If you already drive an EV, you might wonder, “Why all the fuss about EV tax credits?” Maybe you already took advantage of the federal tax credit or bought your EV without it because you care about tech, climate, or long-term savings. In EV-friendly areas, with Teslas and Bolts everywhere, it can feel like the transition is already a done deal. But here’s why those tax credits still matter—and why they’re worth defending.
EV adoption varies greatly
If you live in California, the Pacific Northwest, or in a city on the East Coast, it may be easy to assume that the EV transition is a done deal. But EV adoption is highly variable, and the EV market in the U.S. still needs tax credits. Some states have millions of vehicles and an EV market share of more than 25%, while others have just a few thousand registered electric vehicles. Tax credits are essential to drive EV expansion into rural areas and states with lower adoption rates.
Not only are tax credits important for geographic equity, but as EV drivers know, the reduced fuel and maintenance costs associated with driving electric can save households both time and money. Transportation is the second-largest expense for most American households, accounting for 17% of spending. Low-income households, particularly rural households, spend more on transportation, sometimes as much as 30% of their after-tax household income.
Switching from a gas car to an EV can save drivers thousands of dollars in fuel costs each year. The used EV tax credit can help qualified drivers access a safe, reliable EV for under $20,000 that still has years and miles left on its drivetrain warranty. The used EV tax credit boosts economic mobility and electric mobility, and provides cost and climate benefits to those who need them most.
The federal EV tax credits are not just for rich environmentalists. They are carefully designed to ensure responsible use. Users must meet income limits, cars cannot exceed MSRP caps, and vehicles must be assembled in North America with battery minerals and components from North America.
EV tax credits work
Industry-wide, 87% of all EVs purchased or leased in 2024 received the federal EV tax credit. Until EVs reach price parity with gas cars, they cost more upfront, but as EV drivers know, the fuel and maintenance savings more than make up for the price difference over the life of the vehicle. Accessing the full amount of the credit at the point of sale saves consumers money on finance charges, makes the tax credit available to those who don’t pay much in income taxes, and makes both new and used EVs more accessible.
The ability to apply the commercial clean vehicle tax credit to leases not only allows more consumer choice but also creates a pipeline of EVs that will reenter the vehicle market as less-expensive used vehicles (with great warranties). In part, because of these tax credits, EV sales continue to grow in the United States.
EV tax credits are not just an environmental tool; they are an economic tool
While the tax credits for new, used, and commercial EVs are great for drivers interested in making the switch to cleaner vehicles, they are far more than a consumer tax credit. The clean vehicle tax credits passed in the 2022 Inflation Reduction Act are part of a suite of complementary policies intended to catalyze a U.S. manufacturing renaissance.
Contrary to what many Americans believe, the United States is not the global leader in automotive manufacturing. China has dominated the global auto industry since 2009 and now manufactures over three times the number of automobiles as the U.S. It produces over 60% of the world’s EVs and 80% of its EV batteries. The U.S. auto industry is currently the second largest in the world.
The future of the auto industry is up for grabs, but the future of the auto industry is electric. In 2025, one in four vehicles sold globally will have a plug. U.S. auto companies are multinational corporations. As international markets shift to EVs, without federal support to help the U.S. auto industry transition to manufacturing EVs and the batteries that power them, the U.S. will get left further and further behind. The clean vehicle tax credits were carefully designed to help automakers transition to EVs and build a domestic supply chain through manufacturing tax credits, while providing consumer EV tax credits to make EVs more affordable to consumers and grow the U.S. market.
Once again, the tax credits have worked. Nearly $62 billion in announced investment and 91,900 jobs have been directly linked to facilities that currently or intend to manufacture new clean vehicle credit-eligible vehicles or batteries; 65 percent of that investment is in districts represented by Republicans. More broadly, the IRA was expected to catalyze $2 trillion in private investments in manufacturing and over 1 million new jobs in 2030.
Businesses and consumers need consistency to feel confident in moving forward
Congress made a commitment to automakers and consumers with the tax credits. The uncertainty caused by these shifts undermines trust in the current administration and the democratic process. It also creates expensive challenges for automakers who plan many years ahead and invest hundreds of millions of dollars in manufacturing and supply chain development. These investments cannot pivot year to year, leaving battery and auto manufacturers at a competitive disadvantage.
The One, Big Beautiful Bill Act eliminated all EV tax credits
The law eliminated the new, used, and commercial clean vehicle tax credits on Sept. 30, 2025, and stopped the EV charging equipment tax credit a year later (the equipment must be placed in service before that time).
This legislation will not stop the EV transition, but will make it slower and less equitable. Eliminating these tax credits will cost billions in manufacturing investments and hundreds of thousands of U.S. jobs. Energy prices will rise, innovation will slow, and domestic supply chain development will falter. The auto industry will continue to fall further behind. Tailpipe pollution and related health damages will increase, and climate change and related disasters will accelerate.
