The Norwegian government announced on Wednesday its plan to phase out major subsidies for electric vehicles over the next two years, which will result in increased costs of several thousand dollars for new cars such as the Tesla Model Y. According to the latest registration data, pure electric vehicles accounted for 98.3% of new car sales in Norway last month, marking a historic high and aligning closely with the country's long-term goal of ending sales of gasoline and diesel internal combustion engine vehicles by 2025. Finance Minister Jens Stoltenberg stated, "We had set a goal for all new passenger cars to be electrified by 2025, and we can say that this goal has been largely achieved. Therefore, it is now time to gradually remove these incentives."

For years, oil-rich Norway has exempted electric vehicles from all taxes applicable to internal combustion engine vehicles to accelerate the transition in transportation, a policy that has cost the national treasury billions of dollars annually. Since 2023, Norway has begun imposing a 25% value-added tax on the portion of vehicles priced over 500,000 kroner (approximately $49,508), primarily impacting high-end models such as the BMW iX, Tesla Model X, and Porsche Taycan, while popular market models remain largely unaffected. Currently, Tesla's website indicates that only the most expensive high-performance all-wheel-drive version of the Model Y is subject to VAT.

According to the budget proposal for 2026, Norway plans to reduce the tax exemption threshold for electric vehicles to 300,000 kroner and begin levying VAT on all versions of the Model Y and mid-range models such as the Volkswagen ID.4. If approved by Parliament, the VAT exemption will be completely abolished by 2027, meaning all electric vehicles will be taxed at standard rates. Concurrently, the government intends to raise the initial registration tax on gasoline vehicles to maintain an overall incentive advantage for electric models.

However, the Norwegian Electric Vehicle Association has expressed concerns about this adjustment, deeming it "too hasty," and calling for a more gradual approach to tax reduction. Association head Kristina Bu stated, "I worry that a sudden major change will cause more people to revert to gasoline vehicles, which I believe everyone wants to avoid." The association noted that 70% of vehicles on Norwegian roads are still gasoline-powered.

On the political front, the government is a minority administration and requires negotiations with four parties in Parliament regarding the budget proposal. Economically, taking the Model Y as an example — this model has been the best-selling passenger car in Norway for the past three years, with its cheapest version starting at 422,000 kroner. If a 25% VAT is calculated on the portion exceeding 300,000 kroner, a tax of approximately 30,500 kroner will apply; if the exemption is completely lifted next year, costs will increase by about 75,000 kroner.

Financially, the government has proposed increasing sovereign wealth fund expenditures from 534.2 billion kroner in 2025 to 579.4 billion kroner in 2026 to support public spending. At the same time, it has raised economic growth forecasts excluding the oil sector to 2.0% for 2025 and 2.1% for 2026, and expects the core inflation rate for 2025 to be 2.9%, decreasing to 2.5% in 2026.