The Race Is On for Used EVs

New federal tax guidelines in the One Big Beautiful Bill Act eliminate both the new and used electric vehicle tax credit effective Sept. 30. This will have an immediate impact on all dealers but used inventory may see the biggest shift.

Sales of used EVs ticked significantly higher during the fourth quarter of 2024, culminating in December sales that were 76% higher than the same month a year prior. Much of this was spurred by the “idea” that tax incentives would disappear after the presidential election. Now that buyers “know” incentives will be officially eliminated, expect a run on EVs of all types at the magic $25,000 price limit.

Pricing 'Sweet Spot' and the Used EV Tax Credit

Even with the current and expected demand, the larger supply of used EVs is keeping prices in check. The average listing price of a used EV dropped to $36,976 in December 2024, representing an 8.9% year-over-year decrease.

Most importantly, over 30% of used EVs hit the so-called pricing “sweet spot.” Meaning, they’re at least two model years old and cost $25,000 or less. That makes them potentially eligible for the $4,000 federal tax credit, reducing the price of a used EV even further (and, notably, without the dealer having to pay for the discount).

Lease Returns Boost the Supply of Used EVs

In 2022, hardly anybody leased an EV. In fact, in the CDK 2022 survey of EV owners, not a single Tesla driver reported leasing their vehicle. Subsequently, the used EV market languished without a steady supply of lease returns to fill dealer lots.

That's now changing. According to a CDK 2024 survey, the pathway to EV ownership dramatically changed over the last couple of years, with leases now representing more than 50% of EV purchases and recent reporting shows that number is even higher. Slowly but surely leases are returning those EVs to the market as pre-owned vehicles.

An estimated 123,000 lease-returned EVs will hit the used market in 2025, and experts anticipate that number will jump to 329,000 in 2026. With just weeks left until Sept. 30, lease returns will be seen as a blessing at first but come Oct. 1 this increased volume will have fewer takers.

Used EVs Have What Buyers Want

EV owners told CDK that the main motivators for purchasing an EV were cost-effectiveness, impact on the environment, and advanced technology. Compared to new, used EVs might have an advantage in these three categories.

We’ve already discussed the cost-effectiveness of buying a used EV, so let’s move on to the other two key motivators. Studies show that, over the long term, EVs are more environmentally friendly than gas-powered cars. Consumers could consider used EVs as even greener, as they don’t require the additional raw materials or energy involved in manufacturing a new vehicle since they’re already here.

Lastly, OEMs equip EVs with the latest tech, including the ability to receive over-the-air updates. This helps ensure that the technology in a used EV remains advanced for years to come. So, even if a buyer is selecting a two- or three-year-old EV it may seem considerably more advanced than the vehicle they’re moving on from.

Timing Will Be Everything

The clock is ticking. Dealers who’ve been trading and turning over significant used EV inventory have an advantage in this compressed time frame. Dealers who are new to selling used EVs may want to be cautious in their acquisition strategy if they don’t generally turn over inventory quickly.

Understanding the existing tax credit and who it applies to will also be paramount. Armed with this knowledge, dealers can put buyers at ease and motivate them to take advantage of the waning opportunity.