[SMM Analysis] The IRS adjusts tax credit rules for electric vehicles, potentially boosting U.S. EV production and sales in the third quarter.

Between August 22 and 26, 2025, the U.S. Internal Revenue Service (IRS) issued clarifications through NPR, CNBC, and other outlets announcing new guidance for the soon-expiring electric-vehicle tax credit of up to $7,500.

A consumer who signs a legally binding purchase contract with a dealer and makes any form of down payment or trade-in on or before September 30, 2025, will lock in the federal EV tax credit. The actual delivery date after that point will no longer affect eligibility.

On July 4, 2025, the “Big and Beautiful Act” (H.R. 1) was enacted. Section 201, Chapter 2, states: “Sec. 30D credit shall not apply to any vehicle placed in service after September 30, 2025.”

Because “placed in service” is generally interpreted to mean the vehicle has been delivered, registered, and is available for personal use, the provision was widely understood by the media to require that delivery be completed by September 30 for the credit to apply. In late August 2025, however, the IRS released supplemental guidance confirming that the time-of-eligibility test can be satisfied by “executing a binding contract + making a deposit,” rather than by the vehicle’s actual delivery. The contract must meet legal requirements, and any deposit or trade-in value will suffice; subsequent delivery dates can be later without jeopardizing the credit.

Because the third quarter of 2025 is the final period in which the $7,500 EV tax credit remains available, analysts expect Q3 sales to exceed both prior-year levels and earlier quarters in 2025. The anticipated surge is attributed to several factors:

1. Consumer urgency: With the credit expiring, buyers are accelerating purchase decisions to secure eligibility before September 30. The closer the deadline looms, the more urgent the buying behavior is likely to become.

2. Incentive attractiveness: A $7,500 credit is a significant economic incentive, especially in the higher-priced EV segment. As expiration nears, consumers may speed up their decisions to save on purchase costs.

3. Manufacturer response: Anticipating demand spikes, automakers and dealers are expected to intensify marketing campaigns and incentives to encourage orders before the deadline. Consequently, both supply and production are likely to increase in late Q3.

4. Mitigation of logistical delays: Long lead times for some EV orders—especially those awaiting production slots or in transit—pose a risk of missing the deadline. The IRS rule allowing contracts and deposits to lock in eligibility alleviates the danger that shipping or scheduling delays will disqualify buyers.

The new IRS guidance thus offers flexibility and reduces the risk of losing the credit because of logistical or production bottlenecks—a clear benefit for consumers who intend to purchase in September but may not receive their vehicles by month-end. Although the fourth quarter will offer no federal credit, the Q3 surge is expected to lift total 2025 EV sales. Conversely, buyers who miss the September 30 cutoff may defer purchases, causing some demand to evaporate in Q4.