Federal EV Tax Credit Expires: Immediate Impact on Electric Vehicle Market and Buyers
Federal EV Tax Credit Expires: Immediate Impact on Electric Vehicle Market and Buyers
As of today, October 1st, the $7,500 federal tax credit for electric vehicles (EVs) has officially expired, marking a significant shift for consumers and the automotive industry. This widely anticipated deadline is expected to lead to an immediate dip in EV sales and a rise in real-world prices, transforming previously affordable electric models.
Consumers responded to the impending expiration by driving record EV sales in August 2025, with 146,332 new cars sold, an 18 percent increase year-over-year. Nearly one in 10 new cars purchased in the US last month was fully electric, a new market milestone. Used EV sales also hit a record, spurred by credits of up to $4,000.
The $7,500 credit was crucial in helping many buyers achieve ‘price parity’ with gasoline models, despite an average $9,066 price premium for new EVs. In July and August, combined with other incentives, the average EV cost $44,908, slightly less than the $45,521 for internal combustion engine (ICE) models, according to J.D. Power. With these credits now gone, the market dynamic is set to change dramatically.
Experts predict a sales decline, with some studies suggesting a drop of up to 27 percent, mirroring Germany’s experience after ending its EV incentives in 2024. While the short-term pain is expected, some analysts, like Ivan Drury of Edmunds.com, view this as an opportunity for automakers to focus on truly affordable EVs without relying on subsidies. This could also reduce the political stigma surrounding EVs.
The expiration also impacts consumer purchasing habits, particularly regarding leasing. The Inflation Reduction Act’s controversial leasing loophole allowed significant discounts on even high-end imported EVs, leading to a surge in leasing from 7 percent in 2022 to around 70 percent recently. With this avenue closing, consumers are expected to commit more to direct purchases, potentially stabilizing the long-term value and perception of EVs.
Automakers face a challenging landscape. Many already lose money on each EV sold and will need to adjust prices downward or offer new incentives to prevent a sales collapse. Some brands have already begun scaling back EV plans, killing models, or postponing launches. The political climate under the Trump administration, which has actively sought to roll back climate regulations and support for EVs, further complicates the industry’s path forward. State-level initiatives, particularly in ‘blue states,’ are now seen as critical to offset federal policy changes and maintain momentum in EV adoption and manufacturing competitiveness.
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