The removal of tax incentives will hurt but not halt the EV transition
The expiration and reduction of federal tax credits for EVs have effectively increased the upfront cost of electric vehicles in the United States. But the economics still favor EVs: drivers save thousands in fuel and maintenance over the lifetime of a battery electric vehicle—savings that more than offset the higher purchase price and result in lower total cost of ownership even without incentives. As battery prices continue to fall due to global competition and economies of scale, EVs are on pace to soon reach cost parity with conventional vehicles, making the economic advantage even more compelling.
In response to changes in federal incentives, some automakers have taken proactive steps to maintain momentum. Tesla slashed prices on its Model 3 and Model Y. GM brought back the Bolt and introduced lower-priced Equinox EV versions. Ford adjusted pricing and released new, more affordable trims of the Mustang Mach-E and F-150 Lightning. These shifts demonstrate manufacturers’ strategies to continue their EV sales momentum absent federal incentives, but also highlight the challenge of sustaining growth as federal incentives wane. Automakers that bring affordable EVs to market and adapt to the policy changes are likely to have higher EV sales, and to be in a leadership position in the longer term.
Recognizing the limitations of federal support, states have stepped in with innovative policies and incentive programs. Colorado recently increased rebates for qualifying new EVs to $9,000. California’s ZEV Forward report recently offered recommendations for spurring zero-emission vehicle sales, which included streamlined permitting, expanded rebates, and EV requirements to accelerate adoption. Cap-and-invest programs in California channel proceeds into EV infrastructure and rebates for low- and moderate-income households. Meanwhile, the U.S. Climate Alliance launched the Affordable Clean Cars coalition, helping states share best practices and coordinate incentives. States are expected to continue to fill gaps in federal support to sustain momentum.
Early data from fall 2025 illustrate the underlying strength of EV demand despite near-term disruptions. Preliminary October sales figures show BEV sales dropped about 25% compared to October 2024, as the federal consumer purchase incentive expired. However, September BEV sales surged more than 40% year-over-year, suggesting strong consumer interest drove many buyers to act before the incentive ended. While the market may experience a brief adjustment period, the fundamentals remain solid: expanded model availability, improving economics, and proactive industry and state responses position the EV market for continued growth. As new models launch and consumers adapt to the post-incentive landscape, we expect EV sales momentum to recover.
