A recently enacted U.S. spending and tax cut plan is poised to significantly reshape the automotive market, introducing a new tax deduction for interest paid on loans for American-made vehicles while simultaneously eliminating the long-standing $7,500 federal tax credit for plug-in electric vehicles (EVs). The legislation, championed by Senator Bernie Moreno (R-OH) as the USA Car Act, allows new car buyers to deduct up to $10,000 annually in loan interest for vehicles assembled in the U.S., retroactive to January 1, 2025. This measure aims to enhance the affordability of domestically produced automobiles, offering a direct financial incentive to consumers.

Conversely, the bill delivers a notable blow to the EV market by advancing the expiration of the federal EV tax credit to September 30, 2025. Senator Moreno, a vocal critic of government subsidies for EVs, stated, "I'm not against electric cars, I'm against the government paying you to buy an electric car." This accelerated sunset date provides a narrow window for consumers to utilize the incentive, with industry observers predicting a slowdown in EV sales post-September.

Amidst these changes, a critical development for the clean energy supply chain emerged: Ford Motor's $3 billion battery manufacturing plant in Marshall, Michigan, will surprisingly retain its eligibility for federal tax credits. Earlier versions of the bill threatened to exclude the facility due to its reliance on technology licensed from China's Contemporary Amperex Technology Ltd. (CATL). However, last-minute legislative adjustments ensured the project's continued qualification, underscoring a nuanced approach to foreign technology integration within domestic manufacturing initiatives, particularly in states with significant Republican constituencies.

Automotive dealers are navigating these complex policy shifts. Lou Vitantonio, head of the Greater Cleveland Auto Dealers Association, views the interest deduction as a positive step towards addressing vehicle affordability, especially given persistent high interest rates and tariff pressures. "It certainly will get people moving and certainly help the market in the near future," Vitantonio commented. However, the impending loss of the EV tax credit presents a challenge for dealers with existing electric vehicle inventory, prompting a push for sales before the September deadline. The broader market saw a 16% year-over-year jump in new car sales in June, partly driven by consumers attempting to preempt potential tariff-related price increases.

This legislative package signals a strategic pivot in U.S. industrial policy, prioritizing domestic manufacturing across the automotive sector while recalibrating the federal government's role in incentivizing specific vehicle technologies. The immediate impact will be felt by consumers and dealers alike, influencing purchasing decisions and inventory management in the coming months.