Brooke Crothers covers and reviews electric vehicles. Follow Author The new Tesla Model Y at a Tesla store and service center in North Hollywood. Credit: Brooke Crothers EVs aren’t cheap. The only reason they’re accessible to many U.S. buyers is the $7,500 federal tax credit. What happens if that goes away? EVs come at a premium The average transaction price for electric cars was $55,544 in December 2024 versus $49,740 for gas-powered vehicles, according to a Kelley Blue Book report in January. Tesla had an average transaction price of $55,258. The federal tax credit, because of the size of the credit, can make the difference in closing the gap with gas cars. “It’s not the raw price that needs to be addressed. It’s the gap between a similar sized ICE (gas) vehicle and the electric version,” said Stephanie Brinley, an analyst at S&P Global Mobility, in a phone interview. ICE refers to internal combustion engine. The credit is typically $7,500 for new vehicles and $4,000 for used EVs. For example, the new AWD Tesla Model Y launch edition is $59,990 without the credit and $52,490 with the credit. KKB added that with the new presidential administration, it’s "likely that EV incentives may change.” Chance of $7,500 tax credit elimination increasing A change to incentives increasingly appears to be the case. Though the tax credit cannot be eliminated with an executive order and requires an act of congress, there appears to be momentum. Recently two Republican senators proposed legislation that would eliminate the tax credit. In an interview aired on Fox News Wednesday (February 18) with Elon Musk and President Trump, the President addressed the elimination of the credit saying that Elon Musk is “probably not that happy with it…But this was in the tax bill. They’re cutting back on the subsidies," Trump said. ‘Unquestionably’ hurt EV growth Without a hefty EV incentive, there’s no telling what could happen to EV sales. “If that goes away, I think without question that you will see the impact of that in the marketplace, in terms of the rate of growth at EVs. Unquestionably,” said Brian Irwin, Managing Director of Alvarez & Marsal’s Automotive & Industrials Group. Irwin continued. “$7,500 is in the neighborhood of 15 percent. A 15 percent shift in transaction price is a big deal,” he said. “That 7,500 dollars for many consumers will play a factor in whether or not that vehicle remains affordable.” MORE FOR YOU