In this analysis, Stratas Advisors examines the potential implications of the repeal and the relaxation of emissions standards, with a particular focus on how these changes could influence US EV sales trajectories, especially for light-duty vehicles (LDVs) over the next decade.

Analysis

United States

Senior Analyst, Automotive

Judong Lee

Manager, Clean Energy & Transport

Janire Riobello

Vice President, Energy Markets

Eric Lundin

Batteries

Road Transportation 

In this analysis, Stratas Advisors examines the potential implications of the repeal and the relaxation of emissions standards, with a particular focus on how these changes could influence US EV sales trajectories, especially for light-duty vehicles (LDVs) over the next decade. The projections are based on three scenarios.
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Implications of Proposed EV Tax Credit Repeal and Emissions Rollback on the US Electric Vehicle Market Outlook

On May 12, 2025, Republicans in the US House of Representatives introduced a legislative proposal aimed at overhauling federal tax policy and rolling back key clean energy incentives. As part of this broader initiative to support major tax cuts, the proposal calls for the repeal of the $7,500 federal tax credit for new electric vehicles (EVs) and the $4,000 credit for used EVs. Under the proposed plan, both credits would expire on December 31, 2025, with an exception for manufacturers that have not yet reached the 200,000-unit sales cap, allowing them to remain eligible for one additional year.
This proposal stands in contrast to the Inflation Reduction Act (IRA), under which EV tax credits are currently set to remain in place through 2032, contingent on vehicles meeting specific criteria such as final assembly in North America and battery component and critical mineral sourcing from approved countries. These provisions have prompted automakers to accelerate EV supply chain localization across North America and allied nations.
On May 22, 2025, the US House of Representatives passed the &ldquo;One Big Beautiful Bill Act,&rdquo; a broad and comprehensive legislative package that includes the earlier tax proposal. The bill now moves to the Senate for consideration. It is important to note that this is not yet a finalized law. The bill must undergo further scrutiny, potential revisions, and approval by both chambers of Congress before it can become enforceable.
The outcome remains uncertain, especially as some Republican lawmakers have expressed reservations. Representatives from districts with significant EV-related investments, including operating facilities, announced projects, or active negotiations, have raised concerns about potential disruptions to businesses that made decisions based on existing incentives. These lawmakers have emphasized the importance of maintaining policy consistency.
Since the relatively high cost of EVs remains a major barrier to broader adoption, the proposed repeal is expected to significantly impact the US EV market, with some economic studies projecting a nearly 30% decline in annual sales. Additionally, the <a href="https://www.epa.gov/regulations-emissions-vehicles-and-engines/final-rule-multi-pollutant-emissions-standards-model">EPA</a>&rsquo;s decision to reconsider the Multi-Pollutant Emissions Standards, which were intended to accelerate the shift away from ICE vehicles, may reduce regulatory pressure on automakers to promote EV sales.
In this analysis, Stratas Advisors examines the potential implications of the repeal and the relaxation of emissions standards, with a particular focus on how these changes could influence US EV sales trajectories, especially for light-duty vehicles (LDVs) over the next decade. The projections are based on three scenarios:
Scenario 1: With current tailpipe emissions standards (2024) and EV tax credit through 2032
Scenario 1 assumes current tailpipe emissions standards (finalized in 2024) and the continuation of EV tax credits through 2032. Following the Biden administration's announcement on a non-binding 50% EV sales goal by 2030 in 2021, the EPA finalized tailpipe emissions standards in 2024, projecting EV shares ranging between 35% and 56% from 2030 to 2032 (Note: the final standards is considerably alleviated from its initial proposal due to slower-than-expected adoption and industry concerns). Based on the final tailpipe emissions standards, this scenario serves as the baseline for Stratas Advisors&rsquo; 10-year forecast through 2035.
Scenario 2: With significantly alleviated tailpipe emissions standards (2024) and EV tax credit through 2032
Scenario 2 reflects anticipated policy changes following Executive Order 14154, issued by the Trump administration in January 2025, which rescinded the federal EV target and directed agencies to suspend funding for EV-related initiatives. Although existing legislation may limit the full rollback, the EPA is expected to adopt significantly less stringent emissions standards. Stratas Advisors constructed this scenario to account for reduced regulatory pressure on automakers.
Scenario 3: With significantly alleviated tailpipe emissions standards (2024) and EV tax credit repeal from 2026
Scenario 3 presents a worst-case outcome for the EV sector, combining substantially weakened emissions standards with the repeal of the EV tax credit beginning in 2026. The removal of both regulatory and financial incentives would critically undermine EV affordability and competitiveness, potentially causing a sharp decline in consumer adoption and overall market momentum.


Stratas Advisors&rsquo; Global Automotive Model takes into account various factors, including macroeconomic data, government policies (e.g., mandates and incentives), total cost of ownership (e.g., vehicle and fuel prices), historical sales trends of different powertrain types, and EV charging infrastructure, to forecast vehicle sales. Vehicle prices and policy changes associated with the current legislative proposal are incorporated into each scenario.
The chart below presents projected EV market shares under Stratas Advisors&rsquo; three scenarios. EVs in this context include battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell electric vehicles (FCEVs), with BEVs comprising the majority&mdash;approximately 80% of total EV sales. All projections reflect a surge in EV sales the year before the tax credit expires, anticipating consumer behavior aimed at maximizing incentives. However, a sales drop of nearly 5-10% is expected to follow, a pattern observed in several countries such as Germany after EV subsidies were phased out.
[shoojuview id="hwpthgcxcwitaehasdvh"]
Source: Stratas Advisors
Alongside Stratas Advisors&rsquo; forecast, the chart includes EPA projections for two cases. Blue dots represent the EV penetration rates required to meet the EPA&rsquo;s LDV emissions standards for 2030 and 2032. In contrast, red dots indicate the projected EV shares in the absence of these standards. With the final standards, EPA expects EV penetration would reach 53% in 2030 and 68% in 2032. In the no standard case, these figures drop to 39% in 2030 and 47% in 2032. This suggests that the emission standards could drive 36% and 45% increases in EV penetration by 2030 and 2032, respectively.
In addition to the EPA&rsquo;s projections, other forecasts suggest similar or even higher EV penetration rates. However, Stratas Advisors' projection is notably more conservative in comparison. This cautious outlook is grounded in several key factors: a significant slowdown in EV sales growth in the US market since 2023, with year-over-year growth dropping from over 60% before 2023 to just 30% in 2023, and only a modest 4.7% increase for 2024. This stagnation has prompted many automakers to revise or postpone their EV strategies. Furthermore, the deployment of EV infrastructure has lagged behind expectations, and increasingly stringent eligibility requirements for EV tax credits are also limiting near-term market growth as supply chain nearshoring continues to lag behind targets.
Stratas Advisors&rsquo; scenario 1, which assumes the most favorable policy environment for EV growth, projects market share to reach 28.5% by 2030 and 36.8% by 2032, significantly lower than EPA&rsquo;s estimates under current tailpipe emissions standards due to the reasons mentioned above. Although a slight drop is expected following the expiration of the tax credit in 2033, the overall upward trend continues, with EVs projected to reach nearly 41.5% market share by 2035. Based on this trajectory, over 55 million EVs are expected to be on US roads by 2035, accounting for over 19.1% of the total vehicle fleet.
Scenario 2 projects steady growth, with a modest dip in the year the tax credit expires. EV market share is expected to fall by 5.4% in 2030 and 10.7% in 2035 compared to Scenario 1, resulting in approximately 0.87 million and 1.75 million fewer annual EV sales, respectively. As a result, EVs are projected to account for 15.9% of the total fleet by 2035, 9.4 million fewer EVs and 3.2 percentage points lower than in Scenario 1.
Scenario 3 anticipates a 37% surge in EV sales in 2025 ahead of the tax credit phase-out, followed by a 5% decrease in 2026. Growth slows significantly thereafter compared to Scenarios 1 and 2. EV market share is projected to be 19.1% and 25.2% in 2030 and 2035, respectively, leading to around 2.6 million fewer EVs sold in 2035 than Scenario 1. The cumulative impact on the fleet is more pronounced, with EVs accounting for only 8.0% of the fleet in 2030 and 13.9% in 2035&mdash;3.7 million and 15.0 million fewer EVs, respectively, compared to Scenario 1.
Stratas Advisors&rsquo; annual EV sales and fleet projections for each scenario in 2030 and 2035 are summarized in the table below.
EV sales and fleet projections
<table border="1" style="border-collapse: collapse; width: 98.6487%; height: 112.5px;">
<tbody>
<tr style="height: 37.5px;">
<td style="width: 13.3051%; height: 37.5px;"></td>
<td style="height: 37.5px; width: 19.6408%;" colspan="2">EV sales market share</td>
<td style="height: 37.5px; width: 24.7094%;" colspan="2">Annual new EV sales reduction</td>
<td style="height: 37.5px; width: 17.8985%;" colspan="2">EV share in total fleet</td>
<td style="height: 37.5px; width: 24.5511%;" colspan="2">EV fleet reduction</td>
</tr>
<tr style="height: 18.75px;">
<td style="width: 13.3051%; height: 18.75px;"></td>
<td style="width: 9.82042%; height: 18.75px;">2030</td>
<td style="width: 9.82042%; height: 18.75px;">2035</td>
<td style="width: 12.3547%; height: 18.75px;">2030</td>
<td style="width: 12.3547%; height: 18.75px;">2035</td>
<td style="width: 8.07809%; height: 18.75px;">2030</td>
<td style="width: 9.82042%; height: 18.75px;">2035</td>
<td style="width: 12.3547%; height: 18.75px;">2030</td>
<td style="width: 12.1963%; height: 18.75px;">2035</td>
</tr>
<tr style="height: 18.75px;">
<td style="width: 13.3051%; height: 18.75px;">Scenario 1</td>
<td style="width: 9.82042%; height: 18.75px;">28.5%</td>
<td style="width: 9.82042%; height: 18.75px;">41.5%</td>
<td style="width: 12.3547%; height: 18.75px;">-</td>
<td style="width: 12.3547%; height: 18.75px;">-</td>
<td style="width: 8.07809%; height: 18.75px;">9.3%</td>
<td style="width: 9.82042%; height: 18.75px;">19.1%</td>
<td style="width: 12.3547%; height: 18.75px;">-</td>
<td style="width: 12.1963%; height: 18.75px;">-</td>
</tr>
<tr style="height: 18.75px;">
<td style="width: 13.3051%; height: 18.75px;">Scenario 2</td>
<td style="width: 9.82042%; height: 18.75px;">21.1%</td>
<td style="width: 9.82042%; height: 18.75px;">30.8%</td>
<td style="width: 12.3547%; height: 18.75px;">0.9M vehicles</td>
<td style="width: 12.3547%; height: 18.75px;">1.7M vehicles</td>
<td style="width: 8.07809%; height: 18.75px;">8.6%</td>
<td style="width: 9.82042%; height: 18.75px;">15.9%</td>
<td style="width: 12.3547%; height: 18.75px;">2.0M vehicles</td>
<td style="width: 12.1963%; height: 18.75px;">9.4M vehicles</td>
</tr>
<tr style="height: 18.75px;">
<td style="width: 13.3051%; height: 18.75px;">Scenario 3</td>
<td style="width: 9.82042%; height: 18.75px;">19.1%</td>
<td style="width: 9.82042%; height: 18.75px;">25.2%</td>
<td style="width: 12.3547%; height: 18.75px;">1.5M vehicles</td>
<td style="width: 12.3547%; height: 18.75px;">2.7M vehicles</td>
<td style="width: 8.07809%; height: 18.75px;">8.0%</td>
<td style="width: 9.82042%; height: 18.75px;">13.9%</td>
<td style="width: 12.3547%; height: 18.75px;">3.7M vehicles</td>
<td style="width: 12.1963%; height: 18.75px;">15.0M vehicles</td>
</tr>
</tbody>
</table>
Source: Stratas Advisors

As shown, EV market shares vary significantly across scenarios. However, the market consistently shows growth over time. This suggests that a single policy change is unlikely to derail the global transition or automakers&rsquo; long-term strategies, as future planning typically extends beyond the duration of a single presidential term. However, the overall pace of growth can vary dramatically by more than double, depending on the policy environment. This underscores the importance of stable and long-term policy support to accelerate EV adoption and maximize emissions reduction potential.
While the global transition to EVs is clear, the speed at which the transition unfolds will ultimately be shaped by the strength and consistency of policy frameworks. With further updates expected, Stratas Advisors will continue to monitor developments closely and provide timely analysis as new information becomes available.

On May 12, 2025, Republicans in the US House of Representatives introduced a legislative proposal aimed at overhauling federal tax policy and rolling back key clean energy incentives.&nbsp;In this analysis, Stratas Advisors examines the potential implications of the repeal and the relaxation of emissions standards, with a particular focus on how these changes could influence US EV sales trajectories, especially for light-duty vehicles (LDVs) over the next decade. The projections are based on three scenarios:
Scenario 1: With current tailpipe emissions standards (2024) and EV tax credit through 2032
Scenario 2: With significantly alleviated tailpipe emissions standards (2024) and EV tax credit through 2032
Scenario 3: With significantly alleviated tailpipe emissions standards (2024) and EV tax credit repeal from 2026

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