Shoppers Hit the Brakes on EVs After Tax Credits Expire

picture of a transparent piggy bank with an EV inside made of grass sitting on top of dirt

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Now that the federal tax credit has expired, what is the outlook for electric vehicles in the U.S.? Sales surged as buyers rushed to cash in on the credit before it expired on September 30, then crashed. Here’s how we see the EV market in the longer term.

Once a novelty, EVs are here to stay. But they will occupy a much smaller share of the market in the coming months and beyond, now that the $7,500 federal tax credit is no more. (Note that some states offer tax credits of their own.) Early this year, before talk of Congress axing the credit influenced buyers, EVs accounted for 7.9% of car sales. For the time being, we see that level dropping to 5-6% or so, as demand finds its natural, unsubsidized level.

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Surveys show many consumers are interested in electric cars, even if they’re not ready to buy one. Manufacturers will keep building them, but in reduced numbers. Some existing EVs are already getting canceled, along with future models that automakers are now rethinking. Vehicle lineups that were supposed to transition to mostly or all EV in a few years now appear likely to stay mostly gas.

The good news for EV-curious consumers: There will be cheap used models hitting the market in the next few years. EV leasing soared after the Biden era made it easier to qualify for the federal tax credit that way. That flood of used vehicles will be returning to the market, giving value-minded shoppers lots of potential deals.

Cheaper, low-mileage used EVs may be the ticket to convincing wary buyers to consider going electric, now that demand from early adopters has been satisfied. Many drivers won’t be lured, either because an EV doesn’t meet their specific needs or a simple preference for gas. But a decent number of folks appear to be on the fence and may try a used electric model, if the financial math pencils out.

That being said, assuring potential buyers that used EVs’ batteries are sound will be key. Replacing EV batteries costs thousands, even tens of thousands, of dollars. Automakers and dealers will tout new “state of health” certifications showing the useful capacity an EV battery has. They may be rolled into automakers’ certified pre-owned programs, which inspect and vouch for quality used cars, and come with an extended warranty.

More public charging stations will also help, eventually. As of August, the U.S. had 229,000 public charging ports, though they tend to cluster around urban areas, vary in charging capacity and can be prone to failure. More and faster ones are needed. For now, EVs’ lost market share will likely be gobbled up by hybrid models. Consumers are really warming up to them as a compromise that keeps the familiarity and advantages of gas, with fuel efficiency boosted by batteries and electric motors. They’ll likely account for 15% of new car sales soon as more models come as hybrids.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.