US federal tax credits of US$7,500 for electric vehicle (EV) purchases are set to expire on September 30, 2025.

These credits have been available since 2008 to encourage EV adoption, but recent legislative changes by Congress will end them.

Tesla is urging customers to buy before the deadline, while Ford offers free home chargers to attract buyers.

The tax credit, part of the 2022 Inflation Reduction Act, extends benefits for both new and used EVs but includes eligibility requirements regarding domestic production and battery material sourcing.

Analysts warn that discontinuing these subsidies could adversely affect EV sales, which have already experienced a slowdown in recent years.

Without the credits, EV registrations could drop by 27%, mirroring declines seen in Germany after subsidy cuts.

Analysts expect a pre-deadline sales surge followed by a slowdown, marking a shift in US EV policy strategy.

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🔗 Source: Reuters

🧠 Food for thought

1️⃣ Germany’s experience foreshadows potential U.S. market contraction

Germany offers a preview of what might happen in the U.S. after EV subsidies end. When Germany removed its generous €9,000 EV subsidies in late 2023, sales dropped sharply.

Before the subsidy removal, Germany had seen its EV market share climb to 26% of new car registrations in 2021, more than doubling from 13.5% in 2020 1.

This aligns with academic predictions for the U.S. market, where researchers from UC Berkeley, Duke, and Stanford forecast a 27% drop in EV registrations after tax credits disappear [per the original article].

German EV subsidies were highly effective while active, with government spending reaching €3.1 billion in 2021 alone as applications for EV incentives more than doubled from 255,000 to 625,260 in a single year 1.

The price sensitivity of EV buyers remains a critical factor in both markets, with U.S. EVs still selling for nearly $10,000 more than the average new vehicle according to Cox Automotive data.

2️⃣ EV tax credits have evolved from simple subsidies to industrial policy

The U.S. EV tax credit has transformed dramatically since its 2008 introduction, reflecting changing policy priorities beyond just emissions reduction.

The original 2008 credit was a straightforward $7,500 incentive with few restrictions, while the 2022 Inflation Reduction Act version added complex domestic production requirements to strengthen U.S. manufacturing 2.

These newer requirements include North American assembly and sourcing of battery components and critical minerals from allied countries, creating a dual credit structure where $3,750 depends on battery components and another $3,750 on mineral sourcing 2.

The Biden administration’s approach represents a broader industrial policy that includes loans for battery manufacturing and charging infrastructure investments, aiming to create secure North American supply chains 2.

This shift means the tax credit now serves multiple goals: reducing emissions, strengthening domestic manufacturing, addressing national security concerns, and reducing dependence on foreign suppliers.

3️⃣ Automakers have established patterns for responding to subsidy changes

Historical trends suggest automakers will implement their own incentives to partially offset the loss of government subsidies and maintain sales momentum.

Ford has already extended deals for free home chargers through September, and as noted in the original article, previously slashed prices on its Mustang Mach-E after it lost $3,750 in tax credits in January 2024.

Similarly, GM offered a $7,500 incentive on vehicles that lost credits, demonstrating the industry’s willingness to absorb some costs to maintain market share [from original article].

Rivian’s finance chief explicitly stated they might introduce additional incentives, including financing deals, after credits expire [original article].

This trend creates a transition period where manufacturer incentives partially cushion the impact of lost government subsidies, though typically not enough to prevent overall market contraction as seen in international markets like Germany.

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