U.S. Electric Vehicle Transition and the Impact of Subsidy Phase-Out: Assessing Investment Resilience and Innovation-Driven Growth

The U.S. electric vehicle (EV) transition has entered a critical phase as the Inflation Reduction Act (IRA) tax credits, which provided up to $7,500 for new EVs and $4,000 for used EVs, expired on October 1, 2025. This phase-out has triggered a recalibration of strategies across the EV industry, with automakers, suppliers, and investors navigating a landscape marked by both challenges and opportunities. While the immediate impact includes a projected dip in EV market share to 8.5% in 2026, the long-term trajectory hinges on investment resilience in supply chains and innovation-driven growth.

Market Dynamics Post-Subsidy Phase-Out

The expiration of IRA subsidies has already reshaped consumer behavior and industry strategies. In the months leading up to the deadline, EV sales surged, with battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs) accounting for 13% of new vehicle registrations in September 2025, according to an ING analysis. However, the removal of these incentives has forced automakers to scale back production plans and refocus on hybrids while continuing to develop next-generation EVs in the background, the ING analysis notes. For example, General Motors, Ford, and Stellantis have introduced rebates and financing deals to manage inventory and sustain consumer interest through the end of 2025, the same ING piece reports.

The used EV market, meanwhile, is emerging as a key growth area. As lease returns increase and price gaps narrow, affordability is improving, with industry analysts predicting sustained demand for pre-owned EVs even without tax credits, the ING analysis finds. However, risks such as rising auto loan delinquency rates and new tariffs could temper this momentum.

Investment Resilience in EV Supply Chains

The IRA's tax credits, particularly the 30D and 45X provisions, were instrumental in catalyzing domestic battery manufacturing and clean energy investments. By 2025, these incentives had spurred $115 billion in U.S.-based clean energy and transportation technology investments, including $48.3 billion in battery manufacturing under the 45X credit, according to a C2ES explainer. Yet, the phase-out of these subsidies has introduced uncertainty. The One Big Beautiful Bill Act (OBBBA) 2025 accelerated the expiration of key credits, raising concerns about reduced consumer demand and increased reliance on cheaper foreign components.

To mitigate these risks, companies are doubling down on vertical integration and R&D. Tesla, for instance, has leveraged its vertically integrated supply chain-controlling battery production, software, and vehicle assembly-to reduce costs and secure critical components, as detailed in an All Things Supply Chain article. Similarly, a Tradlinx blog highlights BYD's strategy of producing 75% of its components in-house, including batteries and semiconductors, which has enabled rapid scaling and competitive pricing. Both firms are also investing in automation and AI-driven technologies to optimize production efficiency, a critical advantage in a post-subsidy era.

Policy and Economic Considerations

Government policies continue to shape the EV landscape. The IRA's Foreign Entity of Concern (FEOC) restrictions, which exclude components from countries like China, have incentivized supply chain diversification but also increased production costs, according to an ICCT analysis. Meanwhile, the Trump administration's proposed repeal of IRA tax credits could exacerbate challenges, with projections indicating 130,000 direct job losses in the EV industry by 2030 and 310,000 indirect jobs at risk, the ICCT analysis warns.

Despite these headwinds, innovation in battery technology and recycling is emerging as a cost-reduction driver. Production R&D efforts are enhancing energy density and battery lifespan, while recycling initiatives are improving resource efficiency and sustainability, as shown in a ScienceDirect study. For example, closed-loop battery systems are being developed to repurpose waste EV batteries, reducing reliance on raw material imports.

Future Outlook: Innovation as the New Catalyst

While the phase-out of subsidies has slowed the pace of electrification, the long-term fundamentals of EVs-lower per-mile operating costs and environmental benefits-remain compelling. Automakers are adapting by prioritizing high-margin, environmentally beneficial models and streamlining supply chains, an approach discussed in an NBER digest. Additionally, the leasing loophole, which allowed foreign-made EVs to qualify for IRA subsidies, has highlighted the need for policies that align economic and environmental goals.

Conclusion

The U.S. EV transition is navigating a period of adjustment following the IRA subsidy phase-out. While the immediate outlook includes a temporary slowdown in market share, the industry's resilience lies in its ability to innovate and adapt. Companies that prioritize vertical integration, R&D, and cost-efficient supply chains-such as Tesla and BYD-are well-positioned to thrive in this evolving landscape. Investors should focus on firms demonstrating agility in navigating policy shifts and leveraging technological advancements to maintain competitiveness.