At the risk of repeating this time after time, the incoming Trump administration is heavily considering ending the federal tax credit for electric vehicle (EV) purchases, which can reach up to $7,500. This is obviously bad news for pure-play EV companies such as Rivian (RIVN -2.78%), but only recently have we gotten a little bit of data regarding how much the federal tax credit means to consumers themselves.
Ranking importance
Would you guess that, for consumers, the federal tax credit of up to $7,500 was actually more influential in a purchase decision than the overall vehicle price? According to J.D. Power's E-Vision Intelligence report released on Nov. 27, both driving performance and expected lower operating costs were the only purchase considerations ranking higher than the tax credit, and almost two-thirds of consumers said federal tax credits and additional dealer incentives influenced their purchase decisions.
Again, at the risk of stating the obvious, investors know the tax credit removal will have a negative impact on EV sales because the credits "started to persuade people who may not have otherwise purchased that type of vehicle," said Brent Gruber, executive director of J.D. Power's EV division. "It was really, really critical in driving purchases."
If you're wondering how many customers are actually eligible to receive the full tax credit or even partial credit, it's 97% of consumers who leased EVs and 81% of customers who purchased the vehicle outright.
All things aren't equal
Depending on the automaker and brand, the news could be worse. The EV must be assembled in North America, with at least 50% of its battery components produced or assembled in North America, to qualify for the tax credit. That means roughly 80% of Volkswagen EV buyers, 77% of Chevrolet EV buyers, and 72% of Tesla buyers chose the respective brand because of the tax credits.
On the flip side, the tax credit removal would be less impactful for Toyota, Kia, and Hyundai EV buyers because the vehicles are ineligible for the tax credit, and only 20% to 33% of those respective brand EV buyers claimed the tax credits as the primary reason for choosing said brand.
For Rivian specifically, the 2023-2024 R1T and R1S, for all configurations, and the 2025 R1T Dual Large, are eligible for up to a $3,750 tax credit because, in order to qualify, vehicles must also have an MSRP of $80,000 or less – and Rivian vehicles can easily top that figure. The silver lining is that because of Rivian's historically higher MSRP, the noticeable impact would be less than losing the full credit as some automakers will.
What it all means
All is not lost, Rivian investors; individual states can step in with additional EV incentives if the Trump administration does indeed eliminate the tax credit, and the states that support EV sales are committed to doing so. The potential loss of the EV credit does increase the importance of Rivian's upcoming more affordable R2, R3, and R3X, which for investors can't get here fast enough -- production of the R2 is anticipated to begin during the first half of 2026.
If the tax credit is removed, it will have a noticeable impact on EV demand and sales, but investors should also consider it a speed bump more than an investment thesis change. Ultimately, a successful EV investment won't come down to the tax credit, but can Rivian bring prices down and introduce compelling vehicles that generate consumer demand? So far, so good.