Upcoming Expiration of EV Tax Credit Could Impact Market
Sales of electric vehicles (EVs) in the US might take a hit when the $7,500 federal tax credit for EV buyers ends on October 1st.
This tax credit was introduced in 2022 as part of the Biden administration’s push for greener energy options, but it’s now facing elimination due to a broader spending and tax bill approved under President Donald Trump. Interestingly, EV sales actually surged by 7% in 2024, reaching about 1.6 million units, according to the Transportation Bureau.
As the tax credit comes to an end, demand for EVs is likely to drop, leading to increases in actual prices. Such a possibility is familiar to consumers who have rushed to grab EVs in the lead-up to this deadline. But it’s worth noting that this temporary surge in purchases could also result in a decline in sales later in the year, potentially driving some prices lower.
With a decrease in buyers, car manufacturers are now pondering how to set sticker prices and incentives to maintain some level of demand. Yet, it’s uncertain how much savings buyers can expect, and these may not compensate for the loss of the tax credit.
The automaker didn’t address CNN’s inquiries regarding pricing strategies or how they plan to monitor the market situation.
However, looking back at the past can provide insights. In 2019, as previous tax credits phased out, both Tesla and General Motors adjusted their pricing once they met designated sales targets, often cutting prices to boost sales.
EV sales have generally been on the rise over the years, outpacing traditional gas-powered vehicles at a significant rate. Data from the Transportation Bureau indicates that EV sales have tripled compared to the 2% increase in non-electric passenger cars.
Yet, according to Cox Automotive, EV sales started to slow this year, only rising by 1.5% in the first half, and even declining by 6.3% in the second quarter. Consequently, manufacturers are devising more attractive lease agreements to entice buyers.
With the anticipated end of tax credits, there could be even more appealing offers on the horizon, predicts Ivan Drury, an insights director at a car-buying site.
“If you can’t sell vehicles at their current prices, then this credit being phased out is just another hurdle. There’s no way to maintain those prices now,” he stated.
In response to reduced demand, automakers may also lower EV production. Stephanie Valdez Streety, an industry insights director at Cox Automotive, mentioned this may alleviate some pressure on pricing, especially with limited vehicle availability at dealerships.
Drury believes that price adjustments will likely come through lower sticker prices or improved financing deals and cashback offers. Still, there seems to be pressure on automakers to ensure that some levels of sales for EV models are maintained.
Valdez Streety suggested that we might see continuing price reductions and incentives to encourage purchases, clarifying that the loss of the tax credit won’t entirely derail demand.
Cox Automotive found that 65% of potential EV buyers still plan to proceed with their purchases within the next two years, even without the tax credit. Surprisingly, only 20% indicated a shift toward buying traditional gas-powered vehicles.
Interestingly, the same analysis revealed that factors like vehicle performance, fuel economy, maintenance savings, and environmental concerns outweigh the importance of tax credits for many buyers.
Moreover, not all models qualify for these EV tax credits. Vehicles priced above $80,000 are excluded, meaning that demand for luxury trucks and other high-end models may remain unchanged following the expiration of the credits.
Additionally, most purchasers go through dealers unless buying directly from manufacturers like Tesla, which sell to consumers directly. This means that the final price paid by EV buyers tends to fluctuate quite a bit.
“I think we’ll see some disruption in the market for a while,” said Green, hinting at ongoing turbulence in pricing and sales dynamics.
