Used EVs represent ‘bright spot’ for electrification in post-tax credit market

The new EV market’s loss could be the used EV market’s gain.

On the new-vehicle side, the EV sector is preparing for a bumpy ride over the next few quarters as the market recalibrates following the loss of federal tax credits that shaved off up to $7,500 on new EV purchases. But industry analysts are optimistic about at least one aspect of electrification in the near term.

“When it comes to the used EV market, that is the thing: It is the bright spot of electrification,” Ivan Drury, Edmunds director of insights, told Tech Brew.

Flying off lots: Drury recently published an analysis of the Q3 used-vehicle market that highlighted EVs as a success story in otherwise challenging conditions.

Overall, affordability remains a nagging issue, with average transaction prices for three-year-old cars rising to $31,067 in Q3. Even as used vehicles sat on dealer lots longer than they did a year ago, EVs “bucked the trend” by selling in an average of 34 days.

That’s compared to an average of 40 days for hybrids, 41 days for diesel-powered vehicles, 43 days for gas cars, and 47 days for plug-in hybrids. Drury pointed to the fact that EVs had lower mileage and pricing. While only 42.5% of other vehicles were priced between $20,000 and $30,000, nearly two-thirds of used EVs fell into that range.

“The problem is that [used] vehicles are expensive, and they’re sitting for a long time—except for the EVs,” Drury said. “Value is king and they represent the absolute best value possible.”

Half of the top 20 fastest-selling models were fully or partially electric, and the electric Tesla Model S and Tesla Model 3 topped the list.

“When viewed against their original MSRPs, many [used EVs] have depreciated dramatically, offering shoppers access to advanced technology and performance at prices far below new,” per the analysis. “In many ways, used EV buyers are embracing technology that’s just one generation old, while new EV buyers still face the risk of paying premium prices for models that evolve rapidly year over year.”

Looking ahead: Supply remains a challenge, with three-year-old EVs making up less than 2% of the total supply of three-year-old vehicles in Q3. Underscoring supply constraints in the used market, used EV inventory in October was nearly 20% lower than a year ago, according to Cox Automotive.

But analysts say that the end of the federal tax credits could push more buyers into the market for a used EV just as inventory levels could improve.

Stephanie Valdez Streaty, Cox’s director of industry insights, wrote in a recent analysis on the post-tax credit EV market that “the used EV wave is coming,” aided in part by lease returns and trade-ins increasing the availability and affordability of used EVs. Since 2023, customers have leased more than 1.1 million EVs, according to Cox—vehicles that could end up in the used-vehicle market.

“We will see a ramp-up in off-lease availability, and this is kind of that flood that we knew was going to happen,” Drury said. “The good thing is for anyone shopping these, they’re just going to get better and better examples every single month, every single quarter, every single year.”

Flip side: However, it’s not all good news: If you’re an EV owner looking to trade in your vehicle, you’re likely in a negative equity situation because of how significantly EVs tend to depreciate.

“If you like it at all, keep it, because you’re going to incur heavy losses if you trade it in,” Drury said. “So, one person’s gain is the other person’s sorrow.”