By Liam Denning

There’s a crazy idea floating around, fueled by someone… Elon Musk, that Tesla Inc., an electric vehicle (EV) maker, would be unscathed if Republicans “throw away” the federal tax credit for electric vehicles.

There is a certain superficial logic to the rationale. Tesla is a profitable EV maker years ahead of the competition in designing and selling battery-powered vehicles. Legacy automakers like General Motors Co. and Ford Motor Co., meanwhile, are scrambling to catch up, losing money on EVs. If tax credits for EV buyers are withdrawn, Detroit automakers’ losses would deepen, in part because they must expand sales to cover investments in facilities and equipment already made, and the price shock would drive away customers. Tesla would also suffer a bit, but its higher margins give it “insulation” and, in any case, it is close to conquering the worlds of autonomous driving and artificial intelligence.

Few of the above are true. Detroit would suffer. Tesla’s valuation mostly reflects dreams of dominance with “robotaxis” and artificial intelligence. But there are two counterarguments here: Detroit sells mostly vehicles with internal combustion engines, and Tesla’s core car division sells only battery electrics.

The headwinds behind EV adoption under President Joe Biden’s administration may have obscured the fact that internal combustion engines still dominate the US market. Battery electric vehicles and plug-in hybrids make up just 10% of sales, and the price war of the past two years is evidence of slowing growth, despite help from Biden’s “green legislation,” such as rebates in the reducing inflation. EVs compete with each other, sure, but in a country notoriously in love with big, unwieldy electric vehicles, they’re mostly competing with gas guzzlers.

Recognizing this fact is the first step in any effort to electrify the entire fleet – which was Tesla’s “holy grail” just last year. There is no world in which we are 100% electric with Tesla owning 100% of the market. It needs an ecosystem with viable competitors offering a range of electric vehicles at different price points, just like the traditional car market. So if we “choke” support for a wide range of (vehicles) for consumer tastes, and therefore the industry base, from gasoline to electric vehicles, that leaves no “lambron field of glory” for Tesla to “take all”. Finally the field closes.

The $7,500 federal tax credit was claimed for only about a fifth of electric vehicles bought in the U.S. in the first half of the year, according to Bloomberg NEF, reflecting already fairly tight conditions related to domestic production and price. This suggests their importance because they send a message to manufacturers to continue mass production to realize economies of scale, lower prices and fuel further growth. Paradoxically, we could end up with a situation where the consumer tax credit is cut, but congressional Republicans save the manufacturing credit for fear of losing jobs in their districts — a position that could be summed up as, “What do we want? No EV! Where should we build them? Here!”

GM, Ford and other legacy automakers will suffer losses, but, as profit-seeking businesses, they will simply shift more emphasis to profitable gas cars and hybrids — which Americans will buy because those are familiar, popular products, and electric models designed to replace them will no longer be expected (cheap Chinese imports will also be blocked, mind you). Biden’s almost certain relaxation of more fuel-efficient standards will provide even less incentive for Detroit to “electrify” quickly — and, moreover, less need to buy the greenhouse gas credits that fuel Tesla’s profits. Meanwhile, developers of public charging networks will have less reason—and possibly fewer subsidies—to expand quickly, strengthening the headwinds for EV adoption. Shares of EVgo Inc. (s.s. vehicle fast charging network in the US) have fallen by a third since the presidential election.

The result will be lower profits for EVs and higher market share for internal combustion engines. Bloomberg NEF expects we may see an immediate uptick in EV sales as buyers try to catch up with the tax credits that are “sinking,” but it also lowered its estimate for US EV market share in 2030 to 33% from 48%. That’s 9 million EV sales that are “missing” in the second half of this decade. Estimating an average price of $45,000, that would equate to about $405 billion in foregone revenue to fuel the electric transition — about as much as all of Tesla’s cumulative revenue to date.

Of course, it’s not a foregone conclusion because automakers will sell more gas-guzzlers. Tesla may yet realize its various ambitions for autonomy and artificial intelligence, helped by a potentially lighter “regulatory touch” under Trump. But the company has missed several deadlines, and its recent robotaxi event was a failure. On the other hand, GM and Ford sure know how to make profitable trucks and SUVs with engines.

The brake on support for electric vehicles and the increase in tariffs will ultimately exacerbate Detroit’s retreat from the global market as Chinese rivals, especially them, expand internationally. Most of all, it will slow the transition in the country that “gave birth” to the most valuable EV company, which produces game-changing models, but whose boss now has other pursuits.

* Liam Denning is a Bloomberg Opinion columnist covering energy. A former banker, he edited the Wall Street Journal’s Heard on the Street column and the Financial Times’ Lex column.