US Electric Car Market Faces Sharp Slowdown as Tax Credits End and Tariffs Rise
For a while, it looked like America’s electric vehicle (EV) revolution was finally shifting into high gear. Sales of battery-powered cars hit 1.2 million units last year, more than five times the number sold just four years earlier. Hybrid models tripled in popularity over the same period, and in August, EVs made up 10% of all new car sales — a record high, according to S&P Global Mobility.
Major automakers such as Tesla, Ford, and General Motors all reported record EV sales in their most recent quarterly updates, offering a glimmer of optimism in an auto market weighed down by high interest rates, inflation, and ongoing trade tensions.
But industry analysts warn that this growth surge may have been short-lived. Much of it, they say, was driven by consumers racing to buy electric cars before the expiration of a federal tax credit worth up to $7,500, which officially ended in September. With that subsidy now gone — and import tariffs rising — experts predict that demand for EVs could soon lose momentum.
Carmakers Brace for Demand Drop
“It’s going to be a vibrant industry, but it’s going to be smaller — way smaller than we thought,” said Jim Farley, CEO of Ford, during an event this week.
General Motors’ chief financial officer, Paul Jacobson, echoed the sentiment, warning that “EV demand is going to drop off pretty precipitously,” and that it may take time for buyers to return.
Even with recent sales gains, the United States — the world’s second-largest auto market — still trails well behind other major economies when it comes to EV adoption.
Global Comparison Highlights US Lag
In the United Kingdom, nearly 30% of new vehicles sold last year were either fully electric or hybrid, according to the International Energy Agency (IEA). In Europe overall, one in every five cars sold now plugs in.
Meanwhile, China, the world’s largest car market, is racing far ahead. Nearly half of all new vehicles sold in China in 2024 were electric or hybrid, and analysts expect those models to dominate the market this year. Smaller countries such as Norway and Nepal are even further along, with EVs accounting for the overwhelming majority of new car sales.
While electric cars still make up a relatively small share of the market in Latin America, Africa, and parts of Asia, demand there is growing rapidly — in sharp contrast to the slowdown expected in the US.
Policy Shifts at the Heart of the Slowdown
Experts point to policy differences as a key reason behind America’s slower adoption rate. Other regions have embraced stronger government support, offering generous subsidies, scrappage incentives, and strict emissions rules that make EVs more attractive to buyers.
Former President Joe Biden had championed a push toward electrification, setting a target for EVs to make up half of all new US car sales by 2030. His administration invested billions in charging infrastructure, provided low-interest loans for EV manufacturers, expanded government fleet purchases, and enhanced the $7,500 tax credit to boost affordability.
Supporters of these measures argued that they were essential to keep American automakers competitive against global rivals, particularly from China and Europe.
But President Donald Trump, who has repeatedly dismissed climate change as a “con job,” has moved in the opposite direction. His administration has scrapped several key incentives, including the federal EV tax credit, while also rolling back emissions standards and halting California’s plan to ban new petrol-only cars by 2035.
“We’re saying you’re not going to be forced to make those cars,” Trump said while signing the rollback bill earlier this year. “You can make them — but it’ll be judged by the market.”
Affordability Still a Barrier
Electric cars have become cheaper in the US over the past few years, but they still cost considerably more than gasoline-powered vehicles.
According to Kelley Blue Book, the average EV price in August 2025 was $57,000 — roughly 16% higher than the average price of all vehicles sold. The most affordable option, the Nissan Leaf, starts around $30,000, while in the UK, similar models can be found for under £20,000.
Chinese automakers such as BYD, known for producing low-cost EVs, have been effectively shut out of the US market due to heavy tariffs supported by both Biden and Trump. Those tariffs, along with new import duties on auto parts introduced earlier this year, have made it difficult for American buyers to access cheaper models.
Carmakers Adjust Strategies
Facing a tougher market, some automakers are experimenting with new pricing strategies. Hyundai announced it would lower prices across its Ioniq lineup to offset the loss of the federal credit. Tesla, however, said it would raise monthly lease rates on certain models.
Analysts say most manufacturers are unlikely to follow Hyundai’s lead, given the added cost pressures of tariffs and slowing consumer demand.
“Next year is going to be hard,” said Stephanie Brinley, associate director at S&P Global Mobility. Her firm projects overall US auto sales will fall about 2% in 2026.
“It would have been difficult enough if you only had tariffs to deal with,” she explained. “But with tariffs and the loss of incentives, that’s a double hit.”
Industry Investment at Risk
Carmakers had already begun scaling back EV investments earlier this year amid rising material costs and uncertainty about consumer appetite. Trump’s new policy direction, researchers warn, could slow that investment even further.
“It’s a big hit to the EV industry — there’s no tiptoeing around it,” said Katherine Yusko, an analyst at the American Security Project. “The subsidies were a way to level the playing field. Without them, the US has a lot of ground to make up.”
Still, some experts say it’s too early to write off America’s electric future. The EV market remains young, and alternative technologies — including hydrogen fuel cells and synthetic fuels — continue to evolve.
“Is electric really the right thing?” Brinley asked. “Saying the US is behind assumes that EVs are the only and best solution — and it’s still a little early to say that.”
The Road Ahead
For now, the end of tax credits and the rise of tariffs are expected to slow US EV sales sharply heading into 2026. Automakers face a difficult balancing act: keeping prices competitive while maintaining profit margins in an uncertain economic climate.
Whether the US can regain its EV momentum will depend largely on how quickly manufacturers innovate, how policymakers respond, and how much patience consumers have with a technology that, despite years of progress, still faces a bumpy road ahead.