Electric vehicle sales surging after Trump eradicates $7,500 tax incentive, according to analyst: "People are rushing out" to purchase, remark claimed
The elimination of federal electric vehicle (EV) tax credits, scheduled to take effect after September 30, 2025, is expected to significantly impact the EV market in the United States. These tax breaks, which have boosted EV sales substantially, are set to disappear, potentially shrinking demand for EVs and increasing their effective purchase price.
Key Impacts
Sales Decline
The removal of the $7,500 tax credit for new EVs and $4,000 credit for used EVs will take away a major purchase incentive. Historically, these credits have played a significant role in driving EV sales, and their disappearance is predicted to lead to a decline in demand for EVs.
Price Parity Setback
Without tax credits, the upfront cost advantage of EVs diminishes, making electric cars relatively more expensive compared to gasoline vehicles. This could reverse or delay reaching price parity – the point where EVs cost about the same as gasoline vehicles. Automakers and analysts expect EVs to become effectively more expensive to buy, which dampens market share growth.
Lease Pricing Increases
The removal of the "lease loophole" tax benefit is likely to raise lease costs for EVs unless automakers offer compensating promotions.
Underlying Cost Trends
Despite losing tax credits, ongoing reductions in battery costs and lower operational expenses (fuel, maintenance) continue to favour EVs economically in the long run. However, the lack of federal incentives shifts more cost burden onto buyers initially.
Market Uncertainty
Automakers may reduce U.S. EV production plans or pivot back toward hybrids due to demand uncertainties caused by disappearing incentives and trade policy concerns.
A Bright Spot: Used EVs
Used EVs are likely to be a bright spot in the near term, as growth has been accelerating, and most buyers today no longer qualify for the tax credit. With the availability of new EVs expected to decrease and incentives for new EVs falling, the used EV market may grow faster in the quarters ahead.
Recent Trends
July saw a surge in EV sales, with consumers purchasing nearly 130,100 new EVs, which is the second-highest monthly sales tally on record. Dealers are offering approximately $9,800 of additional financial incentives, on average, to new-EV buyers in July. The average transaction price for new passenger vehicles (excluding battery electric vehicles) in July was $48,078, according to Cox data. The average for new EVs was $55,689 before any dealer incentives and tax credits, according to the same data.
Specific EV models – the Chevy Equinox EV, Honda Prologue, and Hyundai IONIQ 5 – saw record-breaking sales last month. The price gap between EVs and gasoline cars "no longer exists," according to Tom Libby, an analyst at S&P Global.
Conclusion
The expiration of EV tax credits removes a critical financial subsidy that had accelerated market adoption by improving price parity with gasoline vehicles. The near-term effect is a likely slowdown in EV sales growth and increased effective cost, although long-term cost declines and operational savings still support the economic case for EVs.
- The disappearance of the tax credits for electric vehicles could potentially reverse or delay reaching price parity between electric and gasoline vehicles, making electric cars relatively more expensive.
- Automakers may adjust their U.S. EV production plans or consider a shift back towards hybrids due to the uncertainties caused by the disappearing incentives and trade policy concerns.
- In July, there was a surge in EV sales, with consumers purchasing nearly 130,100 new EVs, and specific models such as the Chevy Equinox EV, Honda Prologue, and Hyundai IONIQ 5 seeing record-breaking sales.
- Despite the loss of tax credits, the long-term cost declines and operational savings still support the economic case for electric vehicles, making them economically favorable in the long run. However, buyers will initially bear more cost burden due to the lack of federal incentives.
