Electric vehicle sales dropped sharply in January 2026, after the federal government ended EV tax credits. The credits had offered buyers up to $7,500 off a new EV and $4,000 off a used one. The credits were reportedly ended through the One Big Beautiful Bill Act, reportedly signed on July 4, 2025. No credits were available for purchases made after September 30, 2025.
The numbers tell a clear story. Pure EVs fell to just 6.6% of new retail sales in January 2026. That’s a drop of 2.9 percentage points from the same time last year. Plug-in hybrids held only 0.9% of the market. Together, EVs and plug-in hybrids fell below 8% of total sales, down nearly 4 points from a year earlier. Meanwhile, gas-powered cars climbed to 77.7% of sales, up 2.7 points.
Prices played a big role in the decline. The average EV transaction price jumped 18.1% to $51,981 in January 2026. Gas vehicles rose only 0.9%, to an average of $45,510. Monthly payments for EVs averaged $760, up $24 from the year before. The gap between EV and gas car prices grew wider without the federal subsidies in place.
Car companies tried to slow the slide. Automakers raised incentives on EVs to $5,700 per vehicle, an increase of more than $2,000 from the prior year. Leasing made up roughly 44% of EV transactions, though that’s down an estimated 30 points from the previous year. Non-EV incentives also rose, reaching $3,004 per vehicle.
Buyers were already feeling pressure. More than 27% of trade-ins carried negative equity, meaning owners owed more on their cars than they were worth. Nearly 12% of buyers took out 84-month loans to afford their purchases. Total new-vehicle sales fell 2.7% to 1.12 million units in January.
Traditional hybrids held up better. Their market share rose to 14.7%, up 1.4 points. State and local EV incentives still exist in some areas. To claim the credit, buyers had been required to file Form 8936 with their tax return in the year of delivery and include the vehicle’s VIN. Analysts expect dealers to build up EV inventory by roughly March or April 2026 as sales slow.
References
- https://www.mensjournal.com/news/ev-sales-just-crashed-after-the-7500-tax-credit-disappeared
- https://www.edmunds.com/fuel-economy/the-ins-and-outs-of-electric-vehicle-tax-credits.html
- https://www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after
- https://www.hrblock.com/tax-center/irs/tax-law-and-policy/one-big-beautiful-bill-vehicle-tax-credits/
