At the end of September, the $7,500 federal tax credit for purchases of new electric cars and the $3,000 credit for used electric cars were discontinued, as a result of the so-called One Big Beautiful Bill Act that has undone multiple clean energy policies. Because of this, forecasts for EV sales over the next several years have been cut in half compared to what they were a year ago.
The average new car purchase price in the U.S. is roughly $48,000.This is somewhat uninformative considering that there are still some new cars that cost less than $20,000 and while others are priced in six figures. Regardless, electric cars are generally perceived as being more expensive than gas-powered vehicles. This is to some extent true, although it is often difficult to make an apples-to-apples comparison. In any event, any intrinsic manufacturing cost advantages of gas cars are shrinking away.
Nonetheless, the situation has unquestionably damaged the electric car market. Manufacturers are employing various strategies to soften the blow, for example offering $7,500 credits on leases obtained through their separate leasing subsidiaries who purchased the cars before the expiration of the credit. At least 17 states offer tax credits for EV purchases, and some are increasing those credits. New York’s EV tax credit is $2,000.
After years of significant strategic investments by automakers, there are already numerous EVs on the market and many more to come. The loss of the tax credit is definitely a big bump in the road, but political headwinds are not going to capsize a global technology trend.
