Last Updated on: 7th July 2025, 11:40 am
In this article, I’m attempting to present an optimistic view of the US auto market after the passage of the bill that ends electric vehicle (EV) tax credits on September 30th. That ended up being pretty hard to do, since there is a lot in the bill (and other actions) that reduces incentives for electric cars and trucks.
Incentives Changing
The $7,500 EV credit for new vehicles ends September 30th.
The $4,000 used EV credit ends at the same time, as we discussed here.
The commercial clean vehicles credit (used heavily as the “leasing loophole“) also ends at the same time.
The ZEV credits aren’t eliminated, but since the penalties go to zero, nobody is going to worry about meeting the goals.
Battery manufacturing credits are staying, but there are new complicated sourcing restrictions which will be difficult to qualify for.
Third Quarter Rush To Buy Before The Incentives End
Historically, whenever incentives end with some warning, this has the effect of pulling demand into the last quarter the incentives are available from the first quarter the incentives aren’t available. I haven’t seen much chatter about this yet on my social media feeds, and I expect that to change as we get closer to the deadline. Talking to my friends, it seems like everyone is disappointed that electric cars became so political.
First the Democrats liked Tesla but they were pricey.
Then Tesla cars got less expensive and many people were mad they hurt the resale value of their cars.
Then other brands adopted Tesla’s NACS port and were allowed to use the Tesla Supercharger network.
Then Elon became a Republican and half my friends started to hate Tesla but my Republican friends start buying them.
Then Elon started fighting with Trump and now nobody but the fanboys seems to like Tesla.
Now most of the incentives are ending soon and most are confused where things are going — hence I thought I’d write this article to organize my thoughts.
Tesla
Tesla sales in the US are down, but it is still the largest seller of electric cars by far, so let’s start with how it will impact the company’s sales. Tesla was expected to introduce more affordable models by the end of the second quarter, but didn’t (unless you consider the RWD CyberTruck and RWD Model Y, but most people were looking for a $25,000 or $30,000 vehicle to expand the total addressable market). Half the people I’ve followed thought it would just be a bare-bones Model Y, while half thought it would be more compact model. I think both are correct, but the timing will likely be different. I wrote here two months ago how Tesla could reduce prices a lot without making it smaller. They need a smaller vehicle for non-US markets where roads and parking favor smaller cars, but that might not come out till next year.
Whether Tesla delayed the introduction due to tariffs causing them to adjust supply chains or just delays in the design, I don’t know, but I suspect the former, since it isn’t difficult for an organization as talented as Tesla to make a stripped down car. Now, if it is a radical new model, then it could be design delays. But now that the bill has passed, I think Tesla delayed introduction until closer to September 30th, since they expect demand for the existing cars to increase in this quarter. On the other hand, that leaves them with overcapacity in the non-US markets, so I think they won’t wait till October 1st to introduce the vehicle. They just might have relatively high pricing at announcement (maybe $35,000). This won’t make much of a splash, but they may also not bother to get it qualified for the $7,500 tax credit, since it would only be able to use that for a few days. But the interesting thing is that frees up the supply chain if they don’t have to meet all the requirements for the tax credit. Those requirements might add thousands to the cost of the vehicle, so just ignoring those requirements might allow some different design choices. They could use an imported lithium-iron-phosphate (LFP) battery, for example.
Tesla could also plan a release of FSD (not that the company’s record of meeting its goals for FSD has met its previous schedules) to come out in the 4th quarter to soften the blow of losing the tax credit. If Tesla lowered prices $2,500, included an extended trial of FSD that is significantly better than what is available today, and competition is less, that could increase demand enough to counter the loss of the tax credit.
The Big 3 (GM, Ford, Stellantis)
The big 3 Detroit-based automakers have to build EVs for foreign markets, but I see them scaling back their plans for electric vehicles considerably. They will pivot to hybrids, yet not totally give up on electric vehicles, because they have to be ready to build them if Democrats retake the presidency and Congress in 2028. If they were smarter, they would realize they need to make electric cars that are less expensive and better than their gas cars, regardless of US laws and regulations, since that is what their competition will do. But I think they will take the lazy way out and just put money into making gas cars that are 3% better or hybrids that are 30% more efficient. GM and Ford will do more EVs, since they are ahead, but Stellantis may just give up on them domestically.
Rivian & Lucid
I’d love to be wrong, but I don’t know if either of these companies can survive without tax credits. But I’m not sure they could survive with tax credits either.
Hyundai & Kia
Hyundai & Kia seem like they will continue to develop their EVs to service global markets, and I think they will bring most of them to the US. But they will also shift some capacity to hybrids and plug-in hybrids, because that is where the demand will be without the tax credit.
The Japanese
I think Toyota & Honda will sigh a breath of relief and just keep converting their gas cars to hybrids. This is where the demand is and now that they don’t have to worry about penalties, they will delay any introductions of EVs in the US.
The Chinese
This is really the wildcard. Below I have some wild speculation that will change a lot if it happens, but which is unlikely to happen.
Could China send hybrid cars to the US to take advantage of the low 2.5% tariffs, low labor costs, and massive overcapacity? Plug-in hybrids and EVs have high tariffs, but why not ship the gas and hybrid cars that nobody else wants to the US? This is risky, since Trump could issue an executive order at any time to stop this for security reasons, but maybe this could happen later.
Could they sell zero-mile used cars from Mexico? This is also risky for similar reasons, and service and support would be an issue.
Could China make a deal to invest billions in US factories to build cars here? Trump is always looking to attract foreign investment in the US, but is also worried about security concerns. This is risky because Trump changes his mind frequently.
The safest way for China to get cars into the US is do some deal with Trump that makes him look good. Then he would be less likely to change his mind because of his ego.
Conclusion
It seems likely that most manufacturers will stop making compliance cars or cars just to satisfy the regulations or avoid penalties. But most of those cars and trucks weren’t that great anyway. That leaves more market share for those automakers like Tesla and the Koreans (and hopefully others) that are likely to gain market share (not just EV share, but overall market share). The key to success is to make an EV that is better and less expensive than the comparable gas car made by your own company and your competitors. We are seeing that globally and we need to see it more in the US also.
Disclosure: I am a shareholder in Tesla [TSLA], BYD [BYDDY], XPeng [XPEV], NextEra Energy [NEP], and several ARK ETFs. But I offer no investment advice of any sort here.
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