US Federal Electric Vehicle Tax Credit Ends in 2025: What’s Next for EVs?

In 2022 the United States introduced an electric vehicle tax credit as part of the Inflation Reduction Act. The goal was to reduce the financial burden on manufacturers and consumers during the transition from fossil-fuel vehicles to more environmentally friendly ones. The program lasted three years and became a significant component of efforts to reduce the transportation carbon footprint globally.

The credit has officially ended. The competitive race for the electric industry pushed the United States toward localization requirements and final assembly in the North American region to support domestic manufacturing and emphasize domestic supply chains.

The electric vehicle credit consisted of three parts: a credit for new vehicle sales up to $7,500, a credit for used vehicle sales up to $4,000, and a credit for leases up to $7,500, which were received by leasing companies and lowered costs for consumers.

Historically the first tax incentives for EVs appeared as early as 2008 under President George W. Bush, but later rules changed: income caps and the requirement for final assembly in North America emerged, which affected availability and eligibility for program participants.

What now?

The termination of the federal credit sparked a surge in August–September to restock inventories and temporarily boost demand for electric vehicles, as manufacturers aimed to quickly move remaining stock and buyers sought to stay under the benefits. In the short term, experts expect a potential drop in demand, but over time demand could rebound, perhaps more slowly than in previous years.

In the long term, demand will likely rise again, but growth rates may be more modest. Regulatory initiatives and regions, including states, may play a greater role in supporting EV development than federal rules.

“[California] had a state rebate for electric vehicles that disappeared, especially when there was a federal credit, and, in my view, we may see the return of this practice in various forms.”

Also expect transformations in infrastructure: AFRP – the tax credit for property used to refuel alternative fuels – underwent updates under the IRA to ease the installation of home charging stations for EVs. Initially the extension was planned until 2032, but legislative changes repealed these provisions, and now the credit operates under different terms, with a duration until 2026.

Despite the expiration of the federal credit, manufacturers and regions promise support. Companies may implement their own incentives: cashback, favorable interest rates and leasing discounts, and states may expand regional benefits. Electric vehicles remain an important tool in the fight against climate change, especially where the state supports their development.

In the future, the role of regional initiatives and private incentives will remain key. Advances in technology and the ease of use of EVs will continue to influence the speed of the transition and the accessibility of electric vehicles in different regions around the world.

“This will only help Tesla.”