EV Tax Credits Expire: Time to Shift to Fossil Fuels Before the Clock Runs Out

Rhys NorthwoodSaturday, Jun 21, 2025 11:54 am ET
26min read

The U.S. electric vehicle (EV) market is on the brink of a seismic shift. President Trump's “Big, Beautiful Bill” (officially the One Big, Beautiful Bill Act) is advancing through Congress with provisions that will eliminate federal EV tax credits—key to the sector's growth—by as soon as late 2025. For investors, this is a clarion call to reassess holdings in EV manufacturers and pivot to

fuel equities or cost-effective alternatives before the legislative clock starts ticking. The stakes are high: automakers reliant on these credits face a cliff-edge decline in demand, while energy incumbents poised to benefit from a post-subsidy world are primed for gains.

The Expiring EV Tax Credit: A Timeline of Risk

The bill's Senate version, introduced June 16, 2025, accelerates the phaseout of EV incentives. For new EVs, the $7,500 tax credit dies 180 days after the law's passage, while used EVs lose their $4,000 credit in just 90 days. The House version, passed earlier, phases out the credit by December 31, 2025, but retains a temporary extension for smaller automakers until 2026. A reconciled bill could land anywhere between these timelines, but the Senate's faster path poses an immediate threat.

Why Automakers Are Vulnerable

EV sales have been artificially inflated by tax incentives. J.D. Power reports that 87% of 2024 EV buyers relied on the credit, with many citing it as critical to their purchase decision. Stripping this away could collapse demand. Tesla and General Motors, which dominate U.S. EV sales, are particularly exposed. Tesla's Cybertruck and Model Y, priced above $40,000, lose their $7,500 price advantage overnight. GM's BrightDrop and Chevrolet Bolt EVs face similar headwinds.

Both stocks have already dipped on legislative rumors, but the worst may be ahead. Analysts at Goldman Sachs estimate that Tesla's gross margins could shrink by 5–7% post-subsidy, while GM's EV sales could drop 30% in 2026. Automakers may respond by cutting prices or lobbying for extensions, but with the GOP's anti-EV mandate rhetoric, hope is dim.

Strategic Shifts: Fossil Fuels and Cost-Effective Alternatives

Investors should exit EV stocks now and reallocate capital to fossil fuel giants or EV manufacturers with sustainable cost structures.

  1. Fossil Fuel Equities:
    The bill's phaseout creates a tailwind for oil majors. A return to gas-powered vehicles would boost demand for crude oil, benefiting ExxonMobil (XOM), Chevron (CVX), and ConocoPhillips (COP). These companies also benefit from the Senate's exclusion of an EV “road tax” (unlike the House's $250 annual fee), sparing them additional regulatory drag.

  1. Cost-Effective EV Alternatives:
    Not all EVs are equally subsidy-dependent. Focus on manufacturers with lower-priced models or geographically diversified sales:
  2. Nissan (NSANY): The Leaf starts at $32,000, making it less reliant on subsidies.
  3. Chinese EVs: Companies like BYD (BYDDF) or Nio (NIO) cater to markets outside the U.S., insulating them from the tax credit collapse.
  4. Battery Tech Innovators: Firms like Livent (LVNT) or Albemarle (ALB), which supply lithium for EV batteries, may see sustained demand as automakers scramble to cut costs.

The Urgency Factor

The Senate could vote as early as July 2025, triggering the 180-day countdown. Even if the House and Senate reconcile differences, the expiration timeline remains perilously short for EV buyers and manufacturers. Investors waiting for clarity risk missing the window to lock in profits from fossil fuels or low-cost EV plays.

Final Call to Action

  • Sell EV stocks: Tesla, GM, and Rivian (RIVN) face valuation risks as subsidies vanish.
  • Buy fossil fuels: Exxon, Chevron, and COP are well-positioned to capitalize on renewed demand for traditional energy.
  • Hedge with battery tech: Lithium suppliers offer exposure to EVs' structural growth while avoiding the credit cliff.

The “Big, Beautiful Bill” isn't just policy—it's a market reset. Act swiftly, or watch your EV portfolio hit the brakes.

Data as of June 19, 2025. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.