EV Subsidies Ending September 30 2024 7500 More Expensive

Americans considering the purchase of a new electric vehicle (EV) are facing a significant deadline. The federal tax subsidy for new, used, and leased EVs is set to expire at the end of September, making these vehicles $7,500 more expensive starting in October. This change is part of a broader tax and spending package known as the Big Beautiful Bill, which is expected to be signed into law later today. The bill, which also hikes the debt ceiling by $5 trillion, eliminates the fiscal leeway for the government to continue subsidizing EV purchases.

This impending change is likely to trigger a rush of last-minute EV buyers in the coming months. Car manufacturers, known as Original Equipment Manufacturers (OEMs), may begin reducing production volumes to avoid being stuck with excess inventory once the subsidies expire. This could result in empty dealer lots even before September ends. According to analysts, OEMs may decide to reduce EV production in the U.S. starting as early as the third quarter of this year to mitigate financial impact and potential inventory problems.

The federal tax credit, which was introduced at the start of 2023 as part of the Inflation Reduction Act, was designed to reduce the price gap between internal combustion engine cars and EVs. However, the tax credit required buyers to claim it back in their annual tax filing, meaning they still needed the cash on hand to pay the full price initially. This issue was highlighted by Elon Musk, who noted that many people do not have $7,500 readily available to front the cost for 18 months or even six months to get the tax credit.

In January 2024, the tax credit was applied directly at the point of sale, instantly reducing the cost and eliminating the hassle for consumers. However, with the upcoming expiration of the tax credit, manufacturers may need to adjust their EV prices to the new reality. Some could choose to offer a portion of the rebate to cushion the blow for consumers. This approach was taken by a number of brands in Germany when the government had to eliminate the “Environment Bonus” EV purchase subsidy as part of an emergency revision to the budget.

However, the Big Beautiful Bill also abolishes fines for exceeding corporate average fleet economy (CAFE) rules, which means there is even less incentive for legacy carmakers to push EVs. This could result in a renaissance for internal combustion engine cars, putting the U.S. on a different path from the rest of the world, where EV adoption continues to grow. Longer term, OEMs may focus on internal combustion engine (ICE) models in the U.S. market amid the relaxation of emissions rules and lack of EV incentives.