The EV tax credit is dead — here’s what happens next

For EVs, it’s Zero Hour. When the clock strikes midnight on Oct. 1, the $7,500 federal tax credit on EVs will expire, potentially turning affordable electric carriages into showroom pumpkins.

Sales of electric cars are certain to dip. Real-world prices will rise. The only question is how much, and for how long, as President Donald Trump and his administration continue to go scorched-earth over climate change and kneecap support for electric cars and renewable energy.

With one eye on the clock, consumers bought more new EVs in August 2025 than in any other month in US history: Sales reached 146,332 cars, up nearly 18 percent year over year, according to Cox Automotive. Nearly one in 10 new cars — 9.9 percent — was fully electric, another market milestone. Used EVs, good for credits of up to $4,000, set their own record with nearly 41,000 sales.

Those sales came despite a stubbornly high price premium of $9,066 versus a typical internal combustion model, according to Cox. But that calculation doesn’t take credits into account, meaning $7,500 credits helped many buyers get closer to elusive “price parity” with gasoline models — precisely what credits were designed to do, to spark mainstream adoption and combat climate change. In July and August, between credits and fire-sale incentives, the average EV cost $44,908, or $600 less than the $45,521 paid for ICE models, according to J.D. Power.

Now those clean-car credits that benefited buyers and automakers, first conceived in 1992 during the George H.W. Bush administration, are sailing off into the sunset. President Barack Obama switched an existing $7,500 credit to a point-of-sale rebate, with a goal of getting 1 million EVs on the road. Rebates continued as a cornerstone of President Joe Biden’s Inflation Reduction Act, but tied to a dizzying array of domestic-sourcing rules and restrictions that created confusion for buyers.

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

EV sales could drop as much as 27 percent after consumers lose tax breaks, according to a study from economics professors Joseph Shapiro, Felix Tintelnot, and Hunt Allcott. Coincidentally, that 27 percent sales decline is exactly what Germany experienced over the first 10 months of 2024, after the government abruptly killed incentives worth $4,900.

Many experts bemoan the sudden loss of credits here, especially with EVs already fighting hurricane-force headwinds. A phase-out over a few years would give the market time to adjust.

Short-term pain will ensue, yet some experts liken the situation to tearing off the Band-Aid. Automakers will have to step up their electric games and deliver truly affordable EVs, with no excuses or subsidies to hide behind. Optimistically, perhaps, EVs may carry less tiresome political baggage, rather than being a symbol of government overreach or an “EV mandate” that never 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.”

Consumers will also have to fully commit to the tech, buying their EV rather than leasing to take advantage of the IRA’s controversial leasing loophole — a back door that allowed even the wealthiest households to knock $7,500 off the priciest imported luxury EVs.

“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 fans or carbon-conscious Americans care how people pay for their cars? When the IRA was passed in August 2022, about 7 percent of EVs were leased, according to Edmunds. By November 2024, that shot to 79 percent, and lease percentages now hover around 70 percent. No one can blame consumers for seeking the best deal on a car. But the market distortion of leasing credits has tarnished the perception and long-term value of many EVs. Most ICE automakers had internalized the lesson: If you give too many cars away via leases or rental fleets, you’ll pay a steep price later.

Among 10 models with the worst residual prices after three years, eight are EVs, including the Mercedes EQS, Nissan Leaf, and popular Kia EV6, which lose more than half their original value.

Lingering, unfounded stigma over EV battery life — despite typical 10-year, 100,000-mile warranties — play some role in shaky residuals. But in a vicious circle, those battery suspicions are fed by the glut of low-mileage EVs coming off leases, herds of white (or green) elephants that dealers must offload. The takeaway is that used EVs are damaged goods, giving the oil industry or online skeptics more ammunition to scare people away.

“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.”

Without a backstop from credits, automakers are still in a tricky spot. Many will need to adjust EV prices downward or boost incentives — cash back, zero down, or low-interest deals — to soften the blow to consumers and avoid a sales collapse. If automakers can’t move EVs at current prices, they certainly can’t sell them for $7,500 more. When Tesla and General Motors faced an earlier credit phase-out in 2019, after crossing the 250,000 mark in cumulative EV sales, both responded by cutting prices.

Yet Tesla aside, every major automaker already loses money on every EV they sell, as they work to scale up and reduce battery costs. With domestic and foreign brands already swallowing massive tariff bills, without passing many price increases to customers, their bottom lines are becoming so many rolls of Bounty: They can only absorb so much.

At least temporarily, consumers will see fewer choices in EVs, as spooked automakers renew their love affairs with gasoline and play along with Trump’s bid to unwind regulations. Affordable hybrids and PHEVs, their sales already booming, look like clear winners in a post-credit world.

Reversals and do-overs are coming on a near-daily basis: Honda will stop making the Acura ZDX that GM assembles in Tennessee. Stellantis killed off its long-awaited Ram electric pickup, with its titanic, 229 kilowatt-hour battery pack and 500-mile range, before it sold even one. Tariff-tossed brands that import EVs from overseas, such as Volvo, Audi, and Mercedes, have the least wiggle room. Volvo nixed its ES90 sedan for America. Porsche postponed a three-row electric SUV flagship, and took a painful $2.1 billion writedown on its electric operations.

Drury says that, like the “compliance cars” of another era, half-hearted or fitfully competitive EVs like the ZDX or Audi Q4 e-tron will fall by the wayside. Only the strongest entries, and automakers, will maneuver through newly hostile terrain and come out whole on the other side.

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

No automaker will simply walk away from the electric game, he adds, lest they cede customers to nimbler brands. Once loyal customers are lost, as Detroit once learned against Japanese automakers, they may never return.

While Trump and co. paint the end of credits as a victory for affordability and consumer choice, their moves to wind back the clock on fossil fuels — perhaps to the days of Daniel Plainview — make clear they have no interest in a level playing field. Trump tapped men with deep ties to the fossil-fuel industry to lead his Energy and Interior departments. As The Washington Post reported, he called for $1 billion in oil-industry donations at a Mar-a-Lago fundraiser in 2024, backed by an explicit promise to roll back emissions regulations if elected. In a rambling jeremiad at the United Nations this week, the president claimed EVs and renewable energy are a road 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 demanded automakers double their fuel efficiency and halve greenhouse emissions. Back then, lithium-ion batteries cost more than $800 a kilowatt-hour, about eight times what they do today. Oge and the administration figured that if just three percent of consumers bought EVs by 2025, America could meet targets that called for a 54.4mpg fleetwide average. After reaching 8.1 percent market share in 2024, EVs were brushing 10 percent of the market in August, more than three times those expectations in 2012.

“We’ve seen so much progress” Oge says, due largely to government subsidies and firm fuel-economy targets that spurred automakers to get serious about electrified models.

“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.’”

Oge said one might fairly argue whether Biden’s pollution and EV targets for 2031 were too ambitious. But Washington now seeks to nullify fuel standards entirely, and even deny California’s legally affirmed right to set its own pollution and climate-change 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 offer state credits to keep models more affordable, saying, “We can’t make up for federal vandalism of those tax credits.”

But Oge believes blue states especially need to step in to help offset the loss of credits, and affirm their support 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.”