The cliff, in four quarters
Few policy changes in modern automotive history have produced a cleaner natural experiment than the death of the US federal EV tax credit. The numbers tell the story with unusual precision:
| Quarter | US EV sales | Change | |---|---|---| | Q3 2025 (final eligible quarter) | 437,487 | All-time record | | Q4 2025 | 234,171 | −46% QoQ, −36% YoY | | Q1 2026 | 216,399 | Further decline; −28% YoY | | Q2 2026 | 247,226 | +14.2% QoQ, −20.5% YoY |
Q3 2025 was not demand. It was a stampede. Buyers pulled purchases forward to beat the deadline, and EV share hit a record 12% of new light-duty sales in September 2025 according to the Energy Information Administration. Then the door closed, and the market fell through the floor.
Q2 2026 is the first quarter that looks like recovery rather than freefall.
What actually happened, legally
The Section 30D new-EV credit ($7,500) and Section 25E used-EV credit were both terminated by the One Big Beautiful Bill Act (P.L. 119-21), signed on 4 July 2025, effective 1 October 2025 — more than seven years ahead of their original schedule. The IRS closed new dealer registrations for the Energy Credits Online portal on 30 September 2025, ending point-of-sale transfers.
There is one surviving loophole. If a buyer entered a binding written purchase contract and made a qualifying payment (a deposit or trade-in counts) on or before 30 September 2025, the vehicle counts as "acquired" for Section 30D purposes — even if delivery came later. Those buyers can still claim the credit on their 2025 return via IRS Form 8936, filed in 2026. A dealer time-of-sale report is required.
What replaced it, and whether it's any good
The OBBBA swapped a one-time purchase credit for an annual auto loan interest deduction. Key differences, and they matter:
- It is a deduction, not a credit. A $10,000 deduction saves roughly $2,200–$3,700 depending on your bracket.
- It applies only to US-assembled vehicles — of any powertrain, not just EVs.
- It phases out from $100,000 modified AGI (single) / $200,000 (joint), disappearing entirely at $150,000 / $250,000.
- The loan must have originated after 31 December 2024.
Over the 2025–2028 window, a financed buyer could plausibly accumulate $8,800–$14,800 in total tax savings — which, on paper, rivals or exceeds the old $7,500 credit.
On paper. In practice, a deduction spread over four years does nothing for the affordability barrier that stops people at the showroom door, which is the upfront price. That is the entire point of a point-of-sale credit and precisely what was lost.
Also still alive, and time-critical: the Section 30C home charger credit (30%, up to $1,000) applies to equipment placed in service on or before 30 June 2026 at eligible addresses. If that date has passed by the time you read this, it is gone.
What the crash did to prices
Two things happened at once, and they pulled in opposite directions.
Average EV transaction prices jumped 18.1% to $51,981 in January 2026, while petrol vehicles rose just 0.9% to $45,510. That is not manufacturers gouging — it is the cheap end of the EV market evaporating, because the cars that most depended on the credit to make sense were the affordable ones.
Meanwhile, incentive spend exploded. Manufacturers are now burning roughly $5,700 per EV in incentives to move inventory, with EV discounts running at 14–15% of transaction price — more than double the industry average. Automakers are, in effect, paying the tax credit themselves out of margin.
The price gap between an EV and a comparable petrol car sat around $6,200 in early 2026, per Cox Automotive. That gap is the whole story.
Who won and who lost the correction
Tesla won. Its share rose from the mid-40s to 59% in Q4 2025 and settled at roughly 50.5% across H1 2026. Its Q2 volume was 124,800. Tesla's cost structure meant it could absorb the loss of the subsidy where its rivals could not.
GM lost badly, but is still second. GM sold 56,679 EVs in the US across H1 2026 — down 32.6% year on year. Only four of its eleven EV models grew: Cadillac Optiq, Cadillac Vistiq, Chevrolet Bolt and GMC Sierra EV. The Blazer EV fell 75.1%; the Hummer EV line dropped 54.9%.
Ford retreated. The company has openly scaled back EV investment for 2026.
Toyota won, from nowhere. Toyota's Q2 2026 EV sales rose 225% year on year to 11,826 units, on the back of an expanded lineup — the bZ, C-HR and bZ Woodland. Through H1 it sold 21,855 EVs, up 136%, overtaking Cadillac and moving to fourth overall behind Tesla, Chevrolet and Hyundai. Arriving late with good product and heavy incentives turns out to work.
Where this leaves the market
US EV share sat at 5.8% of new sales in Q2 2026 — roughly where it was in Q4 2025, and about half of the 12% peak reached during the pre-deadline rush.
Cox Automotive's read is that the market is stabilising after an anticipated correction. That seems right, but "stabilising" is doing a lot of work. The US is now the only major automotive market moving away from EV incentives while the rest of the world moves toward them. Globally, the IEA estimates at least one in four new cars sold is now electric. In America it is roughly one in seventeen.
Three things could shift the trajectory:
- Affordable product. The sub-$30,000 Chevrolet Bolt and updated Nissan Leaf are exactly the cars the market needs, and they are only now arriving in volume.
- Fuel prices. Elevated petrol prices have already driven a measurable shift in shopper behaviour toward electrified vehicles.
- Used EVs. With off-lease supply surging and 44% of used EVs selling below $25,000 in March, the used market is quietly doing the affordability work the federal credit used to do.
The federal credit was a bridge that made new EV pricing competitive. Without it, price-sensitive buyers are finding a better deal in the used EV market — or buying a hybrid. Which brings us neatly to the next article.
- The $7,500 credit ended 30 September 2025 under the One Big Beautiful Bill Act
- Q3 2025 hit a record 437,487 sales; Q4 collapsed 46% to 234,171
- Q2 2026 recovered 14.2% to 247,226 — the best post-credit quarter
- The replacement is an auto-loan interest deduction worth ~$2,200–$3,700/year, US-assembled vehicles only
- EV transaction prices rose 18.1% to $51,981 as the affordable end of the market evaporated
Key takeaways
- The $7,500 credit ended 30 September 2025 under the One Big Beautiful Bill Act
- Q3 2025 hit a record 437,487 sales; Q4 collapsed 46% to 234,171
- Q2 2026 recovered 14.2% to 247,226 — the best post-credit quarter
- The replacement is an auto-loan interest deduction worth ~$2,200–$3,700/year, US-assembled vehicles only
- EV transaction prices rose 18.1% to $51,981 as the affordable end of the market evaporated
Sources & further reading
- Cox Automotive Q2 2026 EV data
- InsideEVs
- Kelley Blue Book
- US EIA
- IRS guidance on Sections 30D/25E/30C
- One Big Beautiful Bill Act (P.L. 119-21)
- Electrek
- electrive
Figures, prices and policy details were current at the last-updated date above. Automotive pricing, incentives and regulations change frequently — verify time-sensitive details with the linked primary sources. Read our editorial policy and fact-checking standards.
