Act Now: The EV Market's Ticking Clock

The electric vehicle (EV) market is booming, with nearly one in five cars sold in 2023 being electric. However, a significant change is on the horizon that could alter the course of this growth: the potential elimination of the federal tax credit for EVs. This article explores the impact of this potential change, the role of automaker incentives, and the future of EV sales.



The federal tax credit for EVs has been a key driver of adoption, and its removal could lead to a slowdown in sales. According to the International Energy Agency, nearly one in five cars sold in 2023 was electric, with China, Europe, and the United States accounting for 95% of global sales. The tax credit has been a significant factor in this growth, and its elimination could cause a shift in consumer behavior.

However, the EV market is expected to continue growing, albeit at a slower pace. As more models become available and prices decrease, the market will likely remain robust. Automakers may also step in with their own incentives to maintain demand, as seen in the current EV sales surge.



Automaker incentives and price cuts are significant factors driving the current EV sales surge. According to Ivan Drury, director of insights at car buying site Edmunds, the average lease payment on non-Tesla EVs has dropped by 40% since the start of 2023, with the average interest rate on leases cut by more than half. This combination of attractive financing terms and the federal tax credit, which could soon disappear, makes this an ideal time to buy an EV. Legacy automakers are offering these incentives to move older EV models, and the glut of EVs on dealer lots is further encouraging these promotions.

Increased EV model offerings and competition among automakers have significantly contributed to the growth in EV sales. As of 2023, there were over 250,000 new electric car registrations per week, more than the annual total in 2013. This growth is driven by a surge in EV models, with nearly 14 million new electric cars registered globally in 2023, a 35% year-on-year increase. The competition among automakers has led to attractive financing terms and incentives to move older EV models, with the average lease payment on non-Tesla EVs down 40% from the start of 2023. This increased competition and model offerings have made it an ideal time to buy an EV, as consumers can benefit from both the federal tax incentive and automaker incentives.



In response to the loss of the federal EV tax credit, automakers may adjust their pricing strategies by offering more attractive financing terms, such as lower interest rates and longer loan periods, to make up for the loss of the tax credit. They may also cut prices on their EV models to remain competitive in the market. Additionally, some automakers may offer rebates or other incentives to encourage EV purchases.

State-level incentives will play a crucial role in maintaining EV demand post-federal credit elimination. California, for instance, is considering extending its own tax credits to offset the loss of federal incentives. This could help keep EV demand robust, as California accounts for around 12% of total US EV sales. Other states may follow suit, ensuring a steady demand for EVs despite the federal credit's disappearance.

The increased competition among automakers, driven by the influx of new EV models and legacy automakers' push into the EV market, is likely to intensify in the absence of the federal tax credit. This competition could lead to more attractive financing terms and price cuts to move older EV models, as seen in the 40% drop in average lease payments and the significant reduction in interest rates. However, the loss of the federal tax credit could also lead to weaker demand, potentially causing automakers to pull back on EV production and reducing the availability of incentives. The outcome will depend on how automakers react to the lack of tax credits, with some potentially cutting prices more aggressively to maintain demand. Additionally, some states may step in with their own tax credits to make up for the loss of federal incentives, further influencing EV pricing and demand.

In conclusion, the potential elimination of the federal tax credit for EVs could significantly impact the market and consumer behavior. However, the EV market is expected to continue growing, albeit at a slower pace, as more models become available and prices decrease. Automakers may also step in with their own incentives to maintain demand. The future of EV sales will depend on how automakers adjust their pricing strategies and the role of state-level incentives in maintaining demand.