Impact of Government Incentives on the Market
Despite talks about market forces, it was government incentives that played a key role in popularizing electric vehicles. This is particularly noticeable towards the end of September, when federal tax credits officially expired. According to research firm Rho Motion, up to 90% of all battery electric vehicles and plug-in hybrids sold in the US received some form of tax benefit during the first nine months of the year.
Sales Surge Before the Deadline
The expiration of the federal electric vehicle tax credit on October 1st provoked a national rush for relevant models. This led to record sales for a number of brands and increased overall demand for electric cars in August and September. This year, the Environmental Protection Agency determined that 20 battery electric vehicles and one plug-in hybrid model met the criteria for the new clean vehicle credit worth up to $7,500. Together, these cars accounted for 55% of all electric car sales from January to September.
Leasing Loopholes and Fleet Support
A less known Commercial Clean Vehicle Credit, also worth up to $7,500, played an important role in supporting sales. This credit was available for vehicles weighing up to 14,000 pounds and was intended for fleets and business buyers. It also allowed automakers to claim the tax credit themselves and reduce the cost of leasing new models. Importantly, leased passenger cars were not subject to the same origin and assembly requirements as purchased ones, and they did not need to be produced in North America, making leasing a particularly attractive option.
Results Before Benefits Expired
As the September 30th credit expiration date approached, electric vehicle sales surged sharply across the United States. Ford sold 30,612 battery electric vehicles in the third quarter, which is 86% more than in the second quarter. GM’s electric car sales increased by 44% to 66,501 units, Tesla reported a 27% sales increase, and Hyundai also noted significant growth thanks to doubled demand for the Ioniq 5.
Prospects Without Incentives
It remains unclear how sharply electric vehicle sales will decline in the fourth quarter after tax credits expire. Rho Motion expects demand to “sharply decrease.” The research firm also points out that tariffs, high costs of local production, and weakened fuel efficiency standards will likely restrain investments in domestic electric vehicle production, creating additional pressure on demand in the coming months.
The expiration of tax benefits may become a test for automakers, who now must adapt to market conditions without significant government support. Some companies have already announced their own sales incentive programs, but their effectiveness remains questionable. The experience of other countries suggests that after the cancellation of benefits, the electric vehicle market may go through a period of stagnation before resuming growth thanks to technological improvements and cost reduction.