Goodbye to the $7,500 EV tax credit. What’s that mean for EV prices?

Sales of electric vehicles in the United States are almost certain to tumble when the $7,500 federal tax credit for EV buyers expires on October 1, leaving automakers and car buyers wondering where prices will go.

The tax credit, which was passed in 2022 as part of the Biden administration’s legislative push to support EVs and green energy, is going away as part of President Donald Trump’s broad spending and tax bill that passed in July. The move came after US EV sales in 2024 rose 7% to 1.6 million, according to the Bureau of Transportation Statistics (BTS).

The end of the tax credit means demand for EVs is expected to fall, which means prices in real terms will rise — a concept not lost on the many consumers who rushed to buy EVs in August and September. But that surge is likely to result in plunging sales in the final three months of the year and could lead to somewhat lower EV prices ahead.

With fewer people buying EVs in the coming months, automakers are weighing where to set sticker prices and incentive levels to maintain some baseline of demand. But it’s not clear how much savings that will provide buyers, and it likely won’t make up for the money lost from the end of the tax credit.

Automakers either didn’t respond to CNN’s request for comment on their pricing plans or said they would monitor market conditions.

But history can be a guide. In 2019, when a previous version of the EV tax credit was phased out for Tesla and General Motors because both hit a prescribed sales target, those two automakers responded by cutting prices.

EV sales have been growing steadily for years, and at a much faster pace than traditional gas-powered cars. US electric vehicles rose more than three times as fast as the 2% rise in non-electric passenger vehicles, according to data from the BTS.

But sales of EVs in the United States began to slow earlier this year, rising only 1.5% over the first six months of the year and actually falling 6.3% in the second quarter compared to a year earlier, according to Cox Automotive. That had prompted automakers to offer attractive deals, especially over lease terms.

With the tax credit loss, even more attractive offers are likely on the way, predicted Ivan Drury, director of insights at car buying site Edmunds.

“If you already can’t sell the vehicles at current prices, there’s no way you are going to sell them at today’s prices with this credit going by the wayside,” he said.

Automakers are also likely to respond to a drop in demand by cutting production of EVs. That could mean limited availability of some vehicles on dealer lots, and therefore less pressure to lower prices, said Stephanie Valdez Streaty, director of industry insights at Cox Automotive.

Drury believes the price relief will either come through a lower sticker price, or better financing terms or cash-back offers for buyers.

But she also said automakers will face pressure to cut their prices to maintain some basic level of sales of their EV models.

“I think we’ll see some of that (price cuts and incentives) to keep the buying going,” Valdez Streaty said, adding that the loss of the tax credit won’t kill all demand.

Cox found that 65% of car buyers intending to purchase an EV in the next two years said they’ll go ahead with those plans, even without the tax credit. Only 20% said they would purchase a hybrid or traditional gas-powered car instead.

The same survey from Cox found that vehicle performance, fuel and maintenance savings, as well as concerns about the environment, were all more important factors than the tax credit itself.

And the EV tax credit doesn’t apply to all models. It’s not eligible for vehicles with a manufacturer’s suggested retail price (MSRP) of greater than $80,000, so the expiration won’t necessarily affect the demand of many of the larger trucks or luxury models.

Also, unless Americans buy a vehicle from Tesla, which sells directly to consumers, most buyers will go through a dealership. Dealerships negotiate the transaction price with a buyer, which means what EV buyers will eventually pay will be something of a “moving target,” said David Green, industry analyst for Cars.com.

“I think there’s going to be a little bit of turmoil in the market for quite some time,” Green said.

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