How Tax Reform Could Be the Foundation to ‘Reimagine’ American Auto Manufacturing

Federal tax legislation in the “One Big Beautiful Bill” introduces several provisions that carry major implications for the automotive industry. At a time when manufacturers, suppliers and technology innovators are balancing electrification, autonomous vehicle development and supply chain pressures, these tax law changes present both opportunities and more uncertainty, but will they provide the boost American manufacturing and the auto industry need?

Productivity in American manufacturing has been flat for more than a decade. Capital has chased low-cost countries around the world. Long story short, now with the world facing heightened geopolitical risks, tariff and domestic political pressures, the U.S. has a window of opportunity to make a real impact on American manufacturing.

The domestic automotive industry is in need of an economic incentive to attract capital to invest in the next generation of manufacturing that requires faster equipment, automation, software, AI and skilled talent to operate highly automated plants that can increase productivity, reduce costs and give American manufacturing productivity a boost.

Tax benefits aim to encourage investment in manufacturing

Key provisions in the legislation look to encourage domestic investment with tax benefits that aim to increase after-tax cash flows to make domestic investments more attractive.

100 percent bonus depreciation, relief for a capital-intensive sector: The return of 100 percent bonus depreciation is a beneficial provision for the automotive sector, especially as we endure a bit of an EV reset and shifting strategies. Automotive is one of the most capital-intensive industries, and the ability to expense major investments in the first year offers meaningful relief. For OEMs that are retooling or building plants, the amount can be immediately written off. The same goes for tooling and robotics; facilities with stamping presses or assembly lines would also qualify. Bonus depreciation also helps automaker customers, as sales of their passenger and commercial vehicles qualify for 100 percent expensing when used for business purposes.

Qualified production property encouraging domestic investment: One of the most significant pieces of new legislation is 100 percent bonus depreciation for qualifying production facilities. The provision supports reshoring initiatives, domestic supply chain investments and the build-out of advanced production facilities. For suppliers producing high-value components such as semiconductors, drivetrains or precision tooling, the change could materially lower the after-tax cost of U.S.-based production.

Immediate expensing of R&D is a boost for innovation: For tax years beginning after Dec. 31, 2024, companies may once again fully expense domestic R&D costs in the year incurred. This reverses the Tax Cuts and Jobs Act requirement to amortize costs over five years.

Large companies with unamortized balances also have new options starting in 2025 — either deduct the entire remaining balance at once or spread deductions over two years. These decisions will require scenario modeling to balance profitability, volatility and capital planning.

For the automotive industry, the shift could be especially meaningful in areas such as battery technology, lightweight materials, advanced drivetrains and safety systems. Improved cash flow can reduce reliance on external financing and accelerate reinvestment into next-generation vehicle programs.

Modification of business interest expense: The legislation restores the EBITDA-based limitation. Business interest deduction is limited to 30 percent of a company’s earnings before interest, taxes, depreciation and amortization. There is potential cash flow improvement and less restriction on utilizing debt to finance investments or acquisitions.

Tax incentives alone cannot drive business decisions: While the incentives are significant, a critical truth remains that tax credits and deductions should enhance, not dictate, business strategy. Investments must still align with long-term product roadmaps, operational needs and market realities to deliver real impact. Will the benefits be enough to change automakers’ investment strategies? Yes in some cases but not in all, as taxes play only one role in dictating capital deployment.

Other potential impacts

Elimination of the clean vehicle credits: The federal tax credits for new and previously owned clean vehicles will be eliminated for binding orders made after Sept. 30 under the new law. These credits provided up to $7,500 for new EVs and up to $4,000 for qualifying used ones, significantly closing the cost gap between electric and internal combustion engine vehicles. Their elimination marks a pivotal shift in federal policy and will make EVs more costly and less attractive to consumers. Automakers will see a short-term boost before credits expire. On a broader perspective, OEMs are likely to retrench and revive some combustion models that were on the chopping block, but EVs are not going away by any means. Battery technology, infrastructure and supply chains will continue to evolve, making EVs an excellent product choice for consumers.

Elimination of CAFE fines: Automakers also have less incentive to invest in fuel-efficient vehicles with the rollback of fines for not meeting corporate average fuel economy standards. Again, we are likely to see some combustion vehicles staying in the lineup longer or dusting off some combustion models that were already discontinued.

Auto interest deduction: For vehicles assembled in the U.S., consumers could see a slight benefit from interest deductions up to $10,000, with certain limitations and phase-outs. Given the increasing cost of new vehicles, consumers are looking for any way to decrease the cost. We will have to see if this provision really has much impact on buyers’ decisions to purchase a vehicle.

For industry leaders in the automotive sector, the mandate is clear: Integrate these provisions into broader strategies, act quickly on time-sensitive opportunities, and ensure that tax benefits supplement, not steer, business decisions. With that said, the mandate is clear: Double down on domestic manufacturing to “reimagine” U.S. manufacturing! Let’s get to work.

Read the full article published by Automotive News.