EV incentives soar to 5 year high—nearly $5,000 above the market average

Automakers are leaning hard on incentives to keep electric vehicle (EV) sales up and clear out excess inventory.

By the numbers: Per Kelley Blue Book— EV incentives have increased by 44% in the past year.

• In February—EV incentives continued trending upward to 14.8% of the average transaction price (ATP), or about $8,162 per vehicle.

• That’s more than double the industry-wide average of 7.1% or $3,392.

• The result? Inventory is clearing. New EV days’ supply fell 35.1% year over year to 87 days’ supply at the end of January.

• But EV prices remain high. Despite deep discounts, the average EV still costs $55,273, about 15% more than the industry-wide average of $48,039.

Between the lines: Aside from elevated levels of new EV supply—several other forces are pushing automakers to discount EV aggressively. 

• Even though tax refund season typically moves the needle the most for used car sales—automakers are seizing the moment to capitalize on the uptick in consumer spending with deals aimed at cost-conscious buyers.

• Tesla’s price cuts in February pushed down ATPs for the Model 3, Model Y, and Cybertruck—forcing competitors to follow suit to stay competitive.

• And automakers are racing against a potential policy shift. If federal EV tax credits disappear, manufacturers and dealers might have to increase incentives further to maintain demand.

The wild card: Tariffs on Canadian and Mexican auto imports could drive up costs, forcing automakers to rethink their incentive strategy. Instead of using discounts to spur EV sales, they may have to offset rising prices just to keep vehicles (somewhat) affordable.

But for now—buyers are the biggest winners and getting some of the best EV deals in years.

Meanwhile—automakers are playing defense. Incentives help move inventory, but they also cut into margins—a tough trade-off as brands invest billions in EV development.

Bottom line: Right now, EV incentives are doing their job—helping to reduce dealership supply and keep sales moving. But—inevitably—automakers will have to face tougher decisions on future pricing.

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