The U.S. auto industry has leaned long and hard on federal support to make a mark in electric vehicles. But after the July 4 signing of the "Big Beautiful" budget into law by President Donald Trump, that support is about to come to an abrupt end. Like a fireworks show where all the rockets are set off at once, U.S. EV sales could explode in the coming weeks as buyers rush to make the tax-credit deadline. Then the fun will end and automakers will face hard decisions.
The $7,500 federal tax credit for electric vehicles will expire on Sept. 30. Trump's budget legislation also ends zero-emission vehicle credits, which funneled money to EV manufacturers from makers of gasoline vehicles. And it ditches fines for companies not meeting corporate average fuel economy standards.
Those policies boosted Tesla and EV startups and prodded auto giants such as Ford and General Motors to reinvent themselves around EV-centric strategies.
Heading into 2026, uncertainty from trade war tariffs and terminated incentives cloud the EV market outlook. Analysts aren't yet offering specific forward-looking electric vehicle sales forecasts. But most believe U.S. EV demand is set to slow significantly in the coming year. Many automakers had already scaled backed U.S. EV production plans in the past year due to cooling consumer demand. Now they are set to step back even further, or shift their focus to hybrid vehicles.
That could leave the U.S. auto industry even further behind as global trends shift toward electrification. China and Europe continue to advocate for rapid EV adoption. Chinese EVs, which dominate the home market, are quickly gaining favor overseas, setting new standards for quality, technology and affordability.
Meanwhile, gasoline-electric hybrid models are attracting more U.S. buyers, largely due to lower prices, but also due to "range anxiety" and other consumer concerns. U.S. automakers may not entirely flee the EV market, but the going threatens to get rough in the near future.
As a result, auto stocks have been dodgy, at best. GM is flat for the year. Shares of Ford are up 13% and finding support for the moment, but are still 57% off their 2022 high. Tesla, Toyota Motor and Mercedes-Benz are all down for the year.
Volkswagen stock is up 17% and BYD, China's top automaker and EV market leader, has posted a 25% gain. But neither chart is sending positive signals. Overall, IBD's Auto Manufacturers industry group shows a year-to-date drop of 23%.
But Ford, for one, thinks consumers still want EVs. They just want them to be cheaper. CEO Jim Farley has said the company has focused significant resources on building "a breakthrough electric vehicle and a platform in the U.S."
Ford: The EV 'Canary In The Coal Mine'
Monday will be a crucial day for Ford's EV vision and maybe for the U.S. EV market overall.
Farley has pledged that Ford will develop affordable, mass-market EVs that will be profitable. He told analysts on the Q2 conference call that Ford will unveil its upcoming EV platforms on Aug. 11 in Kentucky.
"This is a Model T moment for us at Ford," Farley said, referring to Henry Ford's creation of mass production for the 1908 Model T. The innovation slashed the price of a car by 60%. It is widely cited as the birth of the modern automotive industry.
Analysts remain doubtful. During the July 30 performance report, Ford said its electric vehicle division lost $1.33 billion in the second quarter, even as its EV revenue soared 105% vs. a year earlier to $2.4 billion.
Morgan Stanley's Adam Jonas wrote on July 30 that it is "EV decision time" for Ford. The company appears to be a "canary in a Kentucky Coal Mine" when it comes to electric vehicles.
"We expect the company to put a 'brave face' on their EV strategy during a presentation on Aug. 11 in Kentucky," Jonas said. But "investors remain skeptical for how Ford could operate a profitable EV business in a market where even Tesla's car business is unprofitable."
Besides consumer preferences and the turnabout in government policy, Jonas sees another pending threat as "Chinese EV tech migrates onto U.S. shores (slowly, at first)."
U.S. Autos Aware Of China EV Problem
Farley tipped his hat to China's EV prowess in late June when he took the stage with Walter Isaacson, the famed biographer of Elon Musk and others, at the Aspen Institute's Ideas Festival.
After a year of extensive travels to China, the Ford head acknowledged that it has "far superior in-vehicle technology" compared to the U.S.
"You get in, you don't have to pair your phone," he said. "Automatically, your whole digital life is mirrored in the car. You have an AI companion, you can talk to ChatGPT-equivalent in China, all your automatic payment is already there, you can buy movie tickets, it has facial recognition so it knows who's in which seat and which media you like."
Much of this connectivity is enabled by companies like Huawei, which means China's government could be riding along as well.
The U.S. Incentive Era Is Done (For Now)
China's lead is a relatively new development. Tesla in many ways continues to set the industry's EV bar. U.S. and other automakers have worked double-time to catch Musk's first-mover juggernaut, assuming that going all-in on EVs would boost stock performance.
Just five years ago, Mercedes and Volvo said they would go all-electric by 2030. General Motors has targeted 2035. Volvo had already purchased EV manufacturer Polestar in 2015.
Volkswagen, for its part, decided to invest $5 billion in a joint venture last year with U.S. EV startup Rivian.
Backing those promises was a mix of subsidies and regulations from governments around the world. The U.S. jumped to the head of this booster club when then-President Joe Biden signed into law several measures to promote renewable energy and incentivize electric vehicle production. Most effective for consumers was the tax credit of up to $7,500 under the 2022 Inflation Reduction Act, or IRA.
In addition to the IRA tax credit, the zero-emission vehicle credits and corporate average fuel economy fines also wielded clout. Tesla has long been a major beneficiary of the ZEV credits program, as well as the CAFE rules. That is because automakers that failed to meet federal emissions requirements would often purchase credits from the EV giant or another company with credits to spare.
Those programs also provided an incentive for traditional automakers to shift to EVs.
Tesla earned $2.8 billion in revenue from selling credits in 2024, 16% of its total gross profit. William Blair analysts estimate that 75% of Tesla's regulatory credit revenue has been related to the CAFE standards.
U.S. EV Sales Boom, Then Cool
U.S. EV sales raced 49% higher to a record 1.2 million in 2023. The IRA tax credit "was really an effective tool for helping sales and price parity between EVs and ICE (internal combustion engines)," Stephanie Valdez Streaty, senior analyst at Cox Automotive, told IBD.
But sales quickly slowed to 8% growth, or 1.3 million new EVs, in 2024.
The slowdown has continued. U.S. EV sales dropped 6.3% in the second quarter. That left electric vehicle sales up just 1.5%, to 607,089, in the first half of 2025, according to Cox Automotive data. Meanwhile, China sold more than 3 million EVs in the first six months of 2025, and its exports accelerated.
Streaty said the "year-over-year decline in Q2 was only the third decline on record." She read that as a possible "sign of a more mature market."
But it also showed consumers souring on the hefty prices for EVs. And it's difficult to see the very uncertain market after tax credits expires as mature.
Electric Vehicles Shifting To 'Organic' Growth?
In the nearer term, sales for the rest of this year may be more predictable. General Motors, the No. 2 U.S. EV seller after Tesla, reported a 7% gain in second-quarter EV sales. Sales rose 12% for the first half of the year.
On Aug. 4, GM reported that its July EV sales — following Trump's budget launch — soared more than 115% year-over-year in July, to 19,000 units.
That July sales surge supports Streaty's view that the looming end of IRA tax credits could trigger "record" U.S. EV sales through the third quarter. That would be followed by a "collapse" in the fourth quarter, as "the electric vehicle market adjusts to its new reality," she said.
"The second half of the year will be a critical test of EV demand," Streaty said.
And that's not necessarily a bad thing, says Stephanie Brinley, associate director for AutoIntelligence at S&P Global Mobility.
Elimination of the tax credits and other incentives allows demand to "grow a little more organically" and be "a little less forced," Brinley said.
Automakers will have to prove their marketing mettle, Streaty says. "There are going to be some interesting things in 2026 to see how different stakeholders really react to this."
Broadly, analysts project a marked slowdown in the nation's transition to electric mobility. The Rhodium Group estimates that Trump's budget could mean significantly fewer EVs on the road by 2035 compared to previous forecasts.
The U.S. EV Market Landscape
EVs still make up a small portion of overall U.S. vehicle sales.
Through June, the Tesla Model Y was this year's bestselling battery electric vehicle in the U.S., followed by the Tesla Model 3, according to data compiled by Morgan Stanley. The General Motors-owned Chevrolet Equinox was a distant third. The Ford Mustang Mach-E and the Hyundai Ioniq 5 rounded out the top five among BEV models.
Before the start of 2025, Cox Automotive forecast electric vehicle sales would constitute around 10% of all new cars sold. Trump's policy changes trimmed that forecast to around 8.5%. That would be little changed from 2023, when EV market share grew to 7.6% from 5.9% in 2022, according to Cox Automotive.
In China, new energy vehicle sales totaled 5.47 million in the first half of 2025. That's slightly more than 50% of all passenger vehicles sold, according to the China Passenger Car Association. NEV sales include BEVs, plug-in hybrids and fuel-cell vehicles.
The U.S. also lags the European Union. There, BEVs had 15.6% market share in the first six months of this year, according to the European Automobile Manufacturers Association. That was up from a 12.5% a year earlier.
Automakers Were Already Cutting EV Plans
Even before Trump's new budget, automobile manufacturers, other than Tesla, were taking a loss on U.S. electric vehicles. Many were scrapping or delaying EV releases. EV demand appeared to be softening or, at least, readjusting.
Ford, Mercedes, Volvo and even Apple all killed some electric vehicle models last year. Reports in July said Honda had scuttled its planned five- and seven-seat EV SUV, which was set to hit the road in 2026. Honda shifted its focus to hybrid production.
Meanwhile, Nissan in April scrubbed future plans for EV sedans. Nissan North America Chair Christian Meunier told Automotive News the automaker was "listening to market data," which showed U.S. consumers demanding fewer EVs and more SUVs.
A rise in demand for hybrid models has been key to that shift, Streaty said. "So we'll probably start to see more of those production shifts to other alternative powertrains."
But not exclusively. Ford says it's mostly sticking to its EV guns, targeting EV production and new affordable releases even as it delays some new EV models to 2028. Rivian plans to begin deliveries of its new R2 vehicle in the first half of 2026, with the R3 or R3X due out sometime after that.
Hyundai is also significantly increasing electric vehicle production at its $7.6 billion Georgia plant, designed to produce 500,000 EVs and hybrids a year. Currently, the plant produces the Ioniq 5 and Ioniq 9. It is expected to expand to include other Hyundai, Kia and Genesis EV models.
Despite the anticipated hit to U. S. electric vehicle sales, Streaty does not see automakers exiting the EV segment.
"I think it's more of a timeline readjustment," she said, of U.S. sales growth. "I don't think we've plateaued."
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Steep Competition In China
Halfway around the world, China's EV automakers bask in an embarrassment of state-subsidized riches.
The highly competitive marketplace is where Musk sees his EV company's top rivals. Among them are auto giant BYD and newer EV market entrants like Xiaomi, XPeng, Li Auto, Nio and Zeekr. All these companies offer affordable or mainstream vehicles filled with technological bells and whistles.
"I think definitely we're pulling back and China is continuing to move forward," Streaty said. "They've been very aggressive with subsidies and infrastructure buildout."
While it has boosted EV adoption, that buildout has also led to overcapacity. Overcapacity, in turn, triggered a price war. The price war is pressuring margins across China's auto industry, threatening a shakeout among the weaker players.
That's one reason China is hustling to increase vehicle exports. Europe, Latin America and Australia are all targets.
China's automakers "want to dominate this (EV) space," Streaty said. "They are ahead of us and they are only going to get further ahead of us."
Even so, Brinley does not see U.S. automakers as out of the race.
"The intellectual investment is still happening. I wouldn't say that the Western automakers can't either catch up or be competitive," Brinley said.
The Hunt For The 'Affordable' EV
By early this year, General Motors was backing away from its internal goal to end sales of nearly all gas-only vehicles by 2035. CEO Mary Barra stressed on the July 22 earnings call that GM now seeks the "flexibility to shift" between traditional internal combustion engine vehicles and EVs "based on market demand."
GM's Chevy Equinox EV starts around $35,000. The company is bringing back a revamped Chevy Bolt EV, likely in early 2026. GM has yet to confirm the price tag, but it's expected to be around $30,000. The bolt will feature GM's first lithium-iron phosphate (LFP) battery pack.
The focus, Barra said, is to "get to profitability and then to continue to improve so we have appropriate and strong margins from our EVs as well."
That would leave GM "very well-positioned ... for later in this decade into next decade," Barra said.
Tesla also continues to say it will release an affordable vehicle soon, likely a cheaper Model Y variant. Executives on the July 23 earnings call, however, said deliveries won't start until at least Q4, after the $7,500 tax credit expires.
Trump Tariffs Will Make It Difficult
The actual impact of U.S. trade tariffs has yet to be determined. But as automakers struggle to develop and launch cheaper EVs, it seems clear that tariff policies will increase production costs. Ford expects a $2 billion tariff impact this year while Trump tariffs hit General Motors to the tune of $1.1 billion in the second quarter alone.
Since April, when Trump's initial tariffs for imported autos were set at 25%, the import tax has been lowered for many countries.
A trade deal reached with the U.K. subjects vehicle imports to a 10% tariff. Meanwhile, in recent weeks 15% automobile import tariffs have been imposed on Japan, South Korea and the European Union.
However, U.S. auto manufacturers still grapple with 25% tariffs on vehicles built in Canada and Mexico, as well as 50% tariffs on imported steel and aluminum. As of publication, U.S. tariff negotiations are ongoing with Canada and Mexico, two major automobile manufacturing hubs. And of course, Trump and China also continue to go back and forth.
Streaty noted that tariff headwinds have dragged down 2025 total U.S. auto sales forecasts. Sales now are expected to fall in the second half of the year but to what extent is still unclear.
"We have yet to really see any tariff impact on prices, but that potentially could happen later in the year when new models come in," the Cox Automotive analyst said. "More to come on that."
On Aug. 5, Cox Automotive ventured a prediction that, due to Trump's tariff policies, U.S. consumers will see vehicle prices climb by 4% to 8% by the end of 2025, with price increases accelerating as 2026 model-year vehicles hit the market.
With Trump's tariffs, though, an affordable EV is likely to be even more expensive to manufacture, and not just because of levies on imported metals and parts. China is a major autos parts supplier and in response to the U.S. trade war has begun restricting exports to the U.S. of rare earth metals and other key components for EV batteries and motors, markets it dominates.
When biographer Isaacson asked Farley during the Aspen festival whether his company can compete with China on EV prices, the Ford CEO stuck to his script.
"The key," Farley responded, "is innovation."
Please follow Kit Norton on X @KitNorton for more coverage.
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