Analysts expect sales of electric vehicles will jump in early 2025, ahead of President-elect Donald Trump's reported plans to cut clean-energy incentives such as the federal EV tax credits in the new year.
According to reports, dealers are taking between $10,000 and $20,000 off the price of popular models in the last days of the year. Incentives include 0% financing and free charging. So, if you're looking for a tax break and other incentives, you should probably shop for that EV sooner rather than later.
Electric vehicle sales hit a record high in the U.S. in the third quarter of 2024, thanks to lease deals and a growing interest among Americans for more affordable EVs. And the pace hasn't slowed.
The annualized pace for new-vehicle sales in November is expected to finish near 16.0 million, equal to last month, and up 0.5 million from last November's 15.5 million pace. November's new car sales volume is forecast to reach 1.32 million, down 1.3% from October but higher by 6.6% from 2023's total.
"Electric vehicle sales may experience a jump in activity if consumers react to a potential change in federal tax credits under the new administration heading to the White House," according to Cox Automotive.
More Models Tied To EV Tax Credits
Plus, shoppers who want an IRS EV tax credit have more new models to choose from: 50 this year as of Dec. 4, 2024 compared to 34 in 2023. But the list of qualifying vehicles changes often, so be sure to check Fueleconomy.gov for the latest information.
Incentives like the EV tax credit and more model choices drove electric vehicles' share of sales in Q3 to 8.9%, the highest level yet and a year-over-year increase from 7.8%, according to Cox and Kelley Blue Book figures.
"With the U.S. election now in the rearview mirror, we may see vehicle sales finish the year in a strong position. With less uncertainty in the market, consumer confidence is moving higher, which will likely increase consumer willingness to buy a new vehicle," said Charlie Chesbrough, senior economist at Cox Automotive. "Additionally, vehicle affordability is improving, thanks to higher incentives and falling auto loan rates, which increase consumers' ability to buy."
What's Ahead For EVs?
Reuters, citing unnamed sources with direct knowledge of the matter, reported in November that Trump's transition team plans to end the EV tax credit as part of broader tax-reform legislation. Additionally, Tesla representatives supported the proposal to end the subsidy, the sources say.
It remains to be seen whether Trump could convince Republican lawmakers to cut the credits from the Inflation Reduction Act. Many congressional districts benefit from the tax breaks.
Meanwhile, California Gov. Gavin Newsom says he will relaunch that state's tax credit of up to $7,500 for EV buyers if Trump cuts the EV federal tax credit.
The statement from Newsom's office said nothing about manufacturers. However, published reports say the program could include a market-share cap, which could exclude Tesla or other EV makers.
Tesla CEO Elon Musk responded in a post on X, "Even though Tesla is the only company who manufactures their EVs in California! This is insane." Read more: Tesla Stock Falls As Analyst Says 'Animal Spirits' Spur Post-Election Rally, Not Fundamentals
Big Savings With The EV Tax Credit
In the first nine months of 2024, consumers saved more than $2 billion in up-front costs on their purchase of more than 300,000 clean vehicles, the U.S. Department of the Treasury and IRS announced Oct. 1.
Sales of new EVs are growing but at a slower pace than they did last year. "EV sales in the U.S. continue to march higher," said Stephanie Valdez Streaty, director of Industry Insights at Cox Automotive, the parent of Kelley Blue Book. "The growth is being fueled in part by incentives and discounts, but as more affordable EVs enter the market and infrastructure improves, we can expect even greater adoption in the coming years," Streaty said.
See More Automotive Industry News, Self-Driving Cars And EV Stocks To Watch
Getting Your Credit Sooner
The federal tax credit — up to $7,500 — became a lot easier to pocket in 2024. EV buyers no longer have to wait until they do their taxes to get the EV tax credit. EV buyers can now ask for that money at the time of purchase.
Unfortunately, it won't be a handful of cash at the dealership. Essentially, the dealer will advance you the credit, by reducing the loan or using it for a down payment. The IRS will pay the dealer back.
Even better: With interest rates rising, reducing the amount of your car loan from the start is a smart money move.
According to data from Experian, the average loan amount for new cars in the first half of 2024 was $40,927 and the average interest rate is a little less than 7%.
While EVs generally cost more than conventional vehicles, the price gap between the two is closing. The average price for a new EV this year is about $56,000. That's about 16% higher than the average price for the overall new car market. The average EV price in 2023 was about $53,500.
Depending on your trade-in value and/or down payment, the EV tax credits could save you hundreds or thousands of dollars in loan interest.
Latest News & Analysis Of Tesla Stock
How To Get Your Federal EV Tax Credit For 2024 And 2025
If your head is spinning from all the rules but you want to maximize your EV tax credit, Investor's Business Daily has done some of the work for you.
Due to tightening requirements for EV battery components, models that qualify for tax credits may vary. Only 20 models were on the list as of Jan. 1, 2024, but as of Dec. 4, there were 50 to choose from.
The IRS, meanwhile, says "some qualified manufacturers have yet to submit information on eligible vehicles that meet the current requirements."
The 2023 model of the popular Ford Mustang Mach-E qualified for a $3,750 federal EV tax credit. But the 2024 model is not currently on the list of qualified vehicles. The Mach-E could yet get back on the list.
The rules for battery components, as outlined in the 2022 Inflation Reduction Act, or IRA, tighten every year. The restrictions are intended to promote domestic production of battery minerals.
New Cars and Trucks That Qualify For The Credit In 2024 And 2025
| Make | Model | Year | Vehicle Type | Credit Amt | MSRP Limit |
|---|---|---|---|---|---|
| Acura | ZDX | 2024 | EV | 7,500 | 80,000 |
| Audi | Q5 PHEV 55 TFSI e quattro | 2023-2024 | PHEV | 3,750 | 80,000 |
| Q5 S Line 55 TFSI e quattro | 2023-2024 | PHEV | 3,750 | 80,000 | |
| Cadillac | LYRIQ | 2024-2025 | EV | 7,500 | 80,000 |
| OTIQ | 2025 | EV | 7,500 | 80,000 | |
| Chevrolet | Blazer EV | 2024-2025 | EV | 7,500 | 80,000 |
| Bolt EUV | 2022-2023 | EV | 7,500 | 55,000 | |
| Bolt EV | 2022-2023 | EV | 7,500 | 55,000 | |
| Equinox EV | 2024-2025 | EV | 7,500 | 80,000 | |
| Silverado EV | 2025 | EV | 7,500 | 80,000 | |
| Chrysler | Pacifica PHEV | 2022-2024 | PHEV | 7,500 | 80,000 |
| Ford | Escape Plug-in Hybrid | 2022-2025 | PHEV | 3,750 | 80,000 |
| F-150 Lightning (Extended Range Battery) | 2022-2025 | EV | 7,500 | 80,000 | |
| F-150 Lightning (Standard Range Battery) | 2022-2025 | EV | 7,500 | 80,000 | |
| Honda | Prologue | 2024 | EV | 7,500 | 80,000 |
| Jeep | Grand Cherokee PHEV 4xe | 2022-2024 | PHEV | 3,750 | 80,000 |
| Wrangler PHEV 4xe | 2022-2024 | PHEV | 3,750 | 80,000 | |
| Lincoln | Corsair Grand Touring | 2022-2025 | PHEV | 3,750 | 80,000 |
| Nissan | LEAF S | 2024 | EV | 3,750 | 55,000 |
| LEAF SV PLUS | 2024 | EV | 3,750 | 55,000 | |
| Rivian | R1S Dual Large | 2023-2024 | EV | 3,750 | 80,000 |
| R1S Dual Standard | 2024 | EV | 3,750 | 80,000 | |
| R1S Dual Standard+ | 2024 | EV | 3,750 | 80,000 | |
| R1S Performance Dual Standard+ | 2024 | EV | 3,750 | 80,000 | |
| R1S Quad Large | 2022-2024 | EV | 3,750 | 80,000 | |
| R1T Dual Large | 2023-2025 | EV | 3,750 | 80,000 | |
| R1T Dual Max | 2023-2024 | EV | 3,750 | 80,000 | |
| R1T Dual Performance Large | 2023 | EV | 3,750 | 80,000 | |
| R1T Dual Standard | 2024 | EV | 3,750 | 80,000 | |
| R1T Dual Standard+ | 2024 | EV | 3,750 | 80,000 | |
| R1T Performance Dual Standard+ | 2024 | EV | 3,750 | 80,000 | |
| R1T Quad Large | 2022-2024 | EV | 3,750 | 80,000 | |
| Tesla | Model 3 Long Range All-Wheel Drive | 2024 | EV | 7,500 | 55,000 |
| Model 3 Long Range All-Wheel Drive | 2025 | EV | (*) | 55,000 | |
| Model 3 Long Range Rear-Wheel Drive | 2024-2025 | EV | 7,500 | 55,000 | |
| Model 3 Performance | 2023-2025 | EV | 7,500 | 55,000 | |
| Model X All-Wheel Drive | 2023-2025 | EV | 7,500 | 80,000 | |
| Model Y All-Wheel Drive | 2023-2024 | EV | 7,500 | 80,000 | |
| Model Y Long Range All-Wheel Drive | 2025 | EV | 7,500 | 80,000 | |
| Model Y Long Range Rear-Wheel Drive | 2024-2025 | EV | 7,500 | 80,000 | |
| Model Y Performance | 2023-2025 | EV | 7,500 | 80,000 | |
| Model Y Rear-Wheel Drive | 2024 | EV | 7,500 | 80,000 | |
| Volkswagen | ID.4 AWD PRO | 2023-2024 | EV | 7,500 | 80,000 |
| ID.4 AWD PRO S | 2023-2024 | EV | 7,500 | 80,000 | |
| ID.4 AWD PRO S PLUS | 2023-2024 | EV | 7,500 | 80,000 | |
| ID.4 PRO | 2023-2024 | EV | 7,500 | 80,000 | |
| ID.4 PRO S | 2023-2024 | EV | 7,500 | 80,000 | |
| ID.4 PRO S PLUS | 2023-2024 | EV | 7,500 | 80,000 | |
| ID.4 S | 2023-2024 | EV | 7,500 | 80,000 | |
| ID.4 STANDARD | 2023-2024 | EV | 7,500 | 80,000 |
(*) The eligibility and credit amount for this model vary based on battery sourcing characteristics. Check with the dealer regarding your specific vehicle.
Source: Internal Revenue Service, fueleconomy.gov. Data for this table was updated Dec. 4, 2024.
Used Cars, Trucks Also May Qualify For EV Tax Credits
Pre-owned all-electric, plug-in hybrid, and fuel cell electric vehicles purchased on or after Jan. 1, 2023 also may be eligible for a federal income tax credit. The credit equals 30% of the sale price up to a maximum credit of $4,000. Pre-owned vehicles purchased before 2023 don't qualify for this credit.
The vehicle must be purchased from a dealer, have a sale price of $25,000 or less, and must have a model year two years prior to the current calendar year.
Credit eligibility and amount is determined at the time of sale using the IRS Energy Credits Online website. The dealer will complete and submit the time-of-sale report online. And it will be accepted or rejected in real time. The dealer is required to provide you with a copy of the time-of-sale report, and you will need it to claim the credit. Read more about used car and truck EV tax credits.
10 Most Important EV Tax Credit Rules
Here are the 10 most important things to know about the 2024-2025 EV tax credits:
- A tax credit of up to $7,500 is available on new and used EVs that meet certain criteria.
- The amount of the tax credit depends on where the EVs are made, where their battery components and minerals come from, how much they cost, and the buyer's annual income.
- The credit will be available for eligible buyers as a discount at the dealership when they buy the vehicle.
- The EV must be manufactured in North America and have an MSRP below $80,000 for an SUV and $55,000 for a sedan, wagon, or hatchback.
- To qualify for the first $3,750, some of the new EV's battery components must be produced or assembled in North America.
- To get another $3,750 (for the full $7,500 tax credit) some of the critical minerals in the EV battery must be mined or processed in the U.S. The minerals also could come from a country that is a U.S. free-trade agreement partner. Or, they must have been made from materials recycled in North America.
- The percentages of the components or minerals that need to be sourced under those rules go up every year, until reaching 80% by 2027.
- As of 2024, EVs with components from countries that have been designated "foreign entities of concern" (FEOC) will no longer be eligible for a tax credit.
- The tax credit is nonrefundable. You can't get back more than you owe in taxes, or apply the excess to future years.
- The dealer must be registered on a new platform, IRS Energy Credits Online.
How To Qualify For The EV Credit
For you to receive the credit, the dealer must confirm that your specific vehicle qualifies. The dealer also must provide you with an IRS time-of-sale report.
In accordance with new IRS regulations, beginning Jan. 1 Clean Vehicle Tax Credits must be initiated and approved at the time of sale. For more information, see IRS publication 5900.
The credit is available to individuals and their businesses. To qualify, you must buy it for your own use, not for resale, and use it primarily in the U.S. Also, your modified adjusted gross income (AGI) may not exceed $300,000 for married couples filing jointly. And it must not be above $225,000 for heads of households. The AGI limit is $150,000 for all other filers.
Buyers can check the IRS rules on EV tax credits, including how buyers qualify and which vehicles qualify for updates.
You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. As long as your modified AGI is below the threshold in one of the two years, you can claim the credit.
Tax Credits Aren't The Only EV Savings
Most EVs are cheaper to own compared to gasoline-powered vehicles, according to an analysis by Energy Innovations. Consumers could save $1,750 annually on average on fuel and maintenance costs. That could total $21,000 of discounted savings over the typical 15-year life span of a vehicle compared to a comparable gasoline vehicle.
More than 300,000 vehicle sales have used the up-front discount so far this year. This equals savings of about $525 million annually on fuel and maintenance costs. And savings up to $6.3 billion in costs over the life of the vehicles, the IRS says.
The Treasury's Office of Economic Policy says fuel is the largest contributor to savings for EV drivers.
Gas and electricity costs vary markedly by geography. However, fuel costs per mile are typically substantially lower for electric vehicles than for similar gas-powered vehicles, the Treasury Dept. said in a news release. For a set of cars that have both electric and gas-powered versions, as of June 2024, the average gasoline cost per 1,000 miles is $120 for the gas-powered versions. That's twice as much as the $60 cost for electricity per 1,000 miles for the electric versions.
Federal EV tax credits are just one factor driving a buying boom. Some cars and trucks also qualify for a state rebate or tax credit. Together, those incentives could cut as much as $15,000 off the price of a new EV.
The Department of Energy's Alternative Fuels Data Center provides updated state-by-state information on rebates and incentives.
The EV Lease Loophole
The Inflation Reduction Act placed new and significant limits on which vehicles qualify for the EV tax credits. The EV has to be built in the U.S., Canada, or Mexico. The battery cells must use minerals from a specific list of countries. And the cells and packs have to be made in the U.S. But buyers can get federal tax credits for models not on the list allowed by the IRA if they lease them.
In the IRA, Congress exempted commercial vehicles from the restrictions. While "commercial" is a term usually applied to vehicles like heavy-duty trucks, the Treasury Department defines leased EVs as "commercial" vehicles. Any leased vehicle may qualify for the tax credit because the North American battery-content and manufacturing rules do not apply to commercial vehicles.
When a dealer buys a vehicle and then leases it out, Treasury says that's a commercial transaction because the driver doesn't take title. This means the dealer or the finance company holding the lease receives the tax credit. Industry representatives and carmakers say the EV tax credit is lowering the price of leases and increasing incentive programs.
