What’s Missing from the U.S. Debate on Electric Vehicles

As the Senate considers the One Big Beautiful Bill Act recently passed by the House, Congress faces critical choices that could reshape the future of U.S. industry—especially in relation to the Inflation Reduction Act (IRA), and more generally, strategic decisions over how to best promote U.S. competitiveness in advanced technologies.

For the automotive sector, the stakes are high: The 30D consumer tax credits and the 45X advanced manufacturing production credits are at risk of being canceled or significantly curtailed. This comes at a time when the Trump administration is also seeking to reduce fuel-economy standards, and Congress has overturned a waiver that allows California to set its own standards for emissions, effectively striking down the state’s ban on the sale of non-electric vehicles (EVs) past 2035. Charging infrastructure also remains woefully inadequate, but the current administration has paused new funding to expand it. The combined effect would be a 180-degree policy change for an industry that requires years of planning, and the removal of the consumer tax credits would largely nullify incentives to localize manufacturing and diversify supply chains. Large investments from industry were planned in batteries, automotive manufacturing, and critical mineral mining and refining, with the assumption of long-term policy stability, an assumption that is now in doubt. Perhaps even more concerning, the current approach to the automotive sector risks holding back U.S. innovation.

In the short term, a slowdown in the EV transition might benefit traditional U.S. automakers that are still struggling to make EVs profitably. However, it carries long-term effects for the United States. The U.S. automotive sector risks being left behind as the rest of the world undergoes a revolutionary transformation to electric, connected, and autonomous vehicles. If the federal government does not demonstrate more foresighted leadership, the United States may find that in less than a decade its companies have less say in setting global standards and have a shrinking global market because domestic regulation held back rather than push forward innovation, which would be vital to facilitate the testing and scaling of new-generation vehicles.

The latest data from the International Energy Agency underscores this point: In 2024, EVs accounted for 20 percent of global auto sales. The European Union, despite slow sales growth, was on average consistent with the trend, maintaining an average sales rate of 20 percent. China broke all records again, hitting almost 50 percent. But the United States lags, with EV sales currently at 10 percent and with low expectations for growth in the coming years. So, while the world as a whole is expected to reach a 25 percent EV sales rate in 2025 and 40 percent by 2030, the United States is expected to stay relatively stagnant at 11 percent in 2025. Some may think this is positive news because it will allow U.S. automakers to continue selling internal combustion engine (ICE) vehicles for longer. However, the technological lag in what is clearly going to be the direction of travel for the rest of the world should concern those who want the United States to stay technologically relevant and a leader in key technologies like the automotive sector.

Even with faster EV adoption, gas-powered cars are likely to continue selling well across much of the United States and globally over the next decade. Meanwhile, U.S. companies with valuable technologies, ranging from EV platforms and next-generation battery chemistries to alternative methods of extracting and processing critical minerals, would be far better positioned to achieve commercialization in both a growing domestic market and abroad. A comprehensive set of policies aimed at undermining EV adoption would have a chilling effect on investment and production in the United States and would inhibit U.S. companies from being able to scale their new technologies to compete internationally to access markets. According to a study by Princeton University, up to 72 percent of battery cell manufacturing capacity currently operating in the United States, as well as all planned capacity, would be at risk of closure if clean tax credits are repealed. Demand for EVs would not necessarily drop as significantly, but consumers would have far less incentive to buy vehicles with U.S.-made batteries. This will be made more challenging given that tariffs look poised to increase globally, and Chinese companies with formidable cost competitiveness and technology are expanding their international reach rapidly.

The U.S. debate over clean technology has become politicized in ways that obscure its core appeal in many markets where decisions are driven less by ideology than performance and price. EVs are still very expensive in the United States, averaging $55,000 in December 2024, or 12 percent more than the average ICE vehicle, but in China, EVs have the same cost as ICE vehicles, and the price is lower in some segments. Chinese EV exports have revolutionized the market in many emerging markets: EVs are now cheaper than ICE vehicles in Thailand, for example. But it’s not all about Chinese brands: For example, European regulation has incentivized domestic automakers to develop cheaper EV models, which are expected to hit the market in 2026. Meanwhile, low-cost EV offerings in the United States are expected to only expand marginally in the near future, which helps explain why they are sometimes viewed as an elite project.

Globally, consumers and governments have shown a strong interest in EVs because of energy security and efficiency concerns, but also because of the strong synergies between electric drivetrains and digital platforms. EVs are often equipped with more advanced software that makes driving easier and more pleasant. A recent global survey found that 92 percent of respondents who owned an EV would buy another EV if they had to replace their car tomorrow, and 97 percent of respondents were satisfied or very satisfied with their choice to own an EV. This all means that the technology’s global popularity will only increase in the coming years.

Connectivity, autonomous driving, and electric drivetrains are self-reinforcing technologies, as China’s exponential growth in the sector demonstrates. Even though U.S. companies currently perform strongly in autonomous driving, dismissing electric and connected vehicles will lead to long-term challenges for U.S. companies, which will need to excel in all three technologies in the long term.

In countries with high EV model availability—often thanks to lower tariffs—sales are rising rapidly even when other incentives are not present. However, when high tariffs are in place, usually to protect the domestic industry, the question gets more complex. Indeed, that is the situation the United States finds itself in today as well. The IRA, for all its flaws, recognized that if supply chains were to shift to the United States, they would likely face higher costs requiring initial government incentives to help achieve scale. Those incentives have been important in unlocking new investments in critical minerals, for example. This administration has recognized that deregulation can help further lower domestic costs and spur more investment. These two insights combined could be a powerful formula to empower future investment.

Compete or Isolate?

The United States needs to engage and compete in the future of the automotive industry or risk technological isolation. Despite potential synergies with other countries on national security issues concerning China, the automotive sector is one where it is hard to envision the United States swaying large portions of the world to reject Chinese technology. In fact, some European companies are seeking to acquire Chinese technology by buying stakes in Chinese startups, and many countries, ranging from Spain and Brazil to Indonesia, are competing to attract Chinese investment in the automotive and battery sectors. They’ve decided that strategic collaboration is more likely to strengthen their long-term competitiveness than isolation. Even Tesla, the U.S. EV manufacturer, relies on batteries developed with CATL, the Chinese battery manufacturer and technology company, for its Chinese-made vehicles, which are exported to Europe and other parts of the world.

If the United States doesn’t recommit to new-generation vehicle development, the result could be one where in just a few years U.S. consumers may go on vacation abroad and discover that their rental car or taxi is running on a technology that looks different and is in many ways more attractive than what is available at home. This problematic outcome would not be determined by an inherent lack of U.S. ingenuity, but rather because the U.S. market is simply not large or competitive enough to sustain the type of innovation that will be needed in the coming years. Chinese companies have been evolving at breakneck speed and rapidly expanding their global market share, leading governments and companies around the world to rethink their automotive strategy for the future. Undermining the companies that are trying to develop domestic value chains today will mean cutting off the most effective pathway to technological leadership tomorrow.

Thanks to tariffs and restrictions based on national security grounds, the United States is a well-protected market. But settling for no competition at all will lead to stagnation in the long term. The United States should evaluate whether it wants to be associated with old technology rather than the forefront of innovation, as it had traditionally been. U.S. companies and research institutions have remarkably advanced technology, but they will be unlikely to commercialize it if there is no market domestically. This is in practice what already happened with EVs and lithium-ion batteries, including lithium iron phosphate batteries, which were invented in the United States, but today Chinese firms excel in.

To move forward, Congress and the Trump administration should consider U.S. strategic interests and the direction of technological innovation globally before drawing conclusions based on short-term domestic trends alone. Policies to localize more of the supply chain and encourage the development of diversified supply chains for critical minerals and components like batteries should still be a U.S. priority. Killing the U.S. EV market and politicizing EVs will not strengthen the United States’ innovation ecosystem, although it will likely succeed in isolating it from the rest of the world.

Ilaria Mazzocco is senior fellow and deputy director of the Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies in Washington, D.C.