EV tax credit end could pressure automakers (Off the Lot)

When we look back on 2025, it’s likely we will consider it a watershed moment in the expansion of electric vehicle products. President Donald Trump made it clear that, if elected, he would end the federal tax incentives for electric vehicles. As part of the new tax bill, the $7,500 credit for new EVs and the $4,000 credit for used EVs will be eliminated Sept. 30 . Buyers and lessees of electric vehicles have relied on the tax incentives to bridge the 15% to 30% additional cost of an EV versus an internal combustion engine (ICE) vehicle. Clearly, the tax incentives contributed to Tesla ’s original expansion of EV acceptance by bringing down the cost. However, even with the current existence of the tax credit and EV sales up industrywide , Tesla has seen its share of the market decline in the face of greater competition and other market pressures. Since the confirmation that EV tax credits will end, the market has seen significant increases in sales as consumers who chose EVs rushed to take advantage of the currently available tax credit. Typically, captive lenders used the tax incentives to reduce the cost to the lessee, which on a three-year lease was approximately $200 per month. Shifting EV support The tax support for EVs and the federal support for the expansion of charging stations, also eliminated under the tax bill, were intended to assist with the cost of transition to EVs. The idea was to make them more affordable while manufacturers produce more electric models and demand supports greater critical mass in support of the move toward this segment. [caption id="attachment_58333436" align="aligncenter" width="1024"] (Courtesy / Can Stock Photo / Ganko)[/caption] We may now be at a “moment of truth” for the EV market. In a July 2025 report, Cox Automotive anticipated the market share of EVs to decline from 10% to 8.5% by the end of the year, largely due to the elimination of the tax support during the balance of the year. August EV sales are estimated to be over 146,000 units, a 13% bump over the recent month’s baseline of 130,000. Since there was a flurry of EV sales by buyers and lessees capitalizing on the expiring tax incentives, sales may have been significantly pulled ahead from the months after the expiration of the incentives. Sales are likely to quickly decline. However, this may also lead to larger manufacturer incentives on EVs in an attempt to support the sales. It’s also possible that the tax support provided an artificial buffer to the cost of these vehicles vs. their ICE counterparts. Consumers that want either fully electric or hybrid vehicles will determine what additional cost they are willing to incur to drive these vehicles. Pressure on automakers Manufacturers will be under pressure to find more and better ways to reduce the cost of EVs to make them more price competitive and continue to grow their market share. It’s likely that too much investment has occurred in this segment to see it completely scuttled by the loss of the tax incentives. The high cost of producing electric vehicles is driven by the size of the battery, and the larger the battery the greater the weight of the vehicle. With American’s appetite for SUV’s and larger vehicles, fully electrifying these vehicles with current technology adds to their cost. Without the incentives, market forces will have to prevail, and new technologies will have to be developed to support the transition to electrifying vehicles and still reducing costs. EREV promise In the February 2025 “Off the Lot” in Auto Finance News , we explored the use of extended range electric vehicles, or EREVs, as one with promise. It affords producers the ability to reduce battery size with the gas motor recharging the battery, but the gas motor not driving the wheels. We are seeing expansion of interest in this technology with the new Scout Motors EREV models anticipated to come to market by 2027. Stellantis intends to produce a Jeep Grand Wagoneer and Ram 1500 with the EREV powertrain. Additionally, BMW is rumored to be considering an X5 with a range extender, while Nissan is considering a version of the Rogue. Hyundai also anticipates a version of the Genesis SUV, and Ford is considering EREV versions of some trucks, SUVs and crossovers by 2027. Used market Additionally, a significant increase in EV sales, heavily weighted toward leasing, is likely to provide a large flow of late-model used vehicles coming back into the market during the next two to four years. Tax incentives for used EVs weren’t as common because they were only applicable to used vehicles under $25,000. This may have depressed used-EV values as the market attempted to migrate down to that price point. In the absence of this incentive, used-EV values are likely to find their level based on pure supply and demand and market forces. The road ahead While we may be at a critical juncture in the EV market, there is still significant demand. Without the support of federal incentives, it’s likely that manufacturers will need to find ways to bring down the difference between EVs and ICE vehicles. Those motivated by clean air initiatives will likely continue to pursue EVs, while others may be willing to make the shift if the cost difference is lower and new technologies make them both more versatile and attractive. Although Tesla’s market share currently is declining, the automaker clearly created the present-day EV market. With myriad other manufacturers moving to catch up, there is now critical mass such that it’s unlikely that the EV business will go away. But market forces, creativity and ingenuity will determine the winners and losers in this segment. Bruce Newmark , formally chief adviser of Vroom and United Auto Credit Corp. , is retired and a consultant to the industry. Newmark has more than 45 years of experience in automotive retail and finance. Before joining Vroom, Newmark’s tenure spanned leadership roles at Fimanco , Ford Motor Co. , Hankey Automotive Group and Westlake Financial . Auto Finance Summit, the premier industry event for auto lending and leasing, returns Oct. 15-17 at the Bellagio Las Vegas. Learn more about the 2025 event and register here .

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