The $7,500 electric vehicle tax credit in the U.S. will be eliminated. What does this mean for electric vehicle prices?

When the $7,500 federal tax credit for electric vehicle buyers is set to expire on October 1, U.S. electric vehicle sales are almost certain to decline, leaving automakers and buyers alike wondering: Where will EV prices go from here? The tax credit, set to pass in 2022, is part of legislation the Biden administration is pushing to support electric vehicles and green energy. Now it will be eliminated, stemming from the sweeping spending and tax bill signed into law by President Donald Trump in July.

The tax credit elimination comes as U.S. electric vehicle sales grow 7% in 2024, to 1.6 million vehicles, according to the Bureau of Transportation Statistics (BTS).

The end of the tax credit means demand for electric vehicles is expected to fall, and real prices will rise as well — something that many consumers who flocked to buy electric vehicles in August and September already knew. But this rush to buy is likely to lead to a sharp drop in sales in the last three months of this year, and electric vehicle prices may fall to some extent in the future.

As fewer people buy electric vehicles in the coming months, automakers are considering how to set sticker prices and offer incentives to maintain basic levels of demand. But it's unclear how much that would save consumers, and it likely won't make up for the loss of the tax credit.

Automakers either did not respond to CNN's request for comment on pricing plans or said they would closely monitor market developments.

However, historical experience may provide a reference. Tesla and General Motors responded by cutting prices in 2019 when the old electric vehicle tax credit was phased out for both companies as their electric vehicle sales reached specified thresholds.

Sales of electric vehicles have grown steadily over the years, much faster than traditional gasoline-powered vehicles. Data from the U.S. Bureau of Transportation Statistics (BTS) show that the growth rate of electric vehicle sales in the United States is more than three times the 2% growth rate of ordinary fuel passenger cars.

But U.S. electric vehicle sales began to slow earlier this year: Sales rose just 1.5% in the first half and fell 6.3% year-over-year in the second quarter, according to data from Cox Automotive. The situation has prompted automakers to roll out preferential packages, especially on leasing terms.

Ivan Drury, director of insights at car-buying website Edmunds, predicted that automakers may offer more attractive offers as the tax credit is eliminated.

"If you can't sell the car at the current price, it will be even less likely to sell at the current price after the tax credit is eliminated," he said.

Stephanie Valdez Streaty, director of industry insights at Cox Automotive, pointed out that automakers may also cut electric vehicle production in the face of falling demand. This may mean that there will be less inventory of some models in dealer showrooms, thereby reducing pressure to cut prices.

Drewry believes that the price benefits that consumers can get may come from lower list prices, more favorable loan terms, or direct cash rebates.

But Streeti also said that in order to maintain basic sales of electric vehicle models, automakers will face pressure to cut prices.

"I think (price cuts and discounts) are going to happen to maintain demand for car purchases," Valdez-Stretti said, adding that the elimination of the tax credit would not make all demand disappear.

According to a survey by Cox Automotive, 65% of consumers who plan to buy an electric vehicle in the next two years said they would still buy it as planned even if there were no tax credits; only 20% said they would switch to buying a hybrid or traditional gasoline vehicle.

The survey also found that vehicle performance, fuel and maintenance cost savings, and environmental concerns were all more important to consumers than the tax credit itself.

Additionally, not all models are eligible for this EV tax credit: Models with a manufacturer's suggested retail price (MSRP) of more than $80,000 are not eligible, so the elimination of the tax credit won't necessarily impact demand for many large trucks or luxury models.

And unless consumers buy a car from Tesla, which sells directly to customers, most people will have to go through a dealer. David Green, an industry analyst at Cars.com, said dealers will negotiate the transaction price with car buyers, which means the amount EV buyers ultimately pay will be a "fluctuating value."

"I think there's going to be some turbulence in the electric vehicle market for quite some time to come," Green said.