Will Anyone Buy an EV Without Incentives? We're Probably Going to Find Out
The $7,500 federal EV incentive's days might be numbered. We look at the potential ramifications.
Electric cars have plenty of benefits to offer—they're quick, cheaper to operate than gas-powered machines, require much less maintenance, and can power your house in an outage— but they've perpetually suffered from one major disadvantage: cost. Compare a given battery-powered machine against its most comparable internal combustion counterpart, and you'll find the EV comes out pricier, often substantially so.
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Major EV manufacturers including Ford, GM, and Tesla have been working to counter that with volume, throwing up massive battery production facilities as quickly as possible to capitalize on an anticipated and continual rise in demand. To help prime the pump, and to help meet their increasingly challenging carbon dioxide goals, governments around the world have turned to incentives for everything from charging locations to EV purchases.
Now, sailing on the winds of political change, there's a lot less interest in subsidizing the next generation of transportation. Can EVs survive in an incentive-free global market? Let's look at the details.
The State of Federal EV Incentives
The federal government has implemented a series of EV-related incentives that have evolved significantly over the years. We have a complete breakdown for you here, but the short version is that new EVs generally qualify for a $7,500 credit from the federal government if they are made by a qualifying manufacturer out of qualifying materials and are assembled in North America.
However, thanks to the so-called "lease loophole," even those vehicles ineligible due to the manufacturing restrictions can still receive the credit. That's because they're not technically being purchased by an individual but instead by a business. More on that in a moment.
Although the rules and regulations guiding the federal tax incentives have changed over the past roughly 15 years, that $7,500 amount has stayed true. And although there have been alternate fuel incentives in various guises for decades, the current federal EV incentive can be traced back to a series of federal acts in the late 2000s.
The Energy Improvement and Extension Act of 2008, enacted during the George W. Bush administration, included numerous tax credits for everything from coal gasification upgrades to solar farm installations. More relevant to us here, the act included scaling tax credits on plug-in vehicles depending on their battery size and weight, with passenger vehicles capping out at $7,500.
Vehicle classifications and logistics surrounding those incentives have been revised over time, most recently thanks to 2022's Inflation Reduction Act, but that $7,500 cap remains—for now.
In the Crosshairs
In the lead up to the 2024 U.S. presidential election, EVs suddenly became the subject of endless rhetoric. President Trump made it clear that he was no fan of electric propulsion, saying that EV advocates are "looking to destroy our once great USA" and that "electric cars are good if you have a towing company." J.D. Vance echoed similar feelings, introducing the Drive American Act that would rescind federal credits for EVs and instead apply them to any American-made, gas-burning machine.
Only when Elon Musk donned a MAGA hat did Trump's stance soften somewhat, but his party is still following the echoes of his campaign rhetoric.
To that end, Senate Bill S.541, the ELITE Vehicles Act was introduced on February 12 this year by senator John Barrasso (R-WY) to "eliminate lavish incentives to electric vehicles." It would, in short, remove federal incentives for all sorts of alternative-fuel vehicles, new and used, passenger and commercial. That means it would effectively close the lease loophole and all other incentives intended to help households and businesses. It would even eliminate property credits for those installing EV chargers and other infrastructure.
In announcing the bill, Barrasso said: "The hard-earned money of taxpaying Americans should not cover the cost for the luxuries of the nation's elite. Nor should we be allowing China to infiltrate our markets and undermine our supply chain." Barrasso calls them "reckless tax credits from the Biden administration," despite their origins many years before.
This is the third time Barrasso has tried to get a bill like this passed. The first was S.1969, introduced in June of 2021, which never went to a vote. He tried again in May of 2024 with S.4237, with the same result.
Reactions and Expectations
A bill failing to even get to a vote twice would seemingly mean that there's not much need to worry about yet another try. However, the zeal of the current administration might deliver enough momentum to make the third time the charm.
Are manufacturers concerned? If so, they're not letting on yet. We reached out to every major manufacturer that sells EVs in the U.S., but few had much to say on the record. Nearly all declined to comment, which is frankly fair given that it's anyone's guess what the government's next step will be.
That said, Scout Motors has some strong thoughts on the subject:
- “Scout Motors’ mission of designing, engineering, and building vehicles in the United States, and creating thousands of good-paying jobs, is the right thing to do. It was the right decision when we made it in 2022, and it is the right decision for our future customers and the country. That’s something we can all agree on and get behind.
- “Scout Motors is here to stay. You can’t plan a strategic business case on how a government moves or doesn’t move. You need a business case built on: 'Are we making a really cool product that a customer wants to buy at a fair price?' That's what we’re doing. That said, the tax incentives that help companies who are choosing to manufacture great products here in the United States are important for our business. Repealing these tax incentives could have a significantly negative impact on American innovation, American job creation, and the growth of Scout Motors.”
Toyota, for its part, provided this statement:
- “Toyota is focused on creating a secure and resilient supply chain for EVs sold in North America that minimizes geopolitical risks and allows for a range of affordable electric vehicles for all consumers. While Toyota plans to offer battery electric vehicles that are manufactured in the U.S., we do not currently benefit from federal incentives offered for BEVs. As such, it's too early to speculate on any potential policy changes and how they might affect company strategy.”
Mercedes-Benz added the following:
- "We continue to support the goal of an ambitious electric car ramp-up. Our strategy remains unchanged: Mercedes-Benz will consistently create the preconditions for a net carbon-neutral new car fleet by 2039 over the entire life cycle. Please understand that generally we do not comment on legislative processes that have not been finalized."
And Audi said:
- “We believe the future is electric, and we have the vehicles to meet customers where they are in that transition. We are delivering what consumers want—from ICE to BEV. We are actively monitoring the situation and will continue working closely with industry and government stakeholders to navigate the outcome. Incentives have been proven to spur consumers to make the move toward electric vehicles and that is a trend we view as positive.”
So, the manufacturers aren't giving up on EVs but by and large are unwilling to speculate on what might happen here should the federal incentives be repealed. To get something of a preview, we'll have to look at what's happening across the Atlantic.
Spoiler alert: It ain't pretty if you're an EV fan.
Looking to Europe
Throughout Europe, sizable incentives toward alternative fuel vehicles have been around for about as long or longer than our federal incentives. They've had similar intentions and impacts, too.
Between 2016 and 2023, Germany's Climate and Transformation Fund paid €10 billion in incentives spread over 2.1 million EVs, an average of about €4,700 per car. That program ended abruptly at the end of 2023, and the result was dire.
While EV sales were up by 9.4 percent in the following six months throughout the rest of Europe, in Germany EV sales declined by 16.4 percent. Things got even worse through the rest of the year, slipping to a 27.4 percent reduction in Germany.
That would seem to indicate that a similarly abrupt termination of federal incentives here would be bad news for EV adoption, a point made in the recent 2025 Light Duty Vehicle Forecast from the strategy and advisory firm Telemetry: "While these policy changes aren't expected to fully reverse the adoption of BEVs in the U.S., they will make them more difficult for many people to afford and less convenient because of slower infrastructure investments."
Closing the lease loophole would also have some particularly adverse effects. According to Experian data, more than half of the new EVs sold in Q4 of last year were leased.
"Leasing has been an effective selling tool because it offers lower monthly payments and bypasses the MSRP, income, and critical mineral sourcing requirements of the IRA tax incentive," Stephanie Valdez Streaty said. She's Cox Automotive's director of industry insights.
But some provisions may help soften the blow. Roughly 25 percent of U.S. EV sales happen in the state of California, with governor Gavin Newsom stating that if the federal incentive is killed, California will counter with more substantial state incentives. "We're not turning back on a clean transportation future—we're going to make it more affordable for people to drive vehicles that don't pollute," he said.
California may have some time. "If the decision is made to eliminate the IRA incentive, the process will take time, so the impact won't be immediate," Valdez Streaty said. "The timeline involves setting budget targets, passing a budget resolution, and finalizing the budget-reconciliation bill."
However, the industry has one more weapon that might eliminate this problem altogether: price parity.
Getting Cheaper
If EVs aren't selling because they cost more than traditional cars, and if the incentives that help narrow that gap are going away, that would seemingly leave us stuck with a market full of cars that, despite being very nice, are too expensive for their own good.
But the tides may be changing on that front. Right now, the cheapest EV you can buy is the Nissan Leaf, at $29,280. Volkswagen, though, has something in the works designed to be far more attainable, previewed in the ID Every 1 concept. This car is expected to cost less than €20,000, which by today's exchange rates means about $21,500.
That would put it inside the Top 5 of our list of cheapest cars. While VW has sadly said the eventual production version of that car will not be coming stateside, it shows there's potential for EVs to get much, much cheaper when they're designed right and produced in volume. Right now, that seems like a better path forward for the industry than ever-quicker 0-to-60 times and inconceivably high horsepower figures.
