Used EV Surge to Boost US Market as Tax Credit Exit
Hits New Sales
The leases on hundreds of thousands of battery-powered
cars and trucks will end in the next three years, and many will end up on used-car
lots.
·
New EV sales slowdown:
o
Decline began after federal tax credits (up to
$7,500) ended in Sept 2025
o
Sales/leases fell 36% (Q4 2025) and 27%
(Q1 2026)
·
Massive wave of used EV supply incoming:
o
~300,000 lease returns in 2026 (vs 123,000 in 2025)
o
~600,000 in 2027 and ~660,000 in 2028
o
Driven by high leasing during earlier incentive
period
·
Reason behind surge:
o
Leasing boomed under the Inflation Reduction Act
o
Tax credits applied to leased EVs → lower
monthly payments (as low as $199)
o
Lease share jumped from 15% (2022) to 60% (2025)
·
Impact on consumers:
o
Used EVs becoming significantly cheaper and more
attractive
o
Prices now comparable to gasoline cars
o
Demand rising amid high fuel prices ($4/gallon+)
·
Falling resale values:
o
Expected residual value: ~60% → Actual: ~45%
or lower
o
Examples:
§ VW ID.4:
~$52K → <$23K
§ Hyundai
Ioniq 5: ~$58K → ~$28K
§ Tesla
Model Y: retains ~60% value
·
Market trends:
o
Used EV sales up 20% in Q1 2026
o
Growing interest, especially as second cars or for
families
·
Spillover effect:
o
Lease return customers likely to buy/lease new
vehicles
o
Many EV users prefer sticking with electric
·
Winners:
o
Consumers (affordable EV options)
o
Used-car dealers (higher margins, rising demand)
·
Losers:
o
Automakers’ finance arms facing losses on
residual values
o
Example: $70K car expected at $45K → sells at
$35K → $10K loss
·
Overall implication:
o
Short-term pain for manufacturers, but
o
Used EV boom could expand EV adoption significantly
Electric
vehicle sales have been slumping since September, when federal tax credits of up
to $7,500 ended under a law championed by President Trump.
But
the business of selling battery-powered cars is about to get something of a boost
from waves of slightly used models that will be rolling onto dealer lots over the
next three years.
Leases
on some 300,000 two- and three-year-old electric vehicles will expire this year,
up from just 123,000 in 2025, and many of those cars will return to the market as
used cars. They will be followed by 600,000 in 2027 and nearly 660,000 in 2028,
according to Cox Automotive, a market research firm.
The
sudden influx is giving consumers affordable electric vehicle options when gasoline
prices have surged past $4 a gallon and new-vehicle prices are near a record.
“These
off-lease vehicles will increase consideration for E.V.s for a lot of used-car shoppers,”
Stephanie Valdez Streaty, Cox’s director of insights, said. “A big reason a lot
of consumers have stayed away from new E.V.s is the price. But these used vehicles
offer a much better value proposition. And with higher gas prices, people are willing
to give them a look.”
The
great lease return could also provide a lift to sales and leases of new electric
vehicles because many of the people giving up these cars will be looking for new
rides. Some surveys have found that a large majority of people who drive electric
cars say they would pick another one for their next vehicle.
But
the biggest effect will be on used cars, which are bought by vastly more Americans
than new cars.
Vic
Spanos, owner of Spanos Motors, an upscale used-car dealership in Daytona Beach,
Fla., is seeing it already.
“Right
now, we’re getting more leads for electric cars than regular cars,” he said. “Our
customers tend to be middle to upper class, and they are seeing the value in used
electric cars, as second cars, as cars for kids in college.”
The
wave of used electric vehicles is the product of the Inflation Reduction Act, President
Joseph R. Biden Jr.’s signature climate and energy law. Under the 2022 law, purchased
vehicles qualified for the full $7,500 credit only if they were assembled in North
America and met other conditions. But all electric vehicles were eligible for the
$7,500 credit if they were leased.
The
credit on leased vehicles went to financing arms of automakers, which generally
passed those savings on to consumers to increase demand. In some cases, automakers
were offering leases with monthly payments as low as $199 for cars that normally
would cost substantially more.
As
a result, many car buyers opted to lease rather than buy. In 2022, leases accounted
for about 15 percent of all new electric vehicle transactions, according to CDK
Global, a provider of software and data services for auto dealerships. In 2025,
that figure climbed to more than 60 percent.
Mr.
Trump’s One Big Beautiful Bill ended the tax credits on Sept. 30, upending the market
for electric cars.
In
the last three months of 2025, sales and leases of new electric vehicles fell 36
percent from the same period in 2024. They then dropped 27 percent in the first
quarter of this year.
Amid
the turmoil, values on used electric vehicles have sunk. In 2023, leased electric
vehicles were generally expected to be worth about 60 percent of their original
price after three years on the road. Instead, three-year-old models are worth about
45 percent, and sometimes less.
In
Downers Grove, Ill., about 23 miles west of Chicago, Castle Volkswagen is offering
a formerly leased ID.4 Pro S model, with 33,000 miles on the odometer, for less
than $23,000. That model cost about $52,000 when it was new in 2023.
AutoNation,
a large dealership chain, is advertising a 2023 Hyundai Ioniq 5 sport utility vehicle
for $28,000. It has been driven only 18,000 miles. Loaded with options including
all-wheel drive and a panoramic roof, it was listed at $58,000 three years ago.
Teslas have also declined in value but have done
better than cars from other brands. AutoNation is also offering a Tesla Model Y
with all-wheel drive and a long-range battery for $34,000 — about 60 percent of
its original price.
And
while new electric models are typically more expensive than comparable gasoline
vehicles, used versions are priced similarly, said Dave Thomas, CDK Global’s direct of content marketing.
“Used
E.V.s tend to have low miles and a lot of technology and luxury features,” he said.
“So what shoppers are finding is that these cars coming off lease are a really strong
value proposition.”
Car
buyers seem to be noticing. Ms. Valdez Streaty said sales of used electric vehicles
rose 20 percent in the first quarter, to more than 100,000 vehicles.
But
the impending end of all these leases will not be good for everyone.
The
finance divisions of car companies that own those leased cars may now have to take
big losses on vehicles that are not worth as much as they estimated when leases
were signed two or three years ago.
For
example, an automaker may have estimated that a $70,000 car it leased to someone
in 2023 for three years would be worth $45,000 — a figure known as the car’s residual
value — in 2026 when it was returned. That car company will have to book a loss
of $10,000 if the car sells for $35,000.
“That’s
the negative in all this,” Mr. Thomas said. “It definitely hurts the financial companies.”
Automakers
typically sell returned lease cars to their dealers or to wholesale auctions, where
any car dealer can buy them. The dealers then sell the cars to individuals for a
higher price.
Mr.
Spanos, the Florida dealer, sees a big, new opportunity in used electric vehicles
because prices have fallen so much. Dealers also tend to make a lot more money on
used cars because automakers play a big role in determining how much new vehicles
sell for by offering discounts and other incentives to lure buyers.
Mr.
Spanos, who started his business 30 years ago with his brother, has about 90 vehicles
in stock, and only seven or eight are electric. But over the coming months, he aims
to have electric models make up about half his inventory.
“There’s
more activity in the E.V. space,” he said. “Because now you can get one without
paying a premium.”
He
may even add a nearly new Tesla Cybertruck. In February, Tesla temporarily dropped
the price of a certain version of the angular pickup by $20,000 for 10 days, and
Mr. Spanos ordered one without knowing whether he would drive it himself or sell
it to a customer or in a wholesale auction.
“For
me, it made sense with that discount,” he said. “Worst case, I can sell it at the
auction and make money.”