Challenges in Automotive Affordability Amid Tariffs and EV Tax Credit Expiration

In a recent Industry Insights report released by Cars.com Inc. (NYSE: CARS), the intersection of tariffs and expiring federal electric vehicle (EV) tax credits has raised significant affordability concerns in the automotive market. This analysis, which pulls from extensive data on consumer demand and vehicle supply, reveals how shifts in federal policy are reshaping consumer behavior and market dynamics in the car sector.

The report highlights that after a robust first half of 2025, where the Seasonally Adjusted Annual Rate (SAAR) exceeded 17 million in sales during March and April, the pace has slowed markedly. David Greene, an industry analyst at Cars Commerce, pointed out that this shift could indicate that the surge in pre-tariff buying has come to an end. As prices for imported vehicles start to climb, coupled with the impending expiration of the $7,500 federal EV tax credit in September, the entry-level vehicle segment, crucial for budget-conscious buyers, is shrinking steadily for the third consecutive month.

Interestingly, the average price of new vehicles has only seen a minimal increase of about $100, while prices for U.S.-built vehicles have dipped by nearly $200. However, a significant number of consumers are feeling the economic pinch, with over half stating that tariffs have prompted them to consider American-made vehicles more seriously. The growing cost concerns have led more than 73% of respondents to express willingness to explore U.S.-built options to avoid extra expenses. To assist with this, Cars.com has introduced tools such as the American-Made Index, which helps shine a light on vehicles that most benefit the local economy.

Tariffs are influencing prices differently depending on the country of origin. For instance, imports from the UK—comprising just 1% of the inventory—witnessed substantial price increases averaging over $10,000, while EU imports, making up about 5%, saw increases of nearly $2,500. Conversely, prices for vehicles from China, Canada, and South Korea have declined. This variance underscores the complex landscape of global automotive supply and the challenges arising from tariffs.

Entry-Level Segment Challenges

The entry-level market, which consists of vehicles priced under $30,000, is particularly vulnerable to tariff impacts, with its market share falling to just 13.6% in the first half of 2025—a stark drop from 38% in 2019. This decline is primarily because 92% of vehicles in this price range are manufactured outside the U.S., adding more hurdles for consumers seeking budget-friendly options. Currently, only two entry-level models—the Honda Civic and the Toyota Corolla—are manufactured domestically, further straining availability for cost-sensitive buyers.

On a more positive note, the mid-range segment, which includes new cars priced between $30,000 and $49,000, now accounts for nearly half of all automotive inventory. Notably, it is within this tier that about 50% of vehicles are imported. As demand shifts, automakers appear to be adapting to less price-sensitive consumers, as indicated by a rise in the share of imported vehicles in the luxury $70,000-plus segment from 40% to 41%.

Electric Vehicle Market Shifts

As the federal EV tax credit is set to disappear with roughly 75 days left for buyers to capitalize on it, many prospective customers face critical financial decisions. With the average price of new electric vehicles hovering around $65,000, the existing incentives significantly influence purchasing choices. Surveys conducted by Cars.com reveal that 53% of current EV owners consider the tax credit a major motivating factor for their purchase, with 48% of prospective buyers citing it as a critical element of their decision-making process.

Amid these challenges, the used vehicle market has experienced a resurgence, with prices increasing by nearly 3% in the first half of the year, indicating robust demand for more affordable options. This rise is attributed to a growing pool of trade-ins triggered by new car purchases amid tariff anxieties, resulting in an influx of newer, lower-mileage vehicles becoming available for sale. Consequently, the age of used vehicles on dealer lots has diminished, reflecting a swift turnover.

In conclusion, the automotive industry faces a challenging yet evolving landscape as tariffs and the expiration of EV tax credits create significant affordability hurdles. How automakers navigate these pressures in the second half of 2025—through pricing adjustments, production strategies, and consumer incentives—will ultimately determine the future of automotive sales. For those wishing to delve deeper into the findings, the complete report is accessible at Cars Commerce's website.