What Happens Now That the EV Tax Credit Is Gone

For EVs, it’s zero hour. When the clock strikes midnight on Oct. 1, the $7,500 federal tax credit for electric vehicles will end, potentially turning once-affordable electric rides into showroom pumpkins. Sales of electric vehicles are sure to decline. Real-world prices will increase. The only questions are by how much and for how long, as President Donald Trump and his administration press a scorched-earth campaign against climate action and undercut support for electric cars and renewable energy.

With one eye on the clock, buyers purchased more new EVs in August 2025 than in any other month in U.S. history: sales hit 146,332 vehicles, up nearly 18 percent year over year, according to Cox Automotive. Almost one in 10 new cars — 9.9 percent — was fully electric, another industry milestone. Used EVs, eligible for credits of up to $4,000, also set a record with nearly 41,000 transactions.

With one eye on the clock, consumers bought more new EVs in August 2025 than in any other month in U.S. history

Those purchases occurred despite a persistent price gap of $9,066 compared with an average internal-combustion model, Cox reports. But that figure doesn’t factor in credits, meaning the $7,500 incentives helped many shoppers approach the elusive “price parity” with gasoline cars — exactly what the credits were intended to do: spur mainstream adoption and address climate change. In July and August, after accounting for credits and steep dealer incentives, the typical EV cost $44,908, or $600 less than the $45,521 average for ICE models, J.D. Power found.

Now those clean-car credits that aided buyers and manufacturers, first introduced in 1992 during the George H.W. Bush administration, are fading away. President Barack Obama converted an existing $7,500 tax break into a point-of-sale rebate to push the goal of putting 1 million EVs on the road. Rebates remained central under President Joe Biden’s Inflation Reduction Act, but were tied to a complex web of domestic-sourcing rules and restrictions that confused many buyers.

“Without doubt we will see a sales dip, but it won’t fall off a cliff,” says Ivan Drury, director of insights at Edmunds.com. “It’s not like people aren’t going to buy EVs.”

Short-term pain

EV sales could plunge as much as 27 percent once consumers lose tax incentives, according to research by economists Joseph Shapiro, Felix Tintelnot, and Hunt Allcott. Coincidentally, that 27 percent decline mirrors Germany’s drop during the first 10 months of 2024, after Berlin abruptly eliminated incentives worth about $4,900.

Many analysts lament the abrupt loss of credits here, especially with EVs already contending with powerful headwinds. A gradual phase-out over several years would have allowed the market to adapt.

Short-term pain will follow, yet some experts compare the shift to ripping off a Band-Aid. Automakers will need to ratchet up their electric offerings and deliver genuinely affordable EVs, without leaning on subsidies as a cover. Optimistically, EVs might also shed some of their politicized baggage and stop being framed as a symbol of government overreach or an “EV mandate” that never actually existed.

“A lot of the murkiness goes away, and to some degree, the stigma,” Drury says. “You say, ‘Oh, the government shouldn’t be subsidizing cars’? That’s gone, and now it’s just another car. There are fewer reasons and rationales to say no.”

Leasing lessons

Consumers will also have to commit more fully to the technology, buying EVs rather than leasing, since the IRA’s contentious leasing loophole — a backdoor that let even wealthy households shave $7,500 off expensive imported luxury EVs — will no longer apply.

“We know this will change the dynamic of how people buy EVs, but it’s almost in a positive way,” Drury says. “You’ll have customers who are in it for the long haul. You’ll get more people who buy an EV on its merits, because it’s the best car in its class, not because it’s a cheap lease or the lowest price.”

Why should EV advocates or climate-minded Americans care how people finance their vehicles? When the IRA passed in August 2022, around 7 percent of EVs were leased, Edmunds reported. By November 2024 that figure surged to 79 percent, and lease shares now sit near 70 percent. Shoppers naturally seek the best deal. But the distortion caused by leasing credits has sullied perceptions and long-term values for many EVs. Most automakers learned this the hard way: if you give away too many cars via leases or rental fleets, you’ll suffer later.

“A lot of the murkiness goes away, and to some degree, the stigma.”

Among the 10 models with the worst three-year residuals, eight are electric, including the Mercedes EQS, Nissan Leaf, and the popular Kia EV6, which lose more than half their original value.

Lingering, baseless doubts about EV battery longevity — despite common 10-year, 100,000-mile warranties — contribute to weak resale values. But in a vicious cycle, those battery fears are amplified by a flood of low-mileage EVs returning from leases, swaths of white (or green) elephants dealers must unload. The result is that used EVs appear to be bargain-basement bargains, giving the oil industry and online skeptics more fodder to deter potential buyers.

“We have better EVs today. The batteries aren’t dying,” Drury says. “But when people see all these two- and three-year-old EVs on lots, and a $100,000 car that’s down to $50,000, they become suspect.”

Fewer choices

Without the safety net of credits, automakers face a difficult choice. Many will need to cut EV prices or increase incentives — cash rebates, zero down payments, or low-interest financing — to cushion consumers and prevent a collapse in sales. If manufacturers can’t move EVs at today’s prices, they certainly can’t sell them for $7,500 more. When Tesla and General Motors confronted an earlier credit phase-out in 2019, after each passed the 250,000 sales threshold, both responded by lowering prices.

Except for Tesla, nearly every major automaker currently loses money on each EV sold as they scale up production and work to reduce battery costs. With domestic and foreign brands already absorbing hefty tariff-related expenses and refraining from passing many price increases to buyers, their margins are being squeezed thin: they can only shoulder so much.

“You’ll get more people who buy an EV on its merits”

At least for a time, consumers will encounter fewer EV choices, as rattled manufacturers rekindle their interest in gasoline vehicles and tacitly back President Trump’s efforts to roll back regulations. Affordable hybrids and plug-in hybrids, whose sales are already rising, look poised to be clear beneficiaries in a post-credit environment.

Reversals and cancellations are occurring almost daily: Honda will cease production of the Acura ZDX that GM builds in Tennessee. Stellantis axed its long-promised Ram electric pickup, with its massive 229-kilowatt-hour battery and 500-mile range, before a single unit reached customers. Imported brands hit by tariffs, like Volvo, Audi, and Mercedes, have the least flexibility. Volvo scrapped its ES90 sedan for the U.S. market. Porsche delayed a three-row electric SUV flagship and took a painful $2.1 billion writedown on its electric business.

Drury says that, like the “compliance cars” of earlier times, half-hearted or barely competitive EVs such as the ZDX or Audi Q4 e-tron will be weeded out. Only the strongest models and the most resilient automakers will navigate the harsher landscape and emerge intact.

“We’re going to be filtering out the crowd to see who really makes the best EVs,” Drury says.

No automaker will simply abandon electrification, he adds, for fear of ceding customers to more agile rivals. Once loyal buyers are lost — as Detroit once learned against Japanese competitors — they may never come back.

While Trump and his allies portray the end of credits as a win for affordability and consumer choice, their actions to roll back climate measures — perhaps attempting to return to the fossil-fuel era — make clear they aren’t aiming for a level playing field. Trump tapped officials with deep ties to the oil and gas industry to run his Energy and Interior departments. As The Washington Post reported, he solicited $1 billion in oil-industry contributions at a 2024 Mar-a-Lago fundraiser, paired with an explicit pledge to loosen emissions rules if elected. In a rambling denunciation at the United Nations this week, the president argued that EVs and renewable energy lead to economic ruin.

‘Like a Greek tragedy’

As former director of the EPA’s Office of Transportation and Air Quality, Margo Oge was the architect of President Obama’s landmark 2012 auto emissions rules that required automakers to nearly double fuel efficiency and slash greenhouse gases. At the time, lithium-ion batteries cost north of $800 per kilowatt-hour — roughly eight times today’s prices. Oge and the administration reasoned that if just 3 percent of consumers bought EVs by 2025, the U.S. could meet targets that demanded a 54.4 mpg fleetwide average. After EVs reached 8.1 percent market share in 2024, they were nearing 10 percent in August — more than three times the 2012 expectations.

“We’ve seen so much progress,” Oge says, thanks largely to government subsidies and firm fuel-economy targets that forced automakers to take electrified models seriously.

“Now it’s like a Greek tragedy,” Oge says. “I would hate to be the CEO of GM or Ford. Everyone is fearful and intimidated to speak out. But as politely as they can, they are saying, ‘Give us a reason to invest and have certainty.’”

“I would hate to be the CEO of GM or Ford”

Oge noted one could reasonably debate whether Biden’s pollution and EV goals for 2031 were overly ambitious. But Washington now seeks to nullify fuel standards entirely, and even to strip California of its long-held legal authority to set its own pollution and climate rules.

“The administration is saying standards don’t even exist, the EPA has no authority, and they’ll give the oil industry everything they’ve been looking for,” she says.

Gov. Gavin Newsom of California yesterday reversed a pledge to provide state credits aimed at keeping models affordable, saying, “We can’t make up for federal vandalism of those tax credits.”

But Oge believes blue states especially need to act to help offset the loss of credits and reaffirm their backing of EVs.

“It’s not just about climate change, but our country’s competitiveness,” Oge says. “Our domestic industry has to continue to innovate, for the long-term survival of the industry.”