change is rising prices, particularly the reduction in subsidies. The car purchase subsidy previously provided by the German government reduced the price of electric vehicles by about 5,000 US dollars, but after the subsidy was cut, the price increased by 12%, and demand fell sharply by 26% as a result. If this model is applied to the US market, electric vehicle sales may face a similar decline.

Currently, the average price of an electric car in the US is $55,000 (without subsidies), and the average price of an electric car eligible for the subsidy is $47,500. If the tax credit is lost, the $47,500 electric vehicle price would rise to $55,000, an increase of about 16%. In 2024, the US is expected to sell about 1.3 million electric vehicles, up 5% to 10% year on year. If the tax credit is removed, sales in 2025 could be reduced to around 1 million vehicles.

Despite the uncertain outlook, Tesla plans to mitigate the impact by launching a new low-cost model. The new car is expected to hit the market in the first half of 2025, with a starting price of around $30,000. Looking back at 2020, the Tesla Model Y sold around 65,000 units in its first year, and this new model is likely to attract more consumers and reach 100,000 units in 2025.

If this plan succeeds, electric vehicle sales in the US market may stabilize at around 1.1 million units, with Tesla's sales likely to remain flat or fall only slightly by 0% to 5%. At the same time, Tesla will also rely on support from overseas markets. Wall Street expects Tesla's global delivery volume to reach about 2.1 million vehicles in 2025, an increase of about 17% over the previous year.

Other car manufacturers are also responding to this challenge by cutting prices. For example, Toyota announced that the BZ4X will sell for 2025 at $37,000, which is $6,000 lower than the 2024 model, or about 14%. While price cuts help offset the effects of the removal of tax credits, they will put pressure on profit margins.

Despite the uncertain outlook, Tesla investors don't seem particularly concerned. As of the trading day after election day (December 30), Tesla's stock price had risen 61%. Investors generally believe that Trump's close relationship with Tesla CEO Musk will bring other benefits to the company, including the implementation of federal autonomous vehicle regulations, which will pave the way for Tesla's autonomous taxi service that it plans to launch at the end of 2025.