Sales of electric vehicles have grown steadily in recent years, in part because of a federal tax credit of up to $7,500 that makes purchasing such cars and trucks more affordable.
But understanding which cars it applies to and under what circumstances can be confusing. And all of these rules could change drastically under the incoming Trump administration; President-elect Donald J. Trump and Republicans have promised to repeal or reduce the incentives.
The tax credit was created to bring the cost of buying or leasing electric vehicles closer to the cost of comparable gasoline models, helping to address climate change. The rules governing the loan are also intended to push automakers to make those vehicles and their batteries in the United States and reduce the industry’s dependence on China for critical components.
The policy has had an effect. Some automakers have increased domestic production and sales are expected to rise 7.3 percent by 2023 — to 1.3 million vehicles, according to Cox Automotive, a research firm.
Here’s what you need to know about how loans work and how they can change.
Which cars qualify for a tax credit?
At least 15 vehicles from the 2025 model year qualify for the full $7,500 credit. The list is here.
Electric vehicles purchased or leased that meet certain requirements, including where the vehicles are assembled and where the essential materials for their batteries come from, are eligible for the tax credit. The stimulus was part of the Inflation Reduction Act signed into law by President Biden in 2022.
To qualify, vans, trucks and sport utility vehicles must be priced at $80,000 or less; sedans can cost as much as $55,000. The credit can be used for fully electric or plug-in hybrid models. To qualify for the loan, individual buyers must earn $150,000 or less and couples $300,000 or less.
The vehicles must be assembled in North America, and a certain percentage of the value of the critical minerals used in the batteries must be mined or processed in the United States or one of its trading allies.
A special tax credit for used electric cars is worth up to $4,000. It’s open to all models as long as they sell for $25,000 or less. Each vehicle can only qualify for the loan once.
Why did the list of eligible cars change this year?
In 2024, 50 percent of the value of critical materials in EV batteries had to be purchased or processed either in the United States or a trading partner country. That number rose to 60 percent this year. This change caused some models to lose their right to tax credits.
These cars include the Volkswagen ID.4, Rivian R1S, plug-in Jeeps and the Nissan Leaf.
The list may change during the year if automakers prove to the government that their cars now meet the law’s requirements.
Some manufacturers are racing to adapt to the more stringent requirements. Ford’s Mustang Mach E does not currently qualify for the tax credit; car batteries come from Poland. But later this year, Ford is aiming to start buying them from a plant in Holland, Mich.
What about rental cars?
The rules for buying and renting are different. Because the government considers rental cars commercial vehicles, they are not subject to the same requirements.
But the tax credit goes to the leasing company, which is usually the finance arm of an automaker, and while many of those firms have passed the savings on to consumers, some may not.
Rules involving leasing have encouraged automakers to offer some attractive deals. In many states, for example, Volkswagen advertises ID.4 leases for as little as $149 a month with a $999 down payment. A Ford dealer in Brighton, Mich., recently advertised a Mustang Mach E lease for $126 a month with a $3,500 down payment. These prices typically do not include title and licensing taxes and fees.
“I wouldn’t advise anyone to rush out and buy an EV just to get the tax credit,” said Chris Harto, a transportation policy analyst at Consumer Reports. “But if you’re thinking about an electric car and you’ve done your research and found a car you want, some of the best options available now are leases.”
Didn’t Trump promise to cancel the tax credit?
Tax credits are likely to change – and possibly significantly. During and since the campaign, Mr. Trump and other Republican leaders frequently criticized the electric vehicle tax credits and vowed to eliminate them.
But it is not clear how far Mr. Trump and Congress will go. First, Republicans have a very small majority in the House of Representatives, which could make it difficult for the party to pass legislation of any kind.
Another wild card is Elon Musk, the chief executive of Tesla, which accounts for nearly half of all electric cars sold in the country. Mr. Musk is close to the incoming president, and it is hard to know how he will seek to shape changes to the tax credit. Four Tesla models qualify for the loan now.
Other automakers have also lobbied Mr. Trump against repealing the credit. Among them is Ford’s executive chairman, William C. Ford Jr., who recently spoke with the president-elect.
“Obviously, we’d like to keep the tax credit,” Mr. Ford told reporters at a company event last week. “I spoke with the president-elect last week and he is very aware of how we feel. We will not win absolutely everything. But he clearly understands the importance of the industry. I suspect we will have a very good relationship with him.”
So is this a good time to get an electric car?
Current lease deals are attractive and could be a good option for drivers who want to try electric cars without committing to owning one. Given the rapid advances in battery technology, most analysts expect that in two or three years — the term of most leases — the new electric models will cost less and travel farther than they do now.
If you prefer to buy, the $7,500 tax credit makes qualifying cars more affordable. Many automakers, including companies that don’t make credit-eligible models, are offering discounts and other incentives on their own.
Ford is offering a free home charger, including the cost of installation, to customers who buy one of its electric vehicles. The Toyota bZ4X doesn’t qualify for tax credits, but the automaker offers 0 percent financing on 72-month loans — a significant savings when the average interest rate on car loans is more than 6 percent for most borrowers. Volkswagen also offers interest-free loans on the ID.4.
And buying or leasing an electric vehicle could become more expensive later in the year if Mr. Trump and Republicans in Congress repeal, reduce or impose new limits on the tax credit.
“For the middle-class buyer, you take away that credit and suddenly an EV is 15 or 20 percent more expensive,” said Steve Wybo, a Detroit-based senior managing director at Riveron, a consulting firm.
