Strong U.S. electric vehicle sales persist, yet potential tariffs pose a threat to affordability

In the rapidly evolving world of electric vehicles (EVs), a shift has been observed in recent times. The growth of EV inventory has slowed to 9%, the lowest since before the Inflation Reduction Act revived federal incentives, according to industry reports.

This slowdown comes as the looming end of the federal $7,500 tax credit on September 30 adds another layer of urgency for EV buyers. The impending deadline has sparked a "buy now" mindset among shoppers, leading to a spike in new-vehicle sales, up by 6.6% year-over-year.

Automakers have absorbed an estimated $12 billion in tariff costs in the second quarter to keep sticker prices steady. However, once these costs flow into 2026 models, EV buyers could be facing thousands more on the same car. At current 25% tariff levels, the average new-vehicle price could jump from $48,000 to $54,400, about $6,400 more.

Despite potential new EV price increases, the used EV market is gaining momentum. Affordable used EVs under $25,000, such as the Tesla Model 3, Nissan Leaf, and Chevy Bolt EV, are selling 20% faster than average. Interestingly, average prices for used EVs have decreased by 2% to $36,000.

The used EV market is not directly impacted by the potential increase in new-vehicle prices due to tariffs. Moreover, the used EV market does not appear to be affected by the looming end of the federal $7,500 tax credit or the spike in new-vehicle sales due to a "buy now" mindset.

On a positive note, many affordable used EVs qualify for the $4,000 used-EV tax credit, which, like the new EV credit, ends on September 30. In response to the tariff costs, some automakers like General Motors and Ford have announced they will absorb these costs on their electric vehicles if the current tariffs take effect in 2026.

As of now, there are 75 EV models on the market, a 27% increase from last year. Dealer inventory fell for the first time since 2022, despite the increase in EV options. The used EV market inventory has increased by 33% year-over-year, indicating a growing interest in affordable, used electric vehicles.

However, the increasing prices of new EVs and the stagnant growth in household incomes, which grew only 1% last year, create a significant gap that could potentially deter some potential buyers. With the federal tax credits and tariffs playing a significant role in the EV market, it's crucial to keep a close eye on these developments as we move forward.