US new energy vehicle industry reduces subsidies and increases taxes

Recently, the U.S. House of Representatives passed the Big, Beautiful Budget Bill, which was praised by the Trump administration as a “historic tax cut” bill. Although the bill still needs to be reviewed by the Senate and the U.S. President, the substantive tax cuts are completed by robbing Peter to pay Paul.
For the electric vehicle industry chain, the bill mentions that annual taxes will be added to electric vehicles and hybrid vehicles. Among them, all-electric car owners need to pay $250/year, and hybrid car owners need to pay $100/year.
In the case that the U.S. political circles are generally “uninterested” in electric vehicles, the promotion of tax increases on electric vehicles will undoubtedly further hinder the industrialization of electric vehicles in the United States. Not only for domestic electric vehicle companies in the United States, but also for foreign electric vehicle companies in developing the domestic market in the United States, the risks they face are also increasing.
For a long time, the construction of road infrastructure in the United States has mainly relied on gasoline taxes. When consumers refuel at gas stations, they include taxes from the federal and state governments. The increase in this tax will undoubtedly fill the gap for some fuel vehicles. However, the introduction of the new tax is in stark contrast to the “Electric Vehicle Popularization Promotion Plan” proposed by the Biden administration. Previously, Biden provided a tax credit of up to $7,500 through the “Reducing Inflation Act” during his tenure.
However, according to the new budget bill, the tax credit will be gradually terminated. After 2026, only a few electric vehicles of specific brands and models will be eligible for subsidies, and more electric vehicle users will be included in the ranks of taxpayers.
The bill cancels the federal electric vehicle tax credit and adds annual taxes, which increases the purchase and use costs of electric vehicles, especially for price-sensitive middle- and low-income groups and consumers with limited budgets, which in turn leads to a decline in electric vehicle sales by automakers.
The penetration rate of electric vehicles in the United States is not high in itself. Losing tax credits and increasing taxes is tantamount to adding insult to injury. For automakers, the uncertainty of demand has further increased, and automakers may re-evaluate production plans and delay or suspend investment in the research and development and production of new electric vehicle models. In terms of the overall impact on the industrial chain, the advance and retreat of fuel vehicles and electric vehicles may further slow down the pace of industrialization of the entire electric vehicle industry chain.
In recent years, the world has promoted zero-carbon transformation and formulated various tax incentives for electric vehicles. For example, Norway exempts new electric vehicles from value-added tax and other purchase taxes. Denmark and the Netherlands also give large reductions in purchase taxes for electric vehicles.
The US’s tax increase on electric vehicles seems to be contrary to the global promotion of zero-carbon transformation.
However, the US’s tax increase on electric vehicles also has certain industrial rationality. With the growth of electric vehicle sales, the market has reflected on the continuous tax exemption policy for electric vehicles to a certain extent.
The tax exemption policy for electric vehicles has promoted the industrialization of electric vehicles, but the problems it has caused, such as the decline in fiscal revenue, unfair competition for fuel vehicles, and excessive reliance on subsidies leading to insufficient competitiveness of car companies themselves, have gradually been exposed.
In EU countries, some countries have experienced tight fiscal budgets due to excessive subsidies for electric vehicles in the past period of time. In China, the industrialization of new energy vehicles has become highly mature after years of development, and the problem of promoting fair competition between fuel vehicles and electric vehicles has become more prominent.
According to data released by the China Association of Automobile Manufacturers, the penetration rate of new energy vehicles in China will officially exceed 50% in April 2025, and it is expected that the annual penetration rate will exceed 50% in 2025, marking that the market has officially entered the “electricity-based” stage. As the penetration rate of new energy vehicles continues to break through, the call for “equal rights for oil and electricity” is also rising. Its essence is that as the electric vehicle industry matures, the industry calls for electric vehicles to enjoy the same rights and interests and bear the same tax obligations as fuel vehicles.
China has formulated a corresponding timeline for promoting “equal rights for oil and electricity”. According to relevant policy documents, 2025 will be the last year for automobiles to be exempted from purchase tax. From 2026 to 2027, the vehicle purchase tax for new energy vehicles will be halved, and thereafter the purchase tax for new energy vehicles will no longer be reduced or exempted.