The U.S. electric vehicle (EV) tax credit program will come to an end on September 30 following the passage of sweeping tax and budget legislation by Congress on Thursday, a move expected to affect consumer demand and future EV adoption.
The legislation discontinues the $7,500 tax credit for new EV purchases and the $4,000 credit for used EVs. Both incentives have played a central role in driving EV growth in recent years. Analysts expect a near-term surge in EV sales before the credits expire, followed by a significant slowdown.
The elimination of the credits marks a shift in U.S. policy, reducing support for EV adoption just as global markets accelerate investment in electric mobility. The Electrification Coalition, a group advocating for EV adoption, criticized the move, stating that the bill could weaken America’s role in the global EV industry.
Originally introduced in 2008, the $7,500 credit was phased out for automakers that sold over 200,000 EVs. The 2022 expansion lifted the cap and included leased vehicles, broadening access to the incentive.
Separately, the legislation provides relief for U.S. automakers by removing penalties for failing to meet Corporate Average Fuel Economy (CAFE) targets. This change is seen as easing compliance pressures and potentially encouraging continued production of internal combustion vehicles.
Barclays auto analyst Dan Levy noted that the phase-out will likely accelerate EV sales in the short term as consumers rush to take advantage of the credits before the deadline. “We believe the bill reiterates the slowdown ahead for EV penetration in the U.S., with both the ‘carrot’ (i.e., tax credits/incentives) and the ‘stick’ (i.e., emissions regulations) softened,” Levy said in a note.
A study from Harvard University in March estimated that eliminating the EV tax credits could reduce EV market penetration by 6% by 2030 and save the federal government $169 billion over the next decade.
While automakers such as General Motors and Stellantis have previously paid significant fines for fuel economy shortfalls, the new legislation removes future penalties and eases compliance costs. A proposed $250 annual fee for EV owners and a requirement for the U.S. Postal Service to sell its EV fleet were also dropped from the final bill.