UPDATE: The Bill has passed, awaits only Trump’s signature.
Senate bill would end EV tax credits by September 2025, much earlier than planned.
Dealers warn high EV inventories need a transition period; consumer groups criticize CAFE rollback.
Bill allows up to $10,000 annual car loan interest deduction, ends battery component credits in 2026.
The U.S. Senate passed a sweeping budget bill on July 1 that could end federal tax credits for electric vehicles by the end of September 2025, accelerating a phase-out that many automakers and dealers tried to delay. The legislation, approved by a 51-50 vote with Vice President JD Vance casting the tie-breaker, now moves to the House, where Republican leaders plan to hold a vote before the July 4 holiday.
EV tax credits could end nearly seven years early
Under the Senate proposal, the $7,500 tax credit for new electric vehicles and the $4,000 credit for used EVs would terminate on Sept. 30, 2025. That date moves up the sunset of the program by nearly seven years, initially set for the end of 2032.
A prior Senate draft would have ended the incentives 180 days after passage, while a separate House version proposed an end-of-year cutoff, with an extension through 2026 for automakers that had not yet produced 200,000 qualifying vehicles for the U.S. market. The House will now decide whether to accept the Senate’s accelerated, industrywide end date.
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Dealers and manufacturers have raised concerns that the abrupt end of credits could leave them with large inventories of unsold EVs. The National Automobile Dealers Association said roughly 140,000 electric vehicles are currently on dealer lots and called on lawmakers to allow a longer transition. “If EV tax credits are going to be repealed, NADA urges Congress to include a reasonable transition period,” the group said in a statement on June 27.
Additional provisions: CAFE fines, loan interest deduction, battery credits
The Senate budget bill also targets other longstanding policies that affect the automotive sector. It would remove penalties for automakers failing to meet Corporate Average Fuel Economy standards, a program in place since 1975. Consumer Reports policy analyst Chris Harto said the proposal would effectively strip the program of enforcement power, reducing it to “nothing more than an accounting requirement.”
Another provision would allow taxpayers to deduct up to $10,000 in car loan interest each year from 2025 through 2028. This above-the-line deduction would apply even to those claiming the standard deduction. The measure would only cover vehicles assembled in the United States and would exclude commercial fleets, along with certain income restrictions.
Separately, the bill changes the tax credit phase-out schedule for EV battery manufacturing. Instead of gradually reducing credits tied to battery components, the revised plan ends these credits after Dec. 31, 2026, shifting the phase-out focus to critical minerals.
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If the House adopts the Senate’s language without changes, the bill will proceed to President Trump for his signature, potentially becoming law ahead of the national holiday.
While we await the result, it’s important to note that the $7,500 tax credit is “covered” by the federal government and is not a state-run program. Thus, states like California, should they want to maintain the program, will need to foot the bill themselves. California does offer other rebates and credits, however.
“Expensive” will become even more expensive?
One way or another, should the bill pass, it will put additional strain on the efforts being made by governing bodies, such as those in California, Quebec, and Canada, among others. It is clear that the combined loss of the credit and declining interest in BEVs will further slow sales, undermining the zero-emission transition goals. In short, consumers will speak with their wallets and little else.
A possible offset could see ICE vehicle prices skyrocket to equal or even surpass those of hybrids, plug-in hybrids, and EVs. In this manner, automakers will recoup some, if not all, of their colossal investments to meet previous ZEV mandates and requirements. Might this open the door wide open for Chinese automakers with their highly affordable vehicles?
Partial source: Automotive News
