U.S. EV Tax Credit Vanishes: Why Automakers Fear a Sales Slump—and What It Means for the Rest of the World

What just happened

On October 1, 2025, America woke up to a new EV reality: the long‑standing federal incentive of up to $7,500 for electric‑vehicle buyers is gone. Major auto executives warned the shift could knock EV sales sharply lower in the near term, with some projecting a drop of as much as half from recent levels. In other words, the market lost its favorite coupon at midnight—and everyone is now checking the receipt. The phase‑out stems from a July tax bill, and carmakers are bracing for a tougher fourth quarter as sticker shock meets higher borrowing costs.

How carmakers are scrambling

Manufacturers aren’t just watching from the pit lane. Ford and GM have rolled out a leasing workaround through their finance arms that effectively preserves much of the incentive for customers—by buying vehicles from dealers themselves and passing the savings on via lower lease payments. It’s creative, legal, and just nimble enough to buy time while the market resets. Still, it’s a Band‑Aid, not a cure, and it won’t reach every model or buyer.

Meanwhile, dealers are sitting on sizable EV inventories after a September rush pulled demand forward. Industry estimates suggest unsold EV stock remains elevated and that EV share could slip in the near term, even after a record burst last month. Expect more promotions, price cuts, and “lease‑loyalty” offers as brands try to keep the wheels turning.

Why this matters beyond the U.S.

EVs are a global business with global supply chains. While the U.S. incentive expired, other policy gears are shifting elsewhere. In Europe, governments have moved toward definitive duties on Chinese‑built EVs, with rates differing by manufacturer and slated to run for years. That adds cost pressure across the value chain and could reshape where cars are built and what they cost on showroom floors from Lisbon to Ljubljana.

North of the border, Canada has already slapped a 100% surtax on Chinese‑made EVs (in addition to existing tariffs), a move designed to “level the playing field” for domestic and North American producers. For consumers in Montreal or Vancouver, that makes direct‑from‑China bargains far less likely, while nudging automakers to assemble more vehicles within North America.

The big picture, in plain English

EV demand is still growing long‑term, but growth is getting bumpier. Three forces are colliding: higher interest rates, the end of a major U.S. subsidy, and rising trade barriers. Put simply: financing costs went up, discounts went down, and import routes got narrower. That’s why you’re seeing automakers push leases (to lower monthly payments) and hybrids (to meet drivers where they are). If the last five years were about “build as many EVs as possible,” the next twelve months may be about “price them right and place them wisely.”

Connections to other recent headlines

Policy is increasingly steering the car market. Europe’s push on anti‑subsidy duties aims to counter state‑backed manufacturing advantages in China, while Canada’s tariffs mirror that stance. Taken together, these moves could accelerate the trend of building EVs closer to buyers—think more final assembly and battery plants in North America and the EU, fewer ships stuffed with finished cars. That’s great for local jobs and supply‑chain resilience, but it can also keep prices elevated in the short run if scale takes time to rebuild.

What it means for everyday drivers

Shopping for an EV in the U.S.? Expect more aggressive leases and dealer incentives over outright purchase discounts. In Canada and the EU, model availability and pricing may shift as brands reroute production to avoid tariffs. For all regions, watch the rise of entry‑level EVs and hybrids as carmakers try to hit the price‑to‑payment sweet spot. And if you’re calculating total cost of ownership, don’t forget fuel and maintenance savings—still the EV’s not‑so‑secret superpower—alongside any remaining local rebates and utility credits.

Fresh perspectives—and what to watch next

• Leasing lifelines: How long can automakers subsidize leases, and will regulators tweak rules around “commercial” leasing incentives?
• Factory footprints: Will tariffs and supply‑chain risk push more final assembly to North America and Europe, or will brands double down on modular platforms to stay flexible?
• Consumer trust: Expect clearer warranties, battery health guarantees, and certified pre‑owned EV programs to calm nerves as incentives fade and used EV markets expand.
• Policy ping‑pong: The U.S. debate isn’t over. If sales slump more than expected, pressure will grow for new or targeted incentives—perhaps for lower‑priced models or domestically sourced batteries.

The bottom line

The end of the U.S. EV tax credit is a jolt, not a dead end. In the short run, expect a cooler market and a lot of clever financing. In the medium run, trade rules and factory geography will matter as much as touchscreens and range. And in the long run, technology keeps getting cheaper and better—meaning the road to electrification may zigzag, but it still points forward. As any driver knows, sometimes you have to tap the brakes to make the next turn smoothly.