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You might think that electric vehicles are starting to build traction in the US.

Indeed, sales of electric cars exceeded 1.2 million last year, over a fivefold increase from the figure just four years earlier.

Sales of hybrid vehicles have jumped by a factor of three.

Electric vehicles represented 10% of overall sales in August—a new high, according to industry data.

And, updates to shareholders recently from General Motors, Ford, Tesla and others all showed unprecedented EV sales over the past three months.

This marked a positive development in an sector grappling with the effects from still high interest rates and consumers concerned over inflation, import taxes, and the wider economy.

Analysts Point to a Short-Term Surge

But market watchers say the boom was driven by a rush to purchase before the end of a government subsidy that reduced as much as $7,500 off the cost of certain electric and alternative fuel cars.

With that tax credit gone as of the end of September, automakers are expecting demand to shift into reverse.

"It's going to be a vibrant sector, but it's going to be more limited, significantly reduced than we thought," a top industry leader said this week.

"We anticipate that EV demand is going to drop off sharply," a senior executive added, explaining it would take time to see how soon customers would return.

American Trails Global Uptake

Even with the latest increases, the United States, the second-largest auto market globally, stood out as a laggard in electric car sales compared to many other nations.

In the UK, for instance, purchases of electric and hybrid vehicles accounted for almost one-third of vehicle purchases in the previous year, while in the European Union, they represented about 20% of sales.

Across China, the world's biggest car market, sales of these vehicles made up almost half of total sales in the prior year, and they are expected to exceed half this year.

Adoption in nations like Scandinavian and Asian markets is higher still.

Electric vehicles tend to make up a smaller share of sales in developing regions and other parts of Asia—but growth there has been surging.

Government Divergence

Analysts note uptake in the United States has been slowed by comparatively weak federal backing for the industry, which has restricted the kinds of incentives, trade-in programmes, and rules that have helped the sector in nations such as Europe and Asia.

Earlier leadership pushed hard to increase take-up, targeting for electric cars to represent half of total purchases in the US by 2030.

Officials at the time strengthened rules on emissions, boosted interest through purchases for government fleets, encouraged carmakers to invest with financial support for EV investments, spent billions building EV infrastructure, and enhanced the $7,500 incentive as a inducement for consumers.

Advocates framed these actions in part as a competitive imperative, cautioning that absent such measures American manufacturers would face disadvantages to competitors from abroad.

But, the current administration has moved to eliminate many of those measures, including the $7,500 subsidy, arguing that they were pushing people to buy vehicles they would not otherwise choose.

"We're saying ... you're not going to be required to make all of those cars," one official said this summer, while signing a bill aimed at striking down rules that would have phased out sales of gasoline vehicles in one state by 2035. "You can make them, but it'll be determined by demand, shaped by consumer choice."

Cost Remains a Challenge

EVs have become more affordable in the United States in the past few years—but they still cost more than similar petrol-powered vehicles.

Moreover, Chinese carmakers like BYD, which have made rapid inroads in other markets thanks to competitive pricing, have been effectively shut out of the US market, due to high tariffs on cars imported from China, supported by both administrations.

As of August, the average transaction price of an EV in the United States was over $57,000, approximately 16% higher than the average for all vehicles.

The most affordable EV available, one popular model, costs about $30,000. By comparison, multiple options can be found for less than £20,000 in the UK.

Future Outlook

Experts say what buyers do next depends on how automakers adjust pricing in the coming months, as they contend with not only the end of the tax credit but also tariffs on imported vehicles and specific components imposed this spring.

One automaker announced this week it would counteract the end of the incentive by lowering the price for its lineup of electric models. But another indicated the price for monthly lease payments of select models would rise.

A market specialist said she did not expect to see many firms follow that example, given the challenges from import taxes.

Although certain customers may choose EVs regardless, "next year is going to be hard," she warned, noting that the research group is projecting total car sales to fall by about 2% in 2026.

"It would have been difficult enough if all you had to deal with is recent duties, but with new tariffs and the subsidy expiring, there's two impacts."

Spending Reductions

Automakers had previously reducing their spending in electric cars.

Researchers say recent policy changes could further limit those investments even more.

"This is a major blow to the electric vehicle sector—there's no tiptoeing around it," noted an industry expert.

"The subsidies were initially a way to create fairness and now that they're removed the US has a lot of ground to achieve."

However, another analyst expressed she was hesitant to label the United States behind in an industry still testing out technology alternatives.

"Is electric the best solution?" she said. "Calling the US a laggard presumes that this is the only and best solution and I think it's a little early to make that claim."