US tax credit ending soon pushes automakers to advertise deals, driving last-minute EV sales surge.
Without incentives, EV sales could plummet, forcing automakers to cut prices or slow production.
Future favours hybrids as US, Canada, and key states rethink strict ZEV targets and policies.
Unlike what happened in Canada earlier this year, Americans have been given almost two full months to take advantage of the federal EV incentives. Back in January, Transport Canada paused the Zero-Emission Vehicles (iZEV) program, leaving many buyers high and dry in the purchasing process.
The immediate result was a rapid and sharp decline in EV sales. Some automakers scrambled to cover the lost rebate for a short period; however, a 40% or greater drop in new EV deliveries immediately followed.
In the US, the two-month grace period will serve to bolster sales as much as possible before an inevitable and likely drastic reduction in new EV deliveries. Already, some automakers are advertising pre-tax-credit end pricing. Ironically, the first car company with such ads that landed in my inbox was Tesla…
Musk’s baby won’t be the only automaker planning to pander to potential EV customers sitting on the fence. The $7,500 federal tax credit and its impending demise will likely convince many thousands of potential EV drivers to sign on the dotted line to take advantage of the credit.
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We expect some automakers will temporarily offset credit losses with rebates and deals. Most, if not all, will likely be unable to sustain this for very long, as ongoing tariffs will continue to pressure profitability in the face of declining sales. This challenging situation will force some car companies to take drastic measures in the short run.
Solutions will be price reductions, production slowdowns, or possibly sending some EVs to markets more favourable to them. For example, Ford could opt to reroute a portion of its Mexico-made Mach-E EVs to Canada. Although Canadians, a pair of provinces more specifically, remain open to electric vehicles, interest remains soft.
Meanwhile, and relatedly, California, Canada, and the Province of Quebec are revisiting and revising their once-ambitious ZEV goals. While it’s difficult to predict exactly what will happen, we believe that Quebec’s approach is the wisest, where hybrids will be eligible for a credit. In short, if you can’t beat ’em (customers), join ’em, as they’ve clearly shown their preference for hybrids over BEVs.
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The loss of the US federal tax credit will compel the Canadian government to revise its plans unless a coalition is formed with California, for example. If canada and California join forces, they will still only represent about 82 million of the roughly 390 million combined inhabitants in the US and Canada. However, of the 17.75 million new vehicles sold in Canada and the US in 2024, nearly 3.75 million were sold in California and Canada together, making up about 20% of all new deliveries. Including Oregon, Washington, New York, and Maine would increase the total to over 5 million units, approaching 30% of total sales.
In the long run, automakers will have little choice but to comply with the Trump Administration’s demands and build more vehicles in the US to avoid further penalties. What they are unlikely to assemble, however, are EVs. Hybrids and plug-in hybrids seem to have a bright future, as part of a multi-faceted approach.
If there’s any remaining desire to attempt to “help” the environment, incentives, albeit smaller ones, should be offered to buyers of these gasoline-electric vehicles. This should apply to both Canada and the US.
Another possibility is that automakers will gradually increase ICE vehicle prices while maintaining or even reducing EV prices. This would help automakers offset their massive EV investments, but at the same time, it would likely anger buyers. The fact is that even a 1997 Ford F-150, a 2004 Toyota Tacoma, or a 2009 Chevrolet Cobalt won’t last forever.
