A Year Without the EV Tax Credit: Hybrids Grew to a Record Share of the US Market

EV 4 OCT 2026 1,869 words 9 min read By News Desk

A Year Without the EV Tax Credit: Hybrids Grew to a Record Share of the US Market

Introduction

On September 30, 2025, the $7,500 federal tax credit for new electric vehicles expired, along with a companion $4,000 credit for qualifying used EVs. Congress had folded both into the 2025 One Big Beautiful Bill Act, ending the incentive that had briefly reshaped American car buying. Buyers rushed to claim the credit in its final days, and electric vehicles hit 11.4% of new-car sales that month according to Edmunds data.

Exactly one year later, the market that emerged is not the collapse many had predicted. It is something stranger: electric vehicles found a smaller, steadier equilibrium, while the powertrain many analysts had written off as a transitional compromise became the fastest-growing segment on the American market. Cox Automotive reports that hybrid sales reached a record 14.1% of US volume in the first quarter of 2026, with segment volume up 83% since 2023. In the same period, EV share settled at roughly 5.8%.

This is the story of a market that did not break — it forked. Understanding what happened in the twelve months after the credit disappeared requires looking past the headline EV decline and at the segment quietly absorbing the customers who were not converted.

The Correction, Not the Collapse

The raw EV numbers after September 2025 look severe at first glance. Kelley Blue Book estimates put second-quarter 2026 EV sales at 247,226 units — a 14.7% improvement over a revised first quarter, but still 20.5% below the same period in 2025, marking the third consecutive quarter of year-over-year decline. The first quarter fell 27.3%, and the fourth quarter of 2025 dropped by more than 36%. Full-year comparisons in late 2025 registered a 36% decrease.

Those are real losses. But the shape of the decline matters more than its depth. Each successive quarter was milder than the one before it, which is the signature of a correction rather than a collapse. Cox Automotive's own EV market commentary frames it exactly that way: sales performance in the second quarter "suggests the market may be stabilizing after the sharp correction."

Ivan Drury, director of insights at Edmunds, put the same conclusion more plainly. The trajectory is "clearly nothing like what it was previously, but it has not fallen off of a cliff, which is what some people's predictions would've been."

Even the share numbers tell a stabilization story rather than a collapse. EVs accounted for about 5.8% of total US new-vehicle volume in the second quarter of 2026, essentially unchanged from the first quarter and well below the record 10.6% they hit in the third quarter of 2025 during the incentive rush. Two consecutive quarters at the same share is the flat line that follows a shock, not the slide that follows a failed product.

There was also a policy tailwind of cuts rather than supports. The Trump administration scrapped California's authority to set strict emissions standards, removed penalties for automakers failing to meet fuel-efficiency rules, and scaled back those standards further. The federal purchase incentive vanished, and so did several of the rules that had been written around it.

The Segment That Absorbed the Loss

The demand did not disappear. It moved to vehicles that need no plug.

Cox Automotive forecast that hybrid sales would rise approximately 9% for the first half of 2026 even as the overall US new-vehicle market declined 2.2% by Kelley Blue Book counts. By the first quarter, hybrids had captured a record 14.1% of the market, the fastest-growing powertrain category in the country, with volume up 83% since 2023.

Two structural changes drove it. First, supply: there are now 49 hybrid electric models on sale, seven more than in 2023, from 12 manufacturers — two more than before. Second, nameplates that once offered gasoline engines are increasingly hybrid-only. Toyota has converted its Camry and RAV4 to hybrid drivetrains, and the effect on showroom behavior has been dramatic.

Sal Iqbal, general sales manager of a Toyota franchise in Massapequa, New York, described the reversal to NPR directly. "We used to have Siennas sit on the lot before," he said. "We used to have to literally beg people to take a Sienna, and now we can't keep them on the shelf." Where his dealership previously saw roughly 10% of its sales go to EVs and then stopped selling any electric vehicles at all for six weeks after the credit expired — not another EV until mid-November — hybrids now move in about 12 days. Edmunds considers anything under 14 days effectively sold out.

National data matches the anecdote. Edmunds shows hybrid sales up nearly 27% over the past year. Hyundai sold 33% more hybrids in August than a year earlier, accounting for nearly 30% of its August volume; Kia's August hybrid sales rose 99% year over year.

The trigger was fuel prices as much as policy. Gasoline has hovered near $4.50 a gallon nationally, and Edmunds data showed hybrid sales jumping in March immediately after the United States began its war with Iran — a geopolitical shift absent from the 2026 forecasts. As one Forbes analysis of the trend documented, crude at $73.48 a barrel still left the average gallon at $3.92. In a Cox Automotive survey conducted in May, 56% of prospective new-vehicle buyers said rising gas prices would make them more likely to consider a hybrid or plug-in hybrid.

Dealer executives describe the appeal in friction terms. Dianna du Preez, chief customer officer at Lithia & Driveway, which operates more than 295 retail locations, called hybrids "a no-friction purchase." Buyers "don't have to change their behavior in any way, because there's no plugin required," she said, pointing to what she termed "pragmatic electrification."

The Second Hand Market Is Doing Its Own Work

The most underappreciated shift is happening off the lot.

Used hybrids are up 34% year to date, with average list prices hitting an all-time high of $38,800 in mid-June, according to CarGurus. The gains are concentrated in specific nameplates: Toyota Camry used hybrid sales are up 306%, Honda CR-V Hybrid 78%, Jeep Wrangler 4xe 68%, and Toyota RAV4 Hybrid 27%.

Used EVs are expanding too, up 29% year over year to a record 129,000 units, per Cox Automotive — though they still represent less than 3% of the used car market. Top-selling used EVs cluster in a narrow $25,000 to $31,000 band, led by the Hyundai Ioniq 5, Chevrolet Equinox EV, and Tesla Model Y.

This supply has a specific origin: the credit made leasing EVs so advantageous that many buyers took that route instead, and those vehicles are now coming off lease. More than 300,000 vehicles will return to the used market over the next year, with volumes expected to keep rising.

Nick Nigro, founder of the climate-focused think tank Atlas Public Policy, sees that as the most useful advertisement the industry has ever had. "That's probably the single best advertisement for electric vehicles in the last several years," he said, noting that most Americans buy used vehicles and most vehicles on the road are used.

Toyota's Decade-Long Bet Is Being Paid Out

The company that converted its highest-volume nameplates to hybrids two years ago is collecting the results now. Toyota more than doubled its US EV volume year over year in the first half of 2026 and now ranks among the top five EV sellers in the country — a position built while rivals were defending incentives.

That is not an accident of strategy so much as a hedge that paid off. When Toyota moved the Camry and RAV4 to hybrid-only powertrains, it was widely read as a defensive retreat. In a market where the incentive vanished and gasoline stayed expensive, that retreat preserved the transaction.

EV sales still fell for Toyota, as they did for everyone. But the brand captured the customer who was not ready to change charging habits without losing the customer who was, and its electrified sales rose 35% while accounting for 57.4% of total volume.

The Long View Is Unchanged, the Timeline Is Not

Both data providers are explicit that the correction changes sequencing rather than destination.

"The loss of the tax credit won't stop automakers from producing EVs," Stephanie Valdez Streaty, director of industry insights at Cox Automotive, said. "It's kind of just shifted their timeline and the way they roll things out." She sees a market that has found a new equilibrium: "There's still underlying demand for new EVs, but at a lower and more stable level, while growth is stronger in used EVs and hybrids."

Streaty concedes hybrids are not going anywhere. "I think long term the future's electric, but for a very long time hybrids are going to fill in that space that are meeting consumers where they are."

The next phase of EV growth, she argues, will depend less on technical advances than on execution: "The next phase of EV growth will likely be driven not only by advances in the technology itself, but by how effectively automakers translate those advances into products that meet consumer expectations for affordability, utility, performance, and ownership experience."

That is a restatement of the affordability problem the credit was originally meant to solve. The average EV transaction price was over $54,000 in August, against just under $50,000 for gas-powered vehicles, per Cox Automotive — a gap that widened rather than narrowed after the subsidy vanished.

Outside the US, the direction of travel has not reversed. More than half of new cars sold in China in 2025 were electric, and over 30% of European sales were electric in 2025, according to the International Energy Agency. BYD sells more electric vehicles than Tesla. The global transition continues on its own schedule; what changed is the American middle of it.

Conclusion

Twelve months after the federal EV credit lapsed, the American market did not return to gasoline. It split. Battery EVs settled at roughly 5.8% of new-vehicle volume — a smaller share than the boom produced, but stable across two quarters and growing again sequentially. Hybrids reached a record 14.1% share, and the used market is quietly normalizing electric powertrains at prices first-time buyers can reach.

The retailers describe the same thing in different words: the demand is real, the drivetrain question is unresolved, and the customer is choosing the option that asks for the least change. A segment that analysts spent years treating as a bridge to an electric future has instead become the destination for a large share of the market, while the bridge keeps carrying the traffic.

For automakers, the practical consequence is that the next phase of the transition will be won on price and product fit rather than on incentives that can be legislated away in a single budget bill.

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