Colorado's Electric Vehicle Market Faces Headwinds as Federal and State Incentives Rapidly Disappear
Key Insights
Federal EV tax credits, including up to $7,500 for new vehicles, are set to expire on October 1, 2025, due to a recently signed budget bill.
Colorado's state EV tax credit for new cars will significantly decrease from $3,500 to $750 in 2026, accelerated by a dismal state revenue forecast.
The rapid reduction in incentives is expected to further depress Colorado's EV sales, which already saw a 5% decline in Q1 2025 compared to Q4 2024.
Despite the cuts, Colorado retains some targeted incentives, and dealers anticipate continued interest, particularly for higher-end models, while lower-cost EV sales face the most significant impact.
Colorado's electric vehicle market faces a significant downturn as federal and state incentives, crucial drivers of its recent boom, are set to expire or diminish rapidly. President Trump's recently signed budget bill will eliminate federal EV tax credits, including the up to $7,500 incentive for new vehicles and the $4,000 credit for used EVs, effective October 1, 2025. This abrupt termination comes years ahead of their previously scheduled sunset at the end of 2032, creating immediate urgency for prospective buyers.
Compounding the federal cuts, Colorado's own generous state EV tax credit is also in decline. The credit for new cars, which stood at $5,000 at the beginning of the year, already dropped to $3,500 for vehicles under $80,000. A dismal state revenue forecast released in June has triggered a further reduction, plummeting the credit to $750 starting in 2026, a sharp decline from its initially scheduled $1,500. This revenue crunch will similarly halve state tax credits for other green energy upgrades, including heat pumps and e-bikes.
Will Toor, Director of the Colorado Energy Office, urged potential buyers to act swiftly, stating, "The best deal you’re going to get in a long time is the deal you’ll get before the end of September." This sentiment reflects the significant financial impact on consumers, particularly those considering lower-priced EV models. Matt Groves, CEO and President of the Colorado Auto Dealers Association, anticipates a continued decline in the state's EV sales, which already saw a 5% decrease in the first quarter of 2025 compared to the final quarter of 2024, with 20% of new car sales being battery-powered vehicles.
Despite the broad reductions, Colorado retains some targeted incentives. An additional $2,500 remains available for EVs priced under $35,000, and the Vehicle Exchange Colorado program offers a $6,000 discount for income-qualified residents trading in gas-guzzlers. Groves noted that while overall sales may dip, Colorado's remaining incentives, though smaller, are still more substantial than those in neighboring Rocky Mountain states, potentially leading to continued offloading of EVs into Colorado and maintaining some price competitiveness. He predicts the most significant impact will be on the sales of more affordable EVs, as luxury car buyers were less reliant on incentives.
Looking ahead, State Representative Alex Valdez, a Denver Democrat, is exploring legislative options to bolster state incentives, potentially through a new fee on the oil and gas industry. Valdez argued that if the industry benefits from President Trump's budget bill, it should contribute to supporting clean energy initiatives in Colorado, signaling a potential legislative battle to counteract the federal policy shift.