The EV tax credit is dead. What now?

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0:34Our guest is Verge Transportation Editor Andy Hawkins, and we're talking about the federal EV tax credit. The tax credit expired at the end of September, and there are a lot of questions about what happens to the auto industry after its demise. In its latest form, the tax credit offered a$7 ,500 discount on eligible domestic-made electric cars. As you'll hear Andy explain, this was designed to accomplish a lot of different things all at once. prop up the United States EV market, fight climate change, and keep pace with China, which has become a global leader in affordable EVs. But the second Trump administration has not been kind to the renewable energy movement, and EVs have become a bit of a political football over the last several years.

1:19Trump has turned them into a symbol for government overreach and wielded them as a weapon to target his enemies. Just a few weeks ago at the United Nations General Assembly, Trump called climate change a, quote, con job. So yeah, that's how he feels about that. Now the EV tax credit has expired and it is not coming back anytime soon. So where does that leave the auto industry? And what happens to the traditional American car makers that have been investing heavily in domestic production to electrify their lineups? As you'll hear Andy lay out, there's a tough road ahead. EVs are expensive to make and expensive to buy.

1:54The supply chain they rely on is intertwined with China and now subject to tariffs and an escalating trade war. And consumers are highly price sensitive in the EV market, much more so than the early adopters who flocked to Tesla years ago. If the U.S. auto industry wants to win back buyers, it's going to need to produce cheaper EVs, much like China does. And that's going to require manufacturing, supply chain, and technology innovations that will take some time to materialize. This is a really hard, complicated set of problems with a lot of moving parts. So I was excited to have Andy on the show to break down all of these components and give us a clearer picture about what's coming next.

2:36Okay, Verge Transportation Editor Andy Hawkins on the Federal EV Tax Credit. Here we go.

2:56Andy Hawkins, welcome back to Decoder. Hello. Thank you for having me. All right. So Andy, August 2025 was the best-selling month for EVs in U.S. history. There was a big rush to buy these up. A month later, the EV tax credit expired. This feels like a big moment for the industry, a little bit like maybe the rug was sort of pulled out from under them. So I want to spend some time talking about what this EV tax credit was and what it means for EVs going forward. So can you tell me a little bit about what did this tax credit do and why is it disappearing now? These are all great questions. So I think to start out with the EV tax credit, it was a$7 ,500 tax credit that you could take.

3:40Anyone could take for buying an electric vehicle. This was for new electric vehicles. Obviously, the vehicles had to meet certain qualifications. They needed to be manufactured in North America. Their batteries need to be sourced from our trade partners. There's a long list of requirements. But essentially what it was, how it boiled down to was the Biden administration, through the Inflation Reduction Act that they passed in 2022, established this EV tax credit as a way to incentivize consumers, U.S. consumers, to buy more electric vehicles. There's an acknowledgement that climate change was a problem, that over a quarter of carbon emissions are a result of personal transportation, essentially tailpipe pollution from gas-burning, gas-guzzling vehicles.

4:20The idea was we need to shift the American public from gas guzzlers to electric vehicles, and the best way to do that is to give them a discount. Because EVs are expensive, right? The batteries are very expensive to produce. They are typically sold at a premium over gas vehicles. And so the idea was we need to reduce that price at the point of sale in order to incentivize American car shoppers to buy more electric vehicles so that we can tackle climate change. This is not a new idea. There have been various discounts and incentives in place since far back to even like the W. Bush era. And then they also were established during Obama.

4:57They existed during the first Trump administration. And then Biden sort of reevaluated them and how they existed into their current form. until just recently when, through Trump and the congressional Republicans' big, beautiful budget bill that they passed on July 4th, eliminated the tax credit. So as of September 30th, it is gone. So you're correct. EV sales were fantastic. Last quarter, I think we saw more EVs sold in the United States than has ever been sold before. They reached over 10 % of all vehicles purchased through the third quarter of this year. And now, as of September 30th, it's been a hard stop.

5:36There is no more EV tax credit, and now we're living in a post-credit world. So you said that climate change was a big motivator in pushing these tax credits. But I'm curious how much standing up the EV industry was a part of this, too. Would the EV industry be where it is today without these credits? Definitely not. The tax credits were absolutely essential to the EV market as it existed today. The automakers relied a lot on these credits in order to obviously get consumers through the doors into their dealerships and to consider making this shift. Because I think, as we've seen over the number of years, the auto industry has been able to target EVs towards these early adopters very effectively.

6:21But there's a limited number of these early adopters, people who are interested in sort of being future forward, buying futuristic cars, switching to a different fuel source. And they have basically, all those people have bought their EVs, right? So this was going after a larger, more crucial segment of the car shopping market. And that is people who are more motivated by costs than they are by technology. So the credits were essential in getting those people into dealerships, into considering EVs. And now that they're gone, I think that there's a widespread understanding that EV sales are going to drop dramatically.

6:55And we're seeing the industry now shift away from EV production. A lot of these automakers are winding down certain plans that they had to spin up battery factories and new models. They're pulling back. They're taking big write-downs and cash hits. GM just today, as we're talking right now, announced a$1.6 billion write down on their EV production because they're essentially needing to readjust their production plans for a post-credit environment. I would say that the credit was essential into sort of propping up EV sales for a long time. And now that they're gone, we're going to see what's going to happen, I guess.

7:36So this is one of the things I'm really curious about. You know, the Trump administration, they talk a big game about American manufacturing. And like you were just saying, a lot of American automakers have been making big investments in EV manufacturing. So why did they decide to kill this credit now? It's a great question. In a lot of ways, it's cutting off your nose to spite your face type situation, you know, for an administration that claims to be very pro-manufacturing. This is the most anti-manufacturing thing that you possibly could do. Obviously, the Trump administration has been conducting a scorched earth campaign over climate change, kneecapping support for renewable energy for a vast majority of things.

8:15And EVs sort of fall into that bucket. But throughout the campaign last year, in the run up to the election, Trump was talking about the EV mandate, right? That that was one of his big attack lines on Biden was that Biden, through the IRA, was forcing people to buy electric vehicles. Obviously, that is false. There was no EV mandate. These are all just incentives. But I think through both eliminating the tax credit and then also rolling back fuel standards, fuel emission standards for gas vehicles, which was another way that Biden was trying to incentivize the industry to shift to electric was by making it tougher to make gas cars without penalties.

8:54I think the Trump administration is basically just throwing open the door to the oil and gas industry. Obviously, Trump, a huge supporter of oil and gas. Those industries have traditionally supported his campaigns. And now this is just a gigantic, you know, red ribbon wrapped package for oil and gas by eliminating these incentives and rolling back these standards. I think it sort of falls into the same category of the attacks that this administration has done on clean energy, renewable energy and efforts to fight climate change. This is a real, like, you know, just optimistic conversation we're having here.

9:29It's really just like a cheery, you know, fun talk we're having here. A delightful future for clean technology. It seems very promising. I'm curious, were there certain automakers who were benefiting more from this policy than others? I saw that Ford and GM were pretty intent on keeping this credit going and even found some sort of hacky workarounds to extend it for a little bit. Yeah, that was a real interesting twist that we saw over the last few weeks. But yeah, I would say GM especially was benefiting a lot from this tax credit through their brands like Cadillac and Chevy. They were really selling a lot of these EVs and shifting a lot of production to here in the United States.

10:13Ford a little bit less so. So they only had one EV that qualified for the tax credit. That was the Ford F-150 Lightning. The Mustang Mach-E, still a big seller here in the US, but was manufactured in Mexico, so did not qualify for the tax credit. But that said, I think both of those companies were huge benefactors of the tax credit. And now that they're gone, you're seeing them scramble and try to come up with some sort of new ways that they can try to prop up their EV sales. So what they did was, before the tax credit expired, they worked up this scheme so that They would essentially buy all of their EVs from their dealers that they had left in their inventory, put a down payment on those, and then lease those to consumers with the tax credit baked into that lease price so that they could essentially get the tax credit before it expired and then pass that credit along to consumers through this leasing loophole that existed in the current tax credit scheme.

11:06So it was, I think, a Hail Mary pass that they were attempting to do. It looked like it was going to work. They had consulted with the IRS and they basically said, is this legal for us to do this? And the IRS is like, yeah, I guess technically it is. And so they were going to go through with it until a couple of Republican senators, I think Bernie Moreno, who's from Ohio, used to be a car salesman before he became a senator, snitched on them, essentially. And we're like, we're going to investigate this and drag them in for our committee. And this is not what the American people voted for, blah, blah, blah.

11:35They snitched them out. Both GM and Ford, you know, quickly reversed course and said that they were not going to follow through with this plan. So it just goes to show that, you know, even through their creative methods, if someone catches wind and they get even like the hint of some sort of repercussion, that they will quickly back down from it. Buying your own cars just to sell them again with the credit that you got is it's kind of brilliant is an absolute hack. I love it. I don't know if it's appropriate or not, but, you know, that's the tax code at work. Yeah, it did minor the creative thought process that went into it.

12:10We need to take a quick break. We'll be right back.

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14:00Tic-Tac. Refresh your good vibes.

14:08We're back with Verge Transportation editor Andy Hawkins. Before the break, we were discussing the EV tax credit, what it did, why it died, and how some carmakers like Ford and GM failed in their efforts to keep those incentives going. Next, I want to zoom out a bit and talk about the market for EVs and what might happen now that those credits have been taken away.

14:31One thing you mentioned is they were going to lease them back to consumers. And I saw that leases have been really popular for electric vehicles. Do you have a sense of why that is where people's interest has been for these types of cars? Yeah, so I mentioned it briefly, but there was a leasing loophole as part of the IRA tax credits before they expired. So essentially, in order to accept the tax credit on a purchased vehicle, there's a long list of qualifications. The vehicle needed to be made in North America. The battery minerals needed to come from trade partners. The battery components needed to come from our trade partners.

15:06There was just a long list of requirements. And so it made it kind of tough. There was only like 20 EVs that actually qualified for the tax credit, I think, at its height. That said, for leasing, none of these requirements existed, right? You could have a vehicle that was manufactured in Germany or South America or where have you. The battery could come from China. And it didn't really matter because for some reason, they left this loophole wide open. So that's why you saw leasing become very popular with EVs, especially for like luxury made EVs like German Mercedes-Benz, BMW. So all of these EVs could qualify for the tax credit through the leasing loophole.

15:44And that, I think, led to a sharp increase in the number of EVs that were leased as opposed to purchased outright. That's amazing. It seems like this was all thought through very, very well. Yes. If by that you mean it, not at all. Ford and GM, they tried to beat the system. It ultimately failed. Do you think we're going to see more efforts by states to discount EVs? Or do you think that these companies are going to begin to just cut the prices? I do think that there were some states like California, for example, that said that they were going to try to step in and put in place their own incentives for EV purchases.

16:25But I think that they quickly realized that that was just not financially possible. Gavin Newsom, the governor of California, recently reversed this pledge to offer state credits to help keep these more affordable, saying that his quote was, we can't make up for federal vandalism of these tax credits. You know, like California has a huge economy. They have a huge budget, but there's no accounting for the federal elimination of these tax credits. It just wouldn't have made sense for them financially. I think what you're seeing now is a lot of automakers put in place some discounts, some leasing deals, other things in place to help with their current EV inventory, right?

17:04So EV sales were extremely robust during the third quarter. That's expecting now to drop dramatically after the credits are gone. So now all these dealers with the EVs that they still have in their inventory are going to be left going, what do we do with these? So the automakers are authorizing pretty steep discounts. So we've got Audi. We've got Kia with a$6 ,000 discount. We've got Hyundai with a$7 ,500 discount. We've got Lucid offering 0.99 % for 72 months and$7 ,500 off. We've got Rivian with 1.99 % for 60 months. So they're all doing a variety of their own kind of like they're trying to gin up their own kind of like temporary discounts as a way to deal with the inventories that they currently have.

17:45But those are only expected to last for so long, like maybe through October, maybe until like November at the very most. And then after that, you're going to see a lot of these discounts evaporate. And EVs are just going to have to sort of compete on their own, right? They're more expensive than gas cars. We're going to see sales drop off. And it's going to be pretty rough for a few quarters. Even Tesla, Elon Musk has said that Tesla investors should expect a rough few quarters over the next year and a half or so. And I think that that's just going to be sort of the reality of the situation. I've read that automakers tend to lose money on electric vehicles.

18:20And so if they're trying to add new discounts, if this credit is going away, which is going to make these high prices even more unpalatable, what is there for them in the market? How are they going to be able to manage this? Do we think that EVs are going to become suddenly more cost-effective to manufacture? Is this going to force them to just make these things happen on a much faster timeline? Is that even possible? Yeah, it's going to require like a huge kind of recalibration of the production process of the supply chain. Because, yeah, you're correct. EVs do cost more money to make than gas cars.

18:59I mean, we're talking about the battery being sort of the most expensive component in electric vehicles today that is costing a lot. So most car companies do take a loss on their EV sales. I think Ford last year lost like$5 billion on EV sales. Like I just mentioned before, GM just took a$1.6 billion write down. So yeah, it's a huge money loser. And what they're going to have to do is now figure out a way to make EVs that are profitable. It's possible. Tesla does it, right? They haven't been able to do it over the last year because their sales have been down. But this past quarter, their sales have been up because of the EV credit expiring.

19:40And before that, they were profitable and they were making money off of their Model 3 and Model Y vehicles. And you can do that through production changes, through supply chain changes, and really just making a vehicle that is more affordable. I think that there was a mindset in the auto industry for a long time that car companies need, in order to get people to buy their EVs, they needed to be sort of the exact carbon copy of a gas car, right? And what are the gas cars that people like the most? They're big SUVs and trucks. So you saw a lot of companies like Ford and GM make electric versions of the same vehicles, right?

20:18Big gas guzzling trucks and SUVs. Ford made its electric F-150 Lightning. saying GM is making an Escalade, an electric version of its Escalade. They made electric versions of the Hummer, the Sierra EV truck. So the idea was that in order to get people to make this switch, we need to lure them in by making things as familiar and comfortable as possible. I think that that has proven to be an ineffective way in order to sell EVs. They're too heavy. They're too big. The batteries required are too much. And now you're seeing the industry shift and pull back, especially from EV trucks in particular.

20:54For example, Stellantis recently announced that it is not going to be making a full electric version of its Ram 1500 Ram charger. And it is going to be focused on making extended range EVs, which are essentially kind of like souped up hybrids. So I think that there's going to need to be a huge retrenchment in the industry in order to make an EV that is both affordable, that some people will want to buy, And that is also profitable for the company. And that's going to require a lot of effort on the part of these companies. You mentioned Tesla's struggles. And Tesla is a really interesting example here because they actually faced the end of an electric vehicle tax credit before, correct?

21:34This is in 2019. And I think they hit some sort of cap. What happened back then? So, yeah, back then, the iteration of the tax credits that existed were similar to the ones that we just had. But there was this cap that if you sold 200 ,000 of a certain model of vehicle, that after that 200 ,000th vehicle that was sold, then the tax credits would be phased out for that vehicle. So Tesla was the first, obviously, as a full EV maker, only making electric vehicles. They were the first to hit that cap. GM followed soon afterwards. But then with the Biden tax credits, they got rid of the idea of a cap altogether, and they put sort of a lot of other restrictions in place.

22:12So Tesla was able to get the tax credit back. Even with that tax credit for the past year, their sales have been dropping compared to year over year. And that is due mostly to the Elon of it all, as we like to say at the verge, with him going hard into Trump and obviously emerging as a extremely controversial political figure, took a huge dent into Tesla's sales. That's also due to rising competition, both domestically and also in China, which is a huge market for Tesla. But I think that the Elon Musk also had a huge effect on Tesla sales. The company over the last quarter saw their sales increase as a result of these expiring tax credits.

22:52But yeah, I think that there was a situation in place with Tesla, even with the tax credit in place, was having a lot of problems selling their EVs. we need to take another quick break we'll be right back

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