New York — The best time to buy an electric vehicle may be right now. That’s because a $7,500 federal tax credit could soon disappear.
President-elect Donald Trump has said he will move to eliminate the tax credit, possibly as soon as he takes office. It is even conceivable that the tax credit’s elimination could be made retroactive to the beginning of January, which would give EV buyers only a week left to be certain of locking in the credit.
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“I would be very inclined to say yes, it’s going away,” said Ivan Drury, director of insights at car buying site Edmunds. While it’s unclear exactly how Trump would eliminate the credit, Drury said he expects it won’t last long into the new administration. It could be done as part of tax legislation that Republicans are promising early in 2025. Or a Trump-controlled Internal Revenue Service could simply issue a new rule making the credit unavailable.
“The simplest route that’s possible, is the one that they’re likely to take,” Drury said.
But the tax credit is only part of the reason that it could make sense for potential EV buyers to act sooner than later. The combination of the federal tax incentive, and weakening sales could make this an ideal time to buy an EV.
The slowing demand by American buyers, and more choices of EV models, led to record inventories of electric vehicles on dealer lots earlier this year, and that glut remains in place. Drury said that 64% of EVs sitting at dealerships are last year’s models, nearly twice the percentage of traditional internal combustion vehicles. Automakers traditionally release the next year’s models in the fall rather than waiting for the new year.
The glut of EVs and increased competition has led legacy automakers to offer attractive financing terms to try to move the older EV models. Data from Edmunds shows that the average lease payment on non-Tesla EVs is down 40% from the start of 2023, far more the drop in transaction price alone. The difference is that the average interest rate on the lease has been cut by more than half.
“If you buy an EV now, you’re not only sure of getting the EV tax credit that might not be there for much longer, you got incentives from automakers that can’t move them,” said Drury. “You’re doubling down. It won’t get any better.”
Industry caught in the lurch
The loss of the tax credit, and the inevitable weaker demand that would follow, could lead legacy automakers to pull back on their EV production more than they already have, Drury said. So the incentives now being offered could vanish as well.
The auto industry will likely fight to preserve the tax credit. The Alliance for Automotive Innovation, an industry trade group that includes most automakers – but not Tesla – wrote a letter to Congress in October, ahead of the election, urging that the tax credit remain in place.
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The letter says US manufacturers rely on the credit to compete with Chinese EV production and advancements. Global automakers have invested billions of dollars in the transition from gasoline powered cars to electric vehicles, and a forced pullback could lead to huge losses.
But the group and individual automakers declined to comment on their plans, or their views on what happens if the tax credit goes away, when contacted recently by CNN.
And Tesla CEO Elon Musk, who donated hundreds of millions of dollars to help Trump get elected and who has been spending extensive time with the President-elect, has encouraged Trump to end the credit. Musk has said it would “only help Tesla.”
The disappearance of the tax credit would probably hurt legacy automakers planning to roll out more EVs in the coming years, such as General Motors, Ford and Stellantis, or other small EV upstarts like Rivian, none of which have profited off of EV sales yet, due in large part to vast startup costs. If demand for EVs falls along with the disappearance of the tax credit, those automakers could be forced to pull back on their EV production to trim their losses, reducing competition for Tesla among EV car shoppers.
Even with the slowing EV demand, many experts still forecast that total US sales of EVs could continue to edge higher, just at a much slower pace than in the past.
“We still have upwards of 20 EV models coming into the market in 2025,” said Chris Hopson, principal automotive analyst for S&P Global. He said those increased offerings will bring in new buyers, and more electric cars will be sold as a result.
He said that if the tax credit disappears early in the year, it could cause S&P to pull back on its EV forecast somewhat, but he would still expect a modest gain. But how the automakers react to the lack of tax credit could determine how much sales fall. They could cut prices more than they have in recent years.
“Automakers can play with pricing to adjust for lack of credits,” Hopson said.
And some states may step up with their own tax credits to make up for the loss of federal tax credits. That’s something California is looking to do.
During the campaign President-elect Donald Trump frequently criticized EVs, though he qualified that criticism once Musk became one of his more prominent, and financially important, supporters. Still, Trump promised to get rid of an electric vehicle target from the Environmental Protect Agency of a minimum of 35% of new cars sold by 2032, which he refers to as an “EV mandate.”
The-CNN-Wire
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