Electric vehicle sales in the United States are setting records. Over the past two months, consumers across the country have been rushing to car dealerships to buy EVs before a federal incentive providing up to $7,500 in tax credits ends Sept. 30.
In July, automakers sold more than 130,000 EVs, about 25% more than the month before. That number reached an all-time high in August, with about 12% of all new cars sold being electric.
The federal government rolled out current EV tax incentives in 2008, aiming to bridge the price difference between gasoline and electric cars. In 2022, the Inflation Reduction Act modified the policy by adding income caps for those eligible to receive the tax break and limiting the credit to EVs under a certain price. To qualify, vehicles also must be built in the United States using domestically sourced materials. This policy was set to run through 2032.
But in July, Congress approved the tax and spending legislation colloquially known as the Big Beautiful Bill, scrapping the discount seven years before its original expiration date.
“The move is broadly reflective of the government not wanting to promote electric vehicle adoption or environmental policy more generally,” said Stephanie Weber, assistant professor in the Department of Economics, noting that several other pro-EV policies have already been eliminated.
Stephanie Weber
As the program comes to an end, CU Boulder Today sat down with Weber, who is also a fellow at the Renewable and Sustainable Energy Institute, to discuss the impact federal incentives had and the outlook for electric cars.
There’s evidence that a meaningful share, from 10% to 30%, of the EVs that were being sold were purchased because of the incentives.
Over the past 15 years, the types of products automakers offer in the United States have also improved. For example, we now have EVs with larger batteries that have more range before they need to be charged. We can attribute some of those improvements to the incentives. They motivate automakers to develop new products, knowing there’s this enhanced demand for EVs.
The subsidies were always intended to be phased out. But from an economic perspective, some should maybe persist.
Economically, we want to use these incentives to solve what are called market failures—basically anything that causes us to deviate from efficient outcomes under a free market. In the case of vehicles, the major market failures are environmental impacts from gasoline vehicles, from local air pollution to greenhouse gas emissions.
Consumers, when they buy a car, don’t necessarily have an incentive to consider the pollution impacts on other people. So we might want an ongoing incentive to push people into buying electric vehicles.
In the immediate term, we’re seeing really big increases in electric vehicle adoption, because people want to make the purchase before the tax credit expires.
Over time, we will see a reduction in sales relative to what we’d see under the policy. It may not be an absolute decline in sales, although that’s also possible, but it might be a flattening out in growth. Some estimates suggest that between 2026 and 2028, about 4% of new vehicles sold will be EVs, about half the current share, due to these policy changes.
We are going to see fewer new products than we might have otherwise. Some automakers have actually canceled EV models that they had previously announced. For example, Honda canceled plans for a large electric SUV in July, anticipating a decrease in U.S. demand. General Motors and Volkswagen have announced that they’re scaling back EV production. They are also going to spend less money trying to develop new electric vehicles and trying to improve the technology in the United States.
And it’s not just the tax credits that are getting taken away. There are other incentives on the automaker side for promoting EVs and fuel-efficient vehicles. Many of those have also been eliminated in the last year.
One was a waiver that allowed California to set its own vehicle emission rules, which were stricter than federal standards. The state mandated that a certain percent of new cars sold in California be zero-emission, ramping up to all new cars by 2035, and 11 other states, including Colorado, adopted California’s standards. They have also eliminated penalties for failing to meet Corporate Average Fuel Economy standards, which require automakers to sell more fuel-efficient vehicles, including electric vehicles.
EV subsidies, as we’ve been doing them, are not the optimal policy, partly because these subsidies tend to disproportionately benefit wealthier people who can afford new vehicles.
From an economic standpoint, an effective environmental policy should align people’s private incentives with societal incentives. So in this case, we would want to directly make it more expensive to generate pollution, through ways like putting a surcharge on gasoline.
Such a policy can have impacts beyond car-buying behaviors too. It would also make people consider things like, “Should I drive to the grocery store, or is this actually a small trip that I can make via the bus or bike?” and reduce their emissions that way. An EV subsidy isn’t going to do that.
CU Boulder Today regularly publishes Q&As with our faculty members weighing in on news topics through the lens of their scholarly expertise and research/creative work. The responses here reflect the knowledge and interpretations of the expert and should not be considered the university position on the issue. All publication content is subject to edits for clarity, brevity and university style guidelines.
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