Trump’s EV tax credit cuts are fueling a U.S. battery surplus that could lead to factory cancellations, ‘a poison pill for U.S. manufacturing hopes’

The lack of incentives is driving slower EV sales, leaving battery producers with an overcapacity. This could lead to slower production and expansion, as well as higher energy costs, weakening U.S. manufacturing campaigns against China.

The U.S. is predicted to deploy about 378 gigawatt-hours of batteries by 2030, a 56% drop from what battery makers were expected to produce before Trump’s second term, according to a BloombergNEF report published Thursday and summarized by the publication.

This trend is likely to continue. According to June 2025 data from research firm Rhodium Group, announced investments in battery manufacturing peaked in 2022, following the Biden-era Inflation Reduction Act meant to incentivize the production of electric vehicles and components. In 2024 investments fell 80% from that 2022 peak, and in the first three months of 2025, companies cancelled a record $6 billion in battery manufacturing announcements. Clean-energy company Freyr Battery, for example, said earlier this year it was scrapping plans to build a $2.6 billion factory in Georgia, citing falling battery prices as one reason for the factory cancellation.

The massive drop-off in battery deployment is in large part the result of slowing electric vehicle demand, which has coincided with the passage of Trump’s One Big Beautiful Bill, ending a $7,500 tax credit on the vehicles. Consumer plans to buy an EV reached their lowest level since 2019, according to a recent AAA report, with only 19% of survey respondents saying they were “likely” or “very likely” to buy an EV as their next vehicle.

“It’s a combination of removal of the incentives, plus maybe a little stagnant interest from buyers, which is leading to lower demand,” Willy Shih, a professor of management practice in business administration at Harvard Business School, told Fortune. “But the incentives are substantial.”

BNEF analyst Matthew Hales, who specializes in trade and supply chains, told Bloomberg the surplus, as well as lack of government support for renewable energy, would be “a poison pill for U.S. manufacturing hopes.”

“The president is delivering on his promise to stop subsidizing electric vehicles with Americans’ tax dollars,” White House spokesperson Taylor Rogers told Fortune in a statement. “The administration remains committed to an America First economic agenda of tariffs, tax cuts, and deregulation that strengthens American manufacturing without forceful EV mandates.”

Losing ground on the U.S. manufacturing push

Trump has made U.S. reshoring efforts a focal point of his second administration through the implementation of steep tariffs intended to incentivize domestic manufacturing. U.S. Secretary of Commerce Howard Lutnick called factory roles the “great jobs of the future.” 

But increasing inventories of batteries threaten this vision, Shih said. Slowing demand and slowing manufacturing activity eliminates opportunity for innovation that comes with rampant production and iteration, meaning prices for locally produced batteries will likely tick upward. 

These demand shocks create a “bullwhip effect” across the supply chain, according to Li Chen, professor of operations, technology, and information management at Cornell University’s SC Johnson College of Business. Declines in consumer demand eventually amplify, leading not only to a surplus, but a likely battery shortage down the line as a result of decreased manufacturing capabilities.

“The initial effect is the battery surplus as we are seeing now,” Chen told Fortune. “But after the battery manufacturers cut back their capacity in response, my prediction is that there will be a shortage of [batteries] down the road with very high probability.”

Meanwhile, the global battery industry has continued to overproduce lithium-ion batteries, with China’s announced manufacturing capacity for lithium-ion batteries surpassing the expected 2025 global demand about threefold, according to BloombergNEF data. A price war among China’s EV manufacturing giants has continued to push down the cost of China-produced batteries. 

“Facing a demand falloff is actually very bad for the long-term health of the U.S. manufacturing of batteries,” Shih said. “And if you believe—as many people do—that batteries are a key technology as the world moves towards more electrification, that’s not a good scenario.”

Tenuous hopes for U.S. battery manufacturing

Because the EV sector is not poised for immediate growth, battery producers will likely look to other industries to offset low demand. The solar industry, for example, has a great need for batteries, Shih said. The industry is beholden to feed-in tariffs, a policy designed to support renewable energy by paying businesses a set rate for the energy they produce. 

This is a profitable model when demand for solar energy is high, but when demand is low, companies will sometimes have to pay negative feed-in tariffs for their oversupply. Batteries that can store energy help eliminate the risk of oversupply and negative feed-in tariffs, according to Shih.

However, the Trump administration has similarly gone after solar energy initiatives, saying earlier this month it would no longer approve wind or solar projects, claiming they increase energy prices. Trump’s vision of continuing to rely on fossil fuels and natural gas is myopic, according to Shih.

“He looks at one thing at a time, as opposed to looking at the bigger picture,” he said. This bigger picture, according to Shih, includes the argument that the U.S. has a lot to gain in the long term by looking at the long-term cost of energy, which could be cheaper if the U.S. invested in battery manufacturing.

“The U.S. would benefit by being globally competitive, but in order to do that, you have to have somebody who’s willing to buy products so that you can invest in manufacturing and growing that capability, right?” Shih said. “So it’s a bit of a contradiction.”