Depending on which headline you read, the electric vehicle market in America is either entering a long Winter, is at a crossroads or is taking a short pause before explosive growth.
The federal tax credit expired on 30 September 2025, and the consequences arrived with brutal clarity: fourth-quarter EV sales plunged 46 per cent compared with the third quarter, dropping to levels not seen since late 2022.
Ford announced a $19.5 billion write-down on its electric ambitions and halted production of the F-150 Lightning. General Motors followed with $6 billion in charges related to unwinding EV investments. The Detroit giants, once racing towards electrification, now pivot back towards hybrids and traditional powertrains. America had chosen the carrot approach — generous tax incentives to pull consumers into EVs — and when that carrot disappeared, the market collapsed.
The timing could not be worse. Europe wrestles with its own crisis of confidence, watering down its 2035 combustion engine ban to a 90 per cent emissions reduction target after intense industry pressure. China phases out subsidies even as it mandates ever-stricter efficiency standards. The global automotive industry faces a fundamental question: can consumers be enticed into EVs through incentives alone, or do markets require the regulatory stick of mandates and bans? The answer, it turns out, depends less on ideology than on execution, consistency and time.
Norway — Decades Of Patient Persuasion
At first glance, Norway appears an outlier. In 2025, battery electric vehicles accounted for 96 per cent of new car sales, reaching 98 per cent in December alone. Tesla captured nearly one in five vehicles sold, and combustion engines have become museum pieces rather than daily drivers. The achievement looks miraculous until one examines the timeframe: Norway started exempting EVs from purchase taxes in 1990. The current dominance represents not a sudden revolution but the culmination of 35 years of relentless policy consistency.
The Norwegian approach defies easy categorisation. The government imposed no combustion ban and set no hard mandates. Norwegians remained free to purchase petrol or diesel vehicles throughout the transition period. The strategy instead made that choice economically irrational.
Purchase taxes on combustion vehicles could reach 100 per cent of the vehicle’s value for large, high-emission SUVs, whilst EVs paid nothing. A 25 per cent VAT exemption on electric vehicles meant immediate savings equivalent to thousands of euros. No annual road tax, no toll charges, free municipal parking, access to bus lanes — the benefits accumulated until only those with specific needs or deep pockets chose combustion engines.
Norway possessed two crucial advantages that enabled this patient approach. First, oil wealth. The country’s sovereign wealth fund, built from North Sea petroleum revenues, exceeded $1.3 trillion. This provided the fiscal capacity to forgo billions in tax revenue whilst the EV market matured.
Second, geography and infrastructure. With 95 per cent renewable electricity from hydropower, EVs carried no environmental contradiction. The compact, wealthy nation could deploy charging infrastructure efficiently. A population accustomed to high vehicle taxes accepted further increases on combustion engines without political upheaval.
The policy evolved as the market matured. Full VAT exemption ended in 2023, replaced by a cap exempting only the first NOK 500,000 (approximately £40,000) of vehicle price. Annual road taxes returned, though at reduced rates. Toll roads began charging EVs, albeit at lower rates than combustion vehicles. A tax increase of up to $5,000 per vehicle took effect on 1 January 2026, prompting a surge of purchases in late 2025. These gradual phase-outs signal a market no longer requiring intensive support. At 96 per cent market share, EVs have won. Yet the transition took three and a half decades.
The American Experiment — And Its Abrupt Ending
America chose a different path: generous but time-limited incentives. The federal tax credit of up to $7,500 for new EVs and $4,000 for used vehicles aimed to bridge the price gap between electric and combustion vehicles. The approach showed promise. Third-quarter 2025 EV sales surged as buyers rushed to secure credits before the September deadline. Tesla, GM and other manufacturers posted record numbers. The market share reached 10.5 per cent. Then the credits expired, and demand evaporated.
Fourth-quarter sales told the story with unforgiving clarity. Total EV sales dropped to 234,000 units, down 46 per cent from the previous quarter and 36 per cent year-over-year. BMW’s BEV sales plummeted 45.5 per cent in the fourth quarter, from 13,876 vehicles to just 7,557. GM’s electric vehicle deliveries fell 43 per cent. The collapse extended beyond sales figures into corporate strategy. Ford not only halted Lightning production but cancelled an entire generation of large electric trucks, redirecting that Tennessee facility to produce combustion engines instead. The company’s $19.5 billion charge included $4.2 billion in cash payments to suppliers who had expanded capacity based on now-obsolete volume projections.
The policy failure reveals a fundamental misunderstanding of technology adoption curves. Incentives can accelerate early adoption, but they cannot create sustainable demand if the market lacks maturity. America at 8 per cent EV market share required continued support, not withdrawal.
Consumers cited affordability as the primary barrier to EV purchase — 59 per cent in AAA surveys. Purchase prices remained stubbornly high despite increased competition. According to AAA’s 2024 analysis, EVs had the second-highest total ownership costs among vehicle types when depreciation, insurance and financing entered calculations. Fuel and maintenance savings proved insufficient to overcome these disadvantages without tax credits bridging the gap.
The charging infrastructure gap exacerbated the problem. America possessed approximately 168,000 public charging stations compared with Europe’s 632,000 in early 2024. The ratio of vehicles to charging points reached 30 to 31 in the United States versus 11 to 14 in Europe. Growth in public charging slowed in 2024-2025 amidst policy uncertainty. Consumers identified charging time and availability as the second-largest barrier to EV adoption after price — 56 per cent cited lack of convenient public charging stations, whilst 55 per cent expressed fear of running out of charge whilst driving. America had removed the carrot before building the infrastructure that might have sustained demand without it.
China — The Regulatory Hammer
China pursued a third model: industrial policy combining temporary subsidies with escalating mandates. Direct consumer subsidies ended in 2022 after the government spent hundreds of billions to jump-start the market. It replaced them with targeted trade-in schemes — up to RMB 20,000 (approximately $2,800) for scrapping old vehicles and purchasing new EVs. But the real driver became regulatory. New energy vehicle sales must reach specified targets, with manufacturers meeting these targets gaining access to purchase tax exemptions and other benefits; those failing face penalties and market restrictions.
The approach achieved the desired result. Monthly EV penetration surpassed 50 per cent for the first time in 2025, and year-to-date market share through the first half reached 51 per cent. In the January-to-May period, China sold 4.4 million EVs, a 33 per cent year-over-year increase. The market grew 40 per cent annually. China implemented the world’s first mandatory energy consumption standard in January 2026, capping electric passenger cars at 15.1 kWh per 100 kilometres (approximately 24 kWh per 100 miles) for two-tonne vehicles — 11 per cent stricter than previous voluntary guidelines. Compliance becomes prerequisite for tax exemptions, creating a double incentive for efficiency improvements.
Yet success bred its own problems. The aggressive subsidisation and production mandates created massive overcapacity. Of 169 automakers operating in China, 93 held market shares below 0.1 per cent. The government responded by removing new energy vehicles from the 2026-2030 strategic industries list, signalling that the sector must now survive on market forces rather than state support. The removal carries symbolic weight: after decades of prioritisation, EVs no longer require special treatment. The stick had done its work.
Europe — The Great Retreat
European policy zigzagged between ambition and reality. The EU set a 100 per cent zero-emission target for 2035, effectively banning combustion engine sales. Member states implemented varying incentive schemes. Germany provided up to €4,500 per vehicle through its Umweltbonus programme. France offered income-adjusted subsidies reaching €4,200, plus an additional €1,000 for European-manufactured EVs. The Netherlands phased out direct subsidies but maintained substantial tax advantages. Yet by December 2025, the Commission proposed watering down the 2035 target to a 90 per cent emissions reduction, allowing plug-in hybrids and synthetic fuels to continue indefinitely.
The reversal followed intense lobbying from Germany, Italy and automotive manufacturers. Seven member states formally requested revision. The automotive sector argued that pure electric mandates threatened competitiveness against Chinese manufacturers who had achieved cost advantages through scale and vertical integration. The political justification held some merit — EV sales growth varied wildly across the continent, from Germany’s 27 per cent decline after subsidy cancellation to Denmark’s 66 per cent plug-in market share.
Germany’s experience proved particularly instructive. When the coalition government abruptly cancelled the Umweltbonus in December 2023 due to budget pressures, the market collapsed. The programme had paid out €10 billion since 2016, supporting 2.1 million vehicle purchases. Its termination without replacement or transition period shocked the market. Sales fell 27.4 per cent in 2024, though they rebounded 43 per cent in 2025 after the government announced a new €3 billion subsidy programme for low- and middle-income households. The lesson resembled America’s: removing incentives before the market achieved self-sustaining momentum caused contraction rather than forcing continued growth.
France and the Netherlands offered contrasting approaches. France maintained support through 2026, adapting subsidy levels to fiscal constraints whilst preserving policy continuity. The Netherlands ended direct subsidies in 2025 but retained motor vehicle tax reductions through 2029, providing transition time. Both markets sustained growth despite reduced incentives because consumers had adjusted expectations and infrastructure had reached adequate density.
The Nordic countries — Denmark, Sweden and Finland — achieved high adoption rates (66, 60 and 56 per cent plug-in market share respectively in early 2025) through tax policy rather than subsidies. Denmark provided no purchase subsidies at all, instead implementing progressive registration taxes reaching 150 per cent for combustion vehicles whilst charging EVs only 40 per cent of standard rates through 2025. The approach mirrored Norway’s philosophy: make combustion vehicles expensive rather than making EVs cheap. The method proved politically sustainable because it generated revenue rather than requiring expenditure.
California — Mandates Without Compromise
California adopted the regulatory stick from the beginning. The state’s Zero Emission Vehicle programme, dating to 1990, required manufacturers to sell specified percentages of zero-emission vehicles or face penalties. The Advanced Clean Cars II regulations escalated requirements dramatically: 35 per cent ZEV sales in model year 2026, rising to 100 per cent by 2035. Plug-in hybrids could meet no more than 20 per cent of the requirement, and even those needed 70-mile (112-kilometre) electric range.
The mandate approach worked because California possessed enforcement power and market size. Manufacturers could not ignore the state’s nearly 26 per cent EV market share. Multiple states adopted California’s standards, creating a multi-state bloc that commanded attention. The regulatory certainty — however onerous — allowed automakers to plan investments and product cycles. When federal policy wavered, California standards provided stability.
Yet even California struggled with the gap between regulatory ambition and market reality. The state’s EV market share of 26 per cent in late 2025 looked impressive compared with the national 8 per cent, but reaching 35 per cent by model year 2026 would require extraordinary acceleration. The loss of federal tax credits affected California buyers as much as others. However, the Trump administration revoked California’s Clean Air Act waiver in June 2025, eliminating the state’s authority to set its own vehicle emission standards. Manufacturers faced the unpalatable choice between missing California’s now-uncertain targets and accepting penalties, or flooding the market with EVs at unsustainable discounts.
The Markets That Stalled
Japan and South Korea revealed the limits of incentives without broader market readiness. Japan offered subsidies up to ¥900,000 (approximately $6,120 or £4,800) for battery electric vehicles, with additional support for kei EVs. Yet EV sales remained stuck at 1.3 per cent market share in the first half of 2025, down from 2.2 per cent in 2023. Hybrid electric vehicles dominated instead, capturing 33.8 per cent market share whilst internal combustion engines still held 44.7 per cent. The charging infrastructure expanded slowly — only 17 per cent growth in public charging points compared with a 33 per cent global average. More fundamentally, Japan’s high proportion of apartment dwellers limited home charging access, and cultural conservatism resisted unfamiliar technology.
South Korea responded to stagnation by increasing subsidies rather than reducing them, raising the 2026 EV subsidy budget by 20 per cent to KRW 936 billion (approximately $650 million or £510 million). The maximum subsidy increased to KRW 6.8 million ($4,700 or £3,700) for those who scrap internal combustion vehicles. The government introduced trade-in subsidies and restructured support to reward performance metrics like range and charging speed. The approach resembled doubling down on the carrot strategy when initial incentives proved insufficient. Whether this succeeds depends on addressing the underlying barriers — infrastructure gaps and consumer hesitation — rather than simply increasing payment amounts.
Lessons From The Field
The divergent outcomes across markets reveal several patterns. First, time horizon matters enormously. Norway’s success required three and a half decades of policy consistency. America’s federal credit expired after several years, before the market achieved sustainability. Markets reaching 50 per cent or higher EV share (Norway, China) can reduce support; those at 8 per cent (United States) cannot. Policymakers chronically underestimate the time required for technology transitions to reach self-sustaining momentum.
Second, tax differential proves more durable than direct subsidies. Denmark, Sweden and the Netherlands achieved high adoption through registration tax structures that penalised combustion vehicles whilst advantaging EVs. These systems generate revenue rather than requiring expenditure, making them fiscally and politically sustainable. Norway’s approach — making combustion vehicles prohibitively expensive through cumulative taxes — proved more effective than America’s strategy of making EVs moderately cheaper through time-limited credits.
Third, infrastructure constitutes a prerequisite rather than a consequence of adoption. Europe’s 632,000 public charging stations in early 2024, which grew to over 1.1 million by mid-2025, supported gradual EV growth; America’s 168,000 stations proved inadequate. Japan’s limited charging infrastructure hindered adoption despite generous subsidies. Consumers identify charging availability as a top barrier to purchase — 56 per cent cite lack of convenient stations. Building charging networks after EVs achieve mass adoption addresses the problem too late; the infrastructure must arrive first or simultaneously.
Fourth, regulatory certainty matters more than regulatory leniency. California’s strict ZEV mandates, despite manufacturer complaints, provided the planning certainty that enabled investment decisions before the Trump administration revoked the state’s waiver. America’s abrupt credit expiration and Europe’s 2035 target reversal created chaos precisely because they violated expectations. Manufacturers can adapt to stringent requirements if they know what those requirements will be; they cannot adapt to radical policy changes on short notice.
Fifth, cultural and practical barriers resist purely financial solutions. Japan’s apartment-dwelling population cannot install home chargers regardless of subsidy levels. America’s vast geography requires longer ranges and more charging stations than compact European nations. Policy must address these structural issues, not merely assume that sufficient incentives will overcome them.
The Path Forward
The evidence suggests that successful EV adoption requires both carrot and stick, applied with consistency over decades. Pure incentive approaches (early United States, Japan) achieved only modest penetration and collapsed when support ended prematurely. Pure mandate approaches (California) created tension between regulatory requirements and market readiness. The most successful models (Norway, Denmark, Netherlands, China) combined financial advantages for EVs, financial penalties for combustion vehicles, infrastructure investment and regulatory frameworks — all maintained long enough for markets to mature.
For markets at early stages (below 20 per cent market share), generous incentives remain necessary but insufficient. They must be paired with aggressive infrastructure deployment, regulatory certainty extending years into the future, and tax structures that make combustion vehicles increasingly expensive. Most critically, policymakers must commit to time horizons measured in decades, not electoral cycles. Norway did not announce in 1990 that its incentives would end in 2025; it maintained them until the market no longer needed them.
For markets at intermediate stages (20-50 per cent share), the focus should shift towards charging infrastructure expansion, regulatory standards that drive vehicle improvements (as China implemented with energy efficiency requirements), and gradual phase-out of the most expensive incentives whilst maintaining baseline support. Tax advantages prove more sustainable than direct subsidies at this stage.
For mature markets approaching dominance (above 70 per cent share), the priority becomes equitable phase-out of incentives whilst ensuring the charging network can support full fleet electrification. Norway’s gradual reduction of benefits as the market surpassed 90 per cent provides the model.
The American collapse and European retreat demonstrate the consequences of policy inconsistency. The Detroit automakers’ combined write-downs of approximately $26 billion represent not just corporate miscalculation but policy failure. Markets require the stick of regulation to create planning certainty and the carrot of incentives to enable consumer adoption. Neither alone suffices. Both must persist long enough to achieve irreversibility. The technology transition will not happen quickly, and it will not happen cheaply. The only question is whether policymakers possess the patience and commitment to see it through.
➤ NORWAY — DECADES OF PATIENT PERSUASION
➤ THE AMERICAN EXPERIMENT — AND ITS ABRUPT ENDING
➤ CHINA — THE REGULATORY HAMMER
➤ EUROPE — THE GREAT RETREAT
➤ CALIFORNIA — MANDATES WITHOUT COMPROMISE
➤ LESSONS FROM THE FIELD
➤ THE PATH FORWARD