Does the federal EV tax credit loss really make that much difference?

So there has been a lot of talk lately about the ending of the Federal EV tax credit of $7,500 on electric vehicle purchases as well as leases. 

As many of my readers may already know, leasing an electric vehicle has been a really easy and popular way to take advantage of the full $7,500 tax credit on many electric vehicles even if you do not qualify due to income, for example, on a purchase.

I have a different take on this than many other articles that I’ve read.

If I try to put myself in the mind of a vehicle manufacturer, that federal money provides me, as a vehicle manufacturer, the ability to make more profit on each vehicle sold.  Yes it’s a free incentive, but what’s to stop manufacturers from raising the price of the vehicle to account for the fact that there is a tax credit?  I would argue that in many cases the Federal Tax Credit has been “priced in” for a while and really isn’t resulting in that much savings for consumers.

Another thing that comes to mind is the fact that cars above $55,000 MSRP and SUVs and trucks above $80,000 MSRP do not qualify. Though in some cases you may still be able to get the leasing credit on the same vehicles. This would of course depend on the manufacturer as it's their choice if they want to offer it on their leases.  For example, Rivian does provide this credit for leasing on their vehicles, even though some of the vehicles are above the $80,000 MSRP limit. On the other hand, general motors does not provide the same $7500 leasing credit on vehicles above the $80,000 MSRP so it really depends on the manufacturer.

In legacy automotive where manufacturers have a network of independent dealers, the manufacturers have something called “hold back” which to my understanding is basically guaranteed profit for the dealer. So I question whether the $7,500 tax credit will really make all that much of a difference after it goes away.  In a lot of ways the tax credit seems like guaranteed profit for the manufacturer even though we as consumers see it as a tax credit or an incentive.

At the end of the day, I don’t believe the $7,500 tax credit is going to impact things all that much in the long term. 

All the news articles and advertising about the federal tax credit going away on September 30, 2025 I believe have caused FOMO. So I’m for a second going to put myself in the mind of a regular EV buyer. Let’s say I was planning to purchase a new electric vehicle within the next 12 months. When the FOMO kicks in, I feel like many buyers who were planning to purchase may have accelerated their plans so that they would not miss out on the federal incentive.

What do I see happening as a result?  Probably a significant slowdown in EV sales at least through the first half of 2026. Primarily due to the FOMO accelerated buying.  After that, though, manufacturers will not have as much profit margin and will need to incentivize more to get folks to purchase. 

Unrelated to the EV tax credit, but certainly related to EV sales, it would appear that the federal reserve is starting a cycle of lowering interest rates, which should make financing and leasing an EV more affordable. 

For example, an auto loan with a rate of 8% will have a significantly higher cost to finance versus a vehicle with a 4% or lower rate over the term. I would also expect the money factor on leases to be lower, which will make leasing more affordable. 

Here are two 72 month loans with 20% down payment and their respective breakdowns and amortization schedules.  As you can see there is a significant difference in the total vehicle price when you lower the rate from 8% to 4%.

As you can see, the total cost of a $50,000 vehicle is $5,000 lower and the payment is about $75 less per month.

Lastly, let’s add in the new tax rule that allows consumers to deduct up to $10,000 per year in auto loan interest while still taking the standard deduction, and the result is a much lower cost to finance a vehicle.  Note that there are income limits and the deduction only applies to “American made automobiles”.  You should definitely check with your accountant or tax professional to verify your specific situation.

So, the average new car price is right around $50,000 at the time of this writing.  As you can see from my photos even the 8% 72mo loan only amounts to about $3,000 in interest the first year then steps down (see amortization table) each year after.  So if the buyer qualifies, wouldn’t this essentially be a 0% auto loan at least through 2028?

See this article for more on the auto loan interest tax deduction.

If all of the above things hold true, I don’t see the loss of the $7,500 federal tax credit having as much of an impact past the middle part of 2026 as many others are predicting. 

What will have an impact however, is if we start seeing the economy in general enter a downturn.

There is also the question of tariffs.  We still don’t know the full impact and if they will remain in place for the duration.  The tariffs though, would have impacted prices regardless of the availability of the federal tax credit.

Now, the impact of lower rates and tariffs may cause inflation to spike in a major way which will certainly impact the economy and cause more strain on the budgets of many working families.

Many feel that we should be investing in our American EV industry.  One of the big reasons is the Chinese competition which has an unfair advantage due to China’s economic policies.

An opposing opinion seems to be that we shouldn't be subsidizing the EV industry and that we should let the market dictate the outcome.  One argument to this opinion however is that we subsidize other industries heavily to include the oil industry.  So if we aren't subsidizing one then we shouldn't subsidize the other one right?

Does anyone think that we might see even better deals once all the FOMO surrounding the federal tax credit on EVs is gone or do you think the EV market will crash in 2026? Please share your thoughts!  I always love reading your feedback.