US EV Credit Cut May Save US$169 Billion

The US$7,500 federal tax credit for purchasing or leasing new electric vehicles (EVs) in the United States will end on Sept. 30, under a tax and budget bill passed by Congress on July 3. The legislation also eliminates a US$4,000 credit for used EVs.

First introduced in 2008 and expanded in 2022 to include leased vehicles and remove manufacturer caps, the credits have played a central role in boosting EV adoption. Barclays auto analyst Dan Levy noted in a research note that the approaching expiration is likely to prompt a near-term surge in EV sales. “We expect a pre-buy dynamic as consumers accelerate purchases ahead of the September deadline,” Levy wrote. 

A Harvard University study published in March estimated that removing the tax credits would lower US EV penetration by 6% by 2030. The study also projected the rollback would save the federal government US$169 billion over the next decade.

The legislation also provides relief to automakers by eliminating penalties tied to Corporate Average Fuel Economy (CAFE) shortfalls. This adjustment is expected to make it easier for companies to continue producing gasoline-powered vehicles.

Stellantis NV paid US$190.7 million in penalties in 2023 for failing to meet fuel economy targets for 2019 and 2020, in addition to nearly US$400 million paid between 2016 and 2019. General Motors paid US$128.2 million in fines for noncompliance in 2016 and 2017.

The final version of the bill also dropped a proposed US$250 annual fee on EVs intended to fund road maintenance, and removed a provision requiring the US Postal Service to sell off its electric delivery vehicles.

The bill passed the Senate by a 51-50 vote, with Vice President JD Vance casting the tie-breaking vote. The narrow approval reflects the contentious nature of the legislation, which now moves to the House for consideration. 

The Senate version imposes an earlier cutoff for electric vehicle (EV) tax credits than the version previously passed by House Republicans in May, which would have ended the incentives on Dec. 31. The House’s One Big Beautiful Bill Act also included exemptions for certain EV models. Under the Inflation Reduction Act, signed into law in 2022, the tax credits were originally set to continue through 2032.

The Electrification Coalition, an advocacy group for EV adoption, criticized the decision. “As EVs secure a growing share of the global automotive market, it is obvious that the future of transportation is electric; this bill forfeits America’s role in that future to China,” the group said in a statement.

Since taking office on Jan. 20., President Donald Trump has moved to reverse key environmental policies, declaring a "national energy emergency" to expand fossil fuel production.

The federal tax credits were designed to support adoption of EVs and reduce greenhouse gas emissions by narrowing the price gap between electric and gasoline-powered vehicles. According to the Environmental Protection Agency, the transportation sector is responsible for approximately 28% of total US greenhouse gas emissions, making it the country’s largest source of emissions.