There’s a lot of uncertainty in the automotive industry at the moment, even more so in the electric vehicle (EV) space. It’s almost certain now that the return of the Trump administration will cancel the current federal EV tax credit and even roll back emissions regulations for internal combustion engines (ICE). But how will the removal of EV incentives affect EV sales? More importantly, how will such rollbacks impact our collective fight against climate change caused by increasing CO2 emissions?
It’s nearly impossible to predict where the market will head next, but if we have a look elsewhere in the world where EV incentives will soon be removed, we quickly realize that while it may have a short-term negative impact on EV adoption, the long-term effects will actually be quite negligible.
We’ve Arrived At A Crossroad Between Incentives And Regulations
Canada’s province of Quebec currently has the most generous EV cash incentive program in North America. While the federal Canadian government agrees to give you a $5,000 cash rebate on the purchase of any new EV under the condition that its starting MSRP is below $60,000, the Quebec provincial government adds another $7,000 to the pile ($65,000 MSRP or less). This results in a healthy $12,000 back when buying a new EV.
However, the Quebec government announced earlier this year that it would slowly begin reducing the amount of its incentive program due to rapid EV adoption. The other motivation comes from the province adopting new emissions regulations this year that will penalize carmakers in the form of carbon credits if they don’t sell a certain percentage of zero-emission vehicles.
Quebec’s original plan – before it suddenly announced it would prematurely halt the program on February 1st – was to drop the provincial rebate down to $4,000 in 2025, then to $2,000 in 2026, and finally, remove it altogether in 2027. The idea behind this proposal was that regulations would slowly take over, rendering the incentives obsolete.
In other words, by forcing carmakers to sell a certain percentage of zero-emission vehicles (this could also include other forms of propulsion such as hydrogen), carmakers will therefore need to reduce prices to make their models more appealing to buyers. We have therefore reached a crossroad between incentives and regulations. And it’s already happening. Quebec dealers have begun lowering prices in the wake of a reduced (or now non-existent) incentive program in order to get these EVs out the door.
Of course, the situation in the U.S. is a tad more complicated and, well, divided. While Canada also plans to follow Quebec’s EV mandate as early as next year, the United States currently doesn’t impose a federal zero emission regulation forcing carmakers to sell EVs. But some states do, such as California with its Advanced Clean Cars II (ACCII) act starting in 2026. Unless the Trump administration challenges these regulations – and it did say that it will – carmakers will continue to be forced to sell a certain percentage of EVs to prevent being fined. And those percentages will increase over time.
What Motivates Carmakers To Sell EVs Without Incentives?
But, in the event that the Trump administration does go forward with the deletion of all forms of zero emission regulations, how will carmakers in the U.S. sell their EVs? The market is what will drive sales, as well as a recent push from all automakers to invest massively in EV production via new factories and partnerships with battery suppliers. We’re talking about billions of dollars invested by the private sector to boost EV manufacturing, but also to create economies of scale in order to become more competitive against strong rivals such as China and even South Korea.
So, while the removal of EV incentives is bad news for the consumer in the short term, it’ll actually be good news in the long term, since carmakers will effectively do everything they can to sell those EVs. Combine that with the almost exponential drop in the price of EV batteries, and we may soon end up with an EV boom, tax credit or not.
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