- A U.S. Senate bill passed yesterday would end the $7,500 EV tax credit in September
- The bill would also dismantle fuel economy regulations and end taxes on car loan interest
- It isn’t law yet, and could still change before it’s finalized
Yesterday, the U.S. Senate passed a major piece of legislation intended to enact much of President Trump’s domestic policy. It would end a $7,500 tax credit that helps Americans buy some electric vehicles (EVs).
The bill could affect car shoppers in other ways, as well. It would end taxes on auto loan interest, and effectively end fuel economy regulations in place since the 1970s by removing the fines automakers pay if they fail to meet them.
Versions of the bill have now passed both the House and Senate, but it isn’t law yet and could change. Significant differences between the two versions remain.
The House will need to vote on the Senate’s version. ABC News reports, “it’s likely to face some headwinds there.” Some GOP budget hawks “are expressing dismay at Senate changes to the bill that previously passed the House by a single vote.”
Ends the Tax Credit After September
- Car shoppers would have until Sept. 30 to claim the credit
The 2022 Inflation Reduction Act created the current tax credit system. The law had two goals: spur more Americans to buy electric vehicles and force the auto industry to build EV supply chains outside of China.
It lets Americans claim a $7,500 tax deduction on EVs but requires automakers to build a larger percentage of each EV in the U.S. every year. Buyers can use it as a down payment. The rules are looser for leased EVs. Shoppers can use the benefit on nearly any leased EV, no matter where it’s made.
Related: How Do EV Tax Credits Work?
The bill would end the credit on Sept. 30.
Industry publication Automotive News notes, “The Senate’s accelerated timeline highlights how Congress is willing to defy the wishes of automakers and dealers who have pushed for a runway to off-load EV inventory using the credit.”
Ends Car Loan Interest, Leaves Fuel Economy Rules Toothless
- The bill would leave MPG rules in place, but end enforcement of them
- It would also make car loan interest tax-free
Automakers have been required to hit certain fuel economy targets since 1975. The so-called CAFE standards increase periodically, promoting more fuel-efficient cars over time.
The Senate bill would not end CAFE standards. But it would end fines for missing them.
That, says Consumer Reports, would effectively end fuel economy standards.
“These proposed changes effectively gut the popular CAFE program, turning it into nothing more than an accounting requirement with no teeth. Without an enforcement mechanism, many automakers are likely to continue to leave proven, popular, and cost-effective technologies sitting and gathering dust on the shelf, rather than deploying them to save consumers money at the pump,” CR warns.
The bill also exempts interest on car loans from taxes, provided the vehicles receive final assembly in the U.S.
The New York Times notes, “the benefits of the deduction, estimated to cost $31 billion over the next four years, may be limited to a narrow slice of car buyers, economists say.” The deduction applies only to individuals earning less than $100,000 per year or married couples earning less than $200,000.
Jonathan Smoke, chief economist for Kelley Blue Book parent company Cox Automotive, estimates that “average buyers could deduct around $3,000 in the first year of a six-year loan, but in reality, most would pay only about $500 less in taxes in year one, with that amount shrinking each year.”
Analysts Worry Bill Could Hurt U.S. Automakers Competitively
- The global auto industry will go electric even if the U.S. doesn’t
- Industry analysts fear job loss as the U.S. cedes the market to China
The bill would reset the American auto industry, allowing automakers to sell less fuel-efficient cars and ending support that helped them transition to electric cars. But industry insiders worry that’s bad for American companies and jobs in the long run.
The New York Times explains, “China already has a formidable head start in electric vehicles and the batteries and minerals needed to produce them. Companies like BYD, SAIC, and Geely produced 70% of the electric cars sold globally in 2024, according to the International Energy Agency. Automakers in the United States produced just 5%.”
The EV tax credit was the heart of a support system helping America catch up. Ending it might mean the country can’t.
Globally, 25% of cars sold this year could be electric. In the U.S., EVs languish below 7% of the market.
Pre-Trump federal policy was helping to build American EV supply chains. Ending those supports could leave the global EV supply chain centered in China for good.
The Times warns, “auto executives are nearly unanimous that, even in the United States, electric and hybrid vehicles will eventually displace gasoline-powered vehicles.” American automakers may be unable to build them at competitive prices, costing them sales worldwide.
“GM and Ford now earn a large majority of their profits in the United States. Analysts say their sales in the rest of the world could be reduced to rounding errors in the coming years based on current trends,” the Times warns.