A Year Without the EV Tax Credit: Hybrids Surge, EVs Hold

One year after the federal tax credit for electric vehicles expired on September 30, 2025, the U.S. auto market has settled into a new and unexpected equilibrium. New EV sales have stabilized at roughly 5 to 6 percent of new-car purchases — far below the 11.4 percent peak reached as buyers rushed to beat the credit’s deadline, but well above the cliff-edge collapse some analysts had predicted. Meanwhile, hybrid sales have surged nearly 27 percent over the past year, emerging as the clearest winner of the post-credit era, according to NPR.

What Happened When the Credit Ended

The EV tax credit was created by Congress in 2008 and dramatically expanded by the 2022 Inflation Reduction Act, which restructured eligibility rules and added a credit for used vehicles. In its final form, buyers or lessees of a new EV could claim up to $7,500, while used-EV buyers could claim up to $4,000. Leasing was especially generous: the credit could be applied to any EV regardless of price, manufacturing origin, or the buyer’s income.

Congressional Republicans voted to kill the credit as part of 2025’s One Big Beautiful Bill Act, arguing that markets rather than the government should determine what Americans drive and calling the incentive wasteful spending.

The impact was immediate and dramatic. EV sales fell 36 percent year-over-year in late 2025 and were down 27 percent in the first quarter of 2026, according to Cox Automotive. Just 5.8 percent of buyers purchased an EV in the month after the credit ended, down from more than 11 percent in September 2025, Edmunds data shows.

But the collapse proved temporary. New EV sales have held steady between 5 and 6 percent of the market throughout 2026. “Clearly nothing like what it was previously, but it has not fallen off of a cliff, which is what some people’s predictions would’ve been,” said Ivan Drury, director of insights at Edmunds.

The Hybrid Moment

If the EV market stumbled, the hybrid market ran. Hybrid sales are up almost 27 percent over the past year, driven by the loss of the tax credit, persistently high gasoline prices, and lingering consumer anxiety about EV range and charging infrastructure.

“Hybrids are having their moment, are continuing to have their moment,” said Stephanie Valdez Streaty, director of industry insights at Cox Automotive. Drury put it more bluntly: “The downfall of the EV has highlighted how good the hybrid is.”

The surge has been especially pronounced at Toyota, whose lineup is unusually hybrid-heavy. Sal Iqbal, general sales manager at a Toyota franchise in Massapequa, New York, said the change has been startling.

“We used to have Siennas sit on the lot before,” Iqbal said, referring to the hybrid minivan. “We used to have to literally beg people to take a Sienna, and now we can’t keep them on the shelf. People are lining up for Siennas.”

The momentum extends beyond Toyota. Hyundai sold 33 percent more hybrids in August 2026 than a year earlier, with hybrids accounting for nearly 30 percent of its total sales, while Kia’s August hybrid sales rose 99 percent year-over-year.

Why Hybrids Are Winning

Hybrids offer greater fuel economy than traditional gas-powered cars at a lower price point than EVs — and, critically, they eliminate the two anxieties that deter many EV buyers: range and charging.

“A lot of people are still scared of the electrical side of EVs because it gives them anxiety of losing charge in the middle of the road,” Iqbal said. Hybrids, he said, are “the best of both worlds.”

The math has become harder to ignore. The average EV transaction price topped $54,000 in August 2026, compared with just under $50,000 for gas-powered vehicles, according to Cox Automotive data cited by NPR. Gasoline, meanwhile, has hovered around $4.50 per gallon nationally, exceeding $6 in cities such as San Francisco and Los Angeles.

The hybrid surge accelerated in March 2026, shortly after the United States began its war with Iran and gas prices spiked — a geopolitical shift that was not on analysts’ radar when they made their 2026 forecasts.

A Bright Spot: The Used EV Market

While new EV sales have plateaued, a fast-growing used-EV market is emerging as a quiet bright spot. Because the credit made leasing so attractive, a wave of off-lease EVs is now entering the used market. More than 300,000 EVs will come off lease in the next year, Valdez Streaty said.

Used EV sales jumped 12 percent in the first quarter of 2026, though they remain less than 3 percent of the overall used-car market. As those vehicles reach lower price points, analysts say, they could bring electric driving within reach of more buyers — and help normalize EVs.

“That’s probably the single best advertisement for electric vehicles in the last several years,” said Nick Nigro, founder of the climate-focused think tank Atlas Public Policy. “The vast majority of people buy used vehicles, and that’s what makes up most of the vehicles on the road.”

A Policy Shift and a Shrinking Big Three

The credit’s demise was part of a broader policy realignment. The Trump administration revoked California’s ability to set strict emissions standards, eliminated penalties on automakers that failed to meet fuel-economy requirements, and in late September 2026 scaled back federal fuel-economy (CAFE) standards altogether, NPR reported.

The overall market, meanwhile, has proven more resilient than expected. Cox Automotive raised its full-year 2026 new-vehicle sales forecast to 16.1 million units, from 15.8 million.

The composition of those sales is shifting rapidly. Asian brands are expected to account for more than half of U.S. new-vehicle sales for a second consecutive quarter, while the traditional Detroit Three are forecast to fall to just over 36 percent market share — the lowest level on record, according to Cox Automotive senior economist Charlie Chesbrough. Hyundai Motor Group, including Kia and Genesis, is forecast to outsell Ford in the third quarter of 2026.

“While affordability challenges remain and the industry is still adjusting to the loss of federal EV incentives, vehicle demand has proven remarkably durable heading into the fourth quarter,” said Jeremy Robb, chief economist at Cox Automotive.

The Global Picture

Even without domestic incentives, U.S. automakers face pressure to keep developing electric vehicles to compete abroad. More than half of new cars sold in China in 2025 were electric, and more than 30 percent in Europe, according to the International Energy Agency. Chinese manufacturer BYD sells more electric cars than Tesla.

“It’s kind of just shifted their timeline and the way they roll things out,” Valdez Streaty said of U.S. automakers.

What’s Next

One year on, the U.S. EV market looks less like a retreat than a recalibration — slower adoption, but a more durable foundation built on used vehicles and hybrid bridges. For now, the hybrid is undeniably the winner of 2026.

“There’s still underlying demand for new EVs, but at a lower and more stable level, while growth is stronger in used EVs and hybrids,” Valdez Streaty said. EV adoption may be slower, she acknowledged — but, she added, “I think the future’s still electric.”