Trump's big ugly bill punches Musk in the nuts, but no one should cheer

Donald Trump's big hideous bill is now law. The damage that the bill does is immeasurable, from stealing a trillion dollars from Medicaid to building Trump's personal Geheime Staatspolizei into one of the world's largest militaries. There's every reason to hate this bill. Not only will it literally take the food from the mouths of millions of American children, it also imposes new taxes on solar and wind power.

Trump is already doubling down on his war against renewable energy. On Tuesday, he signed an executive order cutting off subsidies for clean energy, claiming that it's "too expensive." What he actually means is that solar and wind are far too inexpensive. So inexpensive that they accounted for 96% of the energy added to the grid this year. Coal, oil, and gas can't compete.

Trump and his congress of fear-driven sycophants are trying to throw fossil fuel industries a lifeline. It won't work, but they're giving it their all. Part of that is the effort to kill electric vehicles, and The Big Ugly certainly does its fair share in that battle.

The one piece of this bill that has garnered a fair share of media attention is that it ends the current tax rebates offered for the purchase of new and used EVs. Depending on the cost of a vehicle and where it (and its battery) were made, those rebates could run as high as $7,500 on a new vehicle. That could help drop the $37,490 price tag of Tesla's most popular vehicle below $30,000 for most buyers, making it a much more palatable purchase ... or at least, more palatable before Elon Musk turned the brand into a celebration of hate.

Trump has mentioned those EV tax credits several times when talking about his online feud with Musk. And the death of those tax credits, which has now been accelerated to September 1, clearly makes Trump feel very, very smug.

But there's a bigger change hidden in the bill, one that will be much more damaging to Musk — and to everyone, whether they drive an electric vehicle or not.

Since 1978, automakers in the United States have had to meet some form of the Corporate Average Fuel Economy (CAFE) standards. These standards, which vary by the class of vehicle, are applied across an entire year of sales from automakers. When it's all tallied up, NHTSA checks to see whether manufacturers have managed to deliver vehicles that met fuel performance guidelines. Those who fail face stiff fines based on a "multiplier" that is applied to how much their actual fleet MPG exceeded the number set by CAFE.

Automakers can attempt to get around these standards in part by building larger, heavier vehicles that move into a different class. That's been a big factor in the ever-swelling American pickup and SUV.

Then, in 2007, the Energy Independence and Security Act created a market for credit trading that allowed manufacturers to buy credits from makers who had come in under the guidelines. Those credits can be expensive, but so long as they are less expensive than facing up to the penalties, automakers snap them up.

Unsurprisingly, that means that EV makers often have a lot of credits to sell. This has meant that regular automakers have paid for their own failure to meet guidelines by helping to fund EV startups.

As the biggest EV manufacturer, no one has benefited more from this deal than Tesla. Last year, the number of cars delivered by Tesla fell for the first time. Profits per vehicle were also down. But Tesla still had a boom year thanks to one factor.

In Q4 2024 alone, Tesla earned $692 million from selling regulatory credits or carbon credits, accounting for nearly 30% of its quarterly net income of $2.33 billion.

More impressively, the company’s total carbon credit revenue for 2024 surged to $2.76 billion, marking a 54% year-over-year increase from $1.79 billion in 2023. This substantial boost underscores the ongoing demand for emissions credits as legacy automakers struggle to meet regulatory targets.

Tesla's annual net income saw a 52% decline in 2024, but those EV credits were up by over a billion. That's the kind of money that makes it possible to ignore rows of CyberTrucks rusting in parking lots. Other EV makers, such as Rivian and Lucid, also sold offset credits. Since they sold many fewer vehicles than Tesla, they made much less from these credits. However, these credits have been an important source of revenue for all EV makers.

This is all about to change.

Because one of the focuses of the Big Ugly was writing a fat check to the oil industry, Senate Republicans first set out to simply kill the CAFE standards. However, the Senate parliamentarian waggled a finger over their efforts to do something so radically distinct from the budget bill that the Senate was supposed to be considering. So they had to back off.

Then they got an idea. Senate Republicans got a wonderful, evil idea.

Instead of changing anything in the CAFE laws, they would just change that "multiplier" that the government uses when assessing violations. The previous number was around 16. The new one is 0. And 0 times anything is still 0.

This year, when the NHTSA sends out a letter to manufacturers informing them that they've missed the CAFE standards, that letter will include this assessment, no matter how badly they are over the limits, the fine will be the same: $0.00.

So automakers can now stop worrying about pedalling vehicles designed to lower their overall fleet numbers and load up on those that drink like they're on a constant bender. They can stop pretending to care about fuel economy and show their love of Trump by making the most irresponsible vehicles imaginable — maybe poke a few holes in the gas tanks, just to make sure the consumption is as conspicuous as possible.

And with the penalties zeroed out, the offsets available to address CAFE standards will also be worth $0.

Tesla's revenues in this area won't disappear completely. In parts of the world that still pretend to care about the environment, such as Europe, Tesla sold carbon offsets last year to companies from Ford to Toyota. For now, at least, those markets still exist. However, the U.S. CAFE credit market that helped fund Tesla's rise is now just a sad joke.

The change will undoubtedly hurt Tesla most. Other EV manufacturers will see smaller hits.

Additionally, the majority of the vehicles that Tesla sells are eligible for the EV tax credits, so the price of all those vehicles will see an effective increase of $7,500 starting in September.

Rivian and Lucid will be affected by the EV tax credit change to a much smaller extent because very few of the vehicles they make currently qualify for the credits. Both have new vehicles on the way that might have qualified, but it's unlikely that either would have had a qualifying vehicle on the market before 2027. They both move on, selling expensive luxury vehicles in small numbers.

Startup manufacturers, such as Slate and Telo, will also see the street price of their vehicles driven up. Slate, in particular, loses the ability to quote the price of its upcoming truck as "under $20,000," cutting into its perceived value proposition. The changes in Trump's bill could make it harder for all EV startups to find investment.

General Motors, which saw its EV sales increase 100% so far this year, may come out as a winner, with a variety of options at different price points. Or they may choose to pull back from EVs in fear of a shifting market.

Ultimately, the bill will do exactly the opposite of what Trump says by encouraging manufacturers to build and ship new electric vehicles (and more efficient gasoline vehicles) to markets where there are still caps on fuel economy and concern about carbon emissions. The U.S. will increasingly be stuck with fewer, older options that consume more and pollute more. Those who want a greener vehicle will face higher prices and limited choices.

The losers will be both the consumer and the auto industry, including legacy makers. But maybe we'll burn more oil. Trump and his friends would like that.

And if nothing else, it's going to kick Elon where it hurts.