Electric vehicle market faces future with fewer subsidies

By EPN Staff

Automobile industry stakeholders predict electric vehicle (EV) sales will continue to gain ground despite growing headwinds of tariffs and cuts to tax incentives.

New U.S. EV sales grew more than 10% year over year in the first quarter of 2025, and used EV sales have seen even greater gains of 39% since Q1 of 2024. EV sales comprised 7.5% of the new auto market, a half-percentage point higher than last year.

Globally, EV sales are up 29%, with China leading the way with a 36% increase.

Why it matters

EV sales buoyed by federal and state subsidies have taken off in recent years, but now trade wars, changes in U.S. policy and plant closures threaten to diminish the industry’s momentum.

U.S. tax credits under the Inflation Reduction Act include $7,500 for new EVs and $4,000 for used.

Those subsidies and others deemed expensive and ineffective could be in jeopardy as Republican lawmakers seek to rein in the massive federal spending approved by Democrats and the Biden administration. President Donald Trump and the Republican Congress are poised to eliminate such incentives.

A new report states that eliminating the EV credits could save taxpayers $300 billion by 2035.

Likewise, a new trade war with China threatens the industry due to the increase in cost of both materials and imported vehicles, putting downward pressure on sales.

Combined, these two factors may make electric vehicles less affordable for average buyers and in turn slow demand.

Bigger picture

The EV sector already has started to see slow consumer adoption and flagging demand.

• General Motors temporarily closed its CAMI Plant in Canada due to weak sales.
• EV battery maker Akasol closed its Michigan plant and moved production to South Carolina.
• Audi stopped production in Brussels.
• Ford is delaying EV production to focus on hybrids and announced in February that its EV division lost more than $5 billion in 2024. The company has blamed slow adoption by consumers for low demand.

Range anxiety also persists among many drivers; the Trump administration paused federal subsidies for new charging station infrastructure.

Additional details

China, too, has recently seen declining EV sales despite its significant jump since last year. EV purchases in China declined 40% month over month earlier this year.

Despite tariffs and potential tax credit cuts, EV analysts predict sales will still rise — albeit at a slower rate.

Reversing EV tax credits in the IRA require Congressional approval, and some Republicans have expressed concern about their repeal. And the industry may adapt to new tariffs by boosting domestic production.

Meanwhile, states such as California have vowed to step up should federal subsidies disappear. Gov. Gavin Newsome said his state could offer EV rebates if federal EV incentives end. It’s unclear how California could fulfill that goal; the state remains mired in a multibillion-dollar budget deficit.