So much for Ford and GM’s scheme to extend the EV tax credit

Ford and GM have abandoned their plan to effectively extend the $7,500 electric vehicle tax credit for customers through year-end, following scrutiny from Republican senators who deemed the strategy a 'loophole.' The automakers had intended to use their finance divisions to secure the credit on dealer inventory before the September 30th expiration, then pass the discount to lessees to sustain EV sales momentum. This reversal, initiated by GM and followed by Ford, is expected to lead to a significant drop in EV sales, although Ford states it will maintain competitive lease payments and 0% financing to mitigate the impact.

Analysis

Ford (F) and General Motors (GM) have rescinded their plan to effectively extend the $7,500 electric vehicle (EV) tax credit for customers beyond its September 30th expiration. This reversal followed intervention from Republican Senators Bernie Moreno and John Barrasso, who labeled the strategy a "loophole" and a "total violation of Congressional intent" to the Treasury Department, despite prior clearance from the Internal Revenue Service. This event carries a moderately negative sentiment for both automakers.

The automakers' original scheme involved their finance divisions purchasing EVs from dealer inventory before the deadline, then leasing these vehicles to customers with the $7,500 discount embedded. This approach aimed to sustain EV sales momentum, which had seen spikes in July and August as consumers rushed to claim the credit, differentiating it from direct cash incentives offered by competitors like Hyundai and Stellantis (STLA).

Experts now anticipate a significant decline in EV sales for Ford and GM in the upcoming quarter due to the credit's effective removal. Ford, however, has announced it will not claim the tax credit but will maintain competitive lease payments and offer 0% financing for 72 months on EV purchases to soften the blow and continue providing affordable options.

This situation underscores the significant influence of regulatory and political factors on the nascent EV market, potentially impacting company fundamentals and consumer demand. The pessimistic tone reflects concerns about the ability of F and GM to maintain EV sales growth without the federal incentive.

Key Decisions for Investors

• Monitor Q4 EV sales data for Ford and GM closely to assess the actual impact of the credit's removal and the effectiveness of Ford's mitigation strategies.
• Evaluate the competitive landscape, particularly how Hyundai and Stellantis's direct incentive approach compares to Ford and GM's revised strategy in maintaining EV market share.
• Consider the regulatory risk associated with government incentives and potential political scrutiny, which can significantly alter market dynamics for EV manufacturers.