With the electric vehicle tax credit gone, the American EV industry is facing an existential moment.

Auto giant GM, a leader in both gas-powered and electric vehicle industries, is at its own crossroads too. The company announced in its third-quarter earnings call that it will be scaling back some of its EV production even further.

GM is now stopping production of its Chevrolet BrightDrop electric vans at the CAMI assembly plant in Ontario, Canada, and will start to assess the site for future opportunities. The company had halted production at the plant in April and laid off about 1,200 workers, but had initially said the move was temporary, with production expected to resume in October.

“This is not a decision we made lightly because of the impact on our employees. However, the commercial electric van market has been developing much lower than expected, and changes to the regulatory framework and fleet incentives have made the business even more challenging,” GM CEO Mary Barra said in the earnings call on Tuesday.

The decision is part of a broader company strategy shift back from EVs to traditional gas-powered vehicles in preparation for weakening demand.

American electric vehicles cost a lot. Even the cheapest options cost $10,000-20,000 more than their Chinese counterparts. As a result, the electric vehicle tax credit was a huge boon for EV demand in the U.S. as it lifted the burden on consumers. It also incentivized automakers to make newer, better electric vehicles. GM was one of these traditional automakers that made electric vehicles a core part of their strategy. The company made a significant commitment to completely electrify its fleet by 2035, with executives frequently calling electric vehicles the company’s “north star.”

With the credit now gone, the industry braces itself for a huge drop in demand.

GM executives think demand will suffer for the remainder of the year and into 2026 before it levels off and finds its natural state.

“Under the changing regulatory environment, we expect EV demand growth to slow pretty significantly from what it was going to be, and so we need to make sure that we right-size the capacity footprint to be able to not have to absorb a lot of those fixed costs,” CFO Paul Jacobson said. “While it’s unfortunate, I think it is a quick adjustment to the reality around us that we’re facing.”

The company recently shared that it will be taking a $1.6 billion hit this quarter, stemming from a drop in the value of EV plants and equipment and supplier contract cancellation costs.

Instead of EVs, GM is refocusing some of its attention back to gasoline-powered internal combustion engine (ICE) vehicles with “incremental investments,” Jacobson said.

“Those are going to be around longer and probably more in demand than they otherwise would have been under the prior regulatory environment,” he said.

Late last year, GM decided to sell its $2.6 billion stake in an EV battery cell plant in Michigan to LG Energy Solutions. Earlier this year, the company shared plans to transition its Orion assembly plant from building EVs to gas-powered vehicles.

Affordable EVs are the new north star

But even with all the odds against them, electric vehicles persist.

With 67,000 deliveries, GM was number two in the U.S. EV market this past quarter, Jacobson pointed out, posing real competition to market leader Tesla. As demand finds its natural state, and competitors who were in the EV game just because of the tax incentives retreat, GM executives believe their strong positioning will help their EV operations succeed.

“Let’s remember, there was EV adoption before the $7,500 tax credit, and there will be EV adoption afterwards,” Jacobson said. “I think those customers are looking for the quality and the range of vehicles that we can provide with our platforms, and I think that will bode well for us.”

GM executives think the performance of its more popular EV models, like the Chevrolet Equinox, will only improve in a smaller EV market. So, the company will continue to build its top-selling EVs and will instead refocus its efforts on bringing the price tag down.

“The last couple of years have been about expanding the portfolio of EVs. For the next few years, it’s going to be about lowering the cost and making structural improvements to the battery cells and to the architecture going forward,” Jacobson said.

That prediction might be an industry-wide trend. Tesla unveiled two affordable EV models earlier this month. But the new designs were just stripped-down versions of its Model Y and Model 3 vehicles, and the cars are still more expensive than their premium versions were with the EV tax credit.

Profitability is the next frontier of the American EV industry. With increasingly cheaper competition churning out abroad and without the help of the EV tax credit, the American industry needs to crack the code on cheaper yet still well-performing electric vehicles to be able to continue its growth. While the industry is still far from achieving that, product strategy seems to be moving in that direction.