The headlines about the U.S. electric vehicle markets are going to be ugly over the next six months or more. Don’t fall for it.
Experienced investors know to look at underlying fundamentals when evaluating opportunities, and to take the long view. The U.S. market for EVs is in a classic “Trough of Disillusionment” right now, and it will feel even worse temporarily as price declines start to hit in earnest. This will send many investors running for the exits, and in fact many have been doing so already.
But this could be a mistake, at least for long-term investors, given clear signals of market adoption intentions and looming price drops. Ironically, these price drops are just going to make the headlines worse in the near term. But they are also opening up strong new opportunities.
(Important disclaimer: As recently announced, I have taken on the CEO role with one of my firm’s portfolio companies in the EV financing sector)
Let’s look at the reality of the situation right now.
Stalled market growth is not a “decline”, it’s a pause
Many generalist investors I speak with mention that they’ve heard the market for EVs in the U.S. is in decline. They have gotten this impression from superficial news coverage of the industry.
In reality, while the growth of EV adoption in the U.S. has certainly stalled, it is still healthy and poised for resumed growth. And that’s despite a fair amount of negative press coverage of the industry, which should have driven down buyer interest. Seemingly every time an electric vehicle catches on fire anywhere, for example, it makes the news – despite the fact that EVs are actually 60 times less likely than internal combustion engine vehicles to have a fire. Tesla as a company has seen a ton of self-created negative publicity over the past few years, and since they remain the dominant brand of EVs in the U.S., they are synonymous with the entire EV market in the eyes of many. And definitely some EV startups have gone bankrupt; that tends to happen with all kinds of startups, but companies in this sector tend to get more attention than the average startup that goes belly-up. Hence, lots of negative headlines.
But meanwhile, EV adoption has remained relatively steady. While Q2 sales volumes of EVs were down 6%, garnering lots of headlines, that dip was largely in line with previous dips over the past few years. On the other hand, Q3 sales volumes will certainly be way up; that doesn’t mean the market is suddenly taking off, it’ll just show that people were racing to beat the expiration of federal incentives. Really, EVs have been steady between 7-9% of all new auto sales for a couple of years, despite quarterly ups and downs. Don’t trust the tone of EV-related headlines when they are either very negative or very hyped, market demand for EVs is not nearly as fragile or volatile as some seem to think.
In fact, while consumer adoption has stalled, commercial adoption of EVs has continued to grow, albeit from a smaller base. For some reason, commercial EV adoption in the U.S. has lagged behind consumer adoption trends. So there’s some catching up to do there, and that appears to be underway.
Overall, EV sales have not really been in decline. They’ve been flat for a couple of years now, yes. But there’s a difference between that and a market that has somehow peaked and is headed downward from here. Indeed, many investors strongly believe that most transportation will eventually become electrified. They just don’t know when.
EV prices are about to go into even steeper decline
One thing that has continued to buoy buyers’ interest in EVs despite all the negative headlines is that prices have fallen significantly over the past couple of years. Tesla cut their prices sharply last year as their market share eroded, leading Hertz to need to unload much of their Tesla fleet, creating a flood of used Teslas on the market.
Now in 2025, the early expiration of the federal tax incentives for EV purchases is expected to drive costs down further. Hyundai already reportedly slashed their prices on Ioniq 5s by more than $9,000, literally the day after the incentives expired.
What will make price drops accelerate even more, especially in the used vehicle market, is the fact that a “wall of returns” from expiring 2022-2023 leases mean tens of thousands of EVs coming back to the manufacturers’ captive finance arms, who will then have to sell many of them (few have yet solved their “year 3/4 problem” for re-leases). This is more acute for EVs because a high proportion of them were leased versus sold starting in 2022. Industry participants that I speak with expect this wave to really start hitting in February 2026.
In Class 8 vehicles (semi trucks, etc) the prices are also about to drop significantly. And once again, Tesla is involved as the protagonist, albeit this time with different motivations. While such heavy-duty vehicles have been readily available with dropping prices in other regions around the world, in the U.S. the market has been dominated by just a couple of manufacturers, who make EVs as almost a side-gig to their much larger diesel semi manufacturing volumes. Among those I speak with who track the market closely, some note that the prices on these incumbent OEMs’ EVs have actually gone up over the past couple of years, not down. But later this year and into 2026, the Tesla Semi is expected to be released to the market, and at a significantly lower price point than the existing options (reportedly, mid-$200,000s versus $400,000+). Many in the segment are eagerly awaiting the pricing impact that Tesla’s entry will bring to the heavy duty EV market.
Given that news reports about the EV industry seem prone to overhyping both the highs and the lows of the market, how will mainstream investors react to significant price drops for both new and used vehicles, and across light duty to heavy duty? They will likely conclude that it is a demand-side problem. In reality, investors should remember that these price drops will be all about the supply side, due to the incentives event coinciding with the birthing pains of the used EV market (which is only now getting established).
The fundamentals already make EVs an economic option in many cases
“Okay,” some readers may say, “maybe there are extenuating circumstances between the stalled sales volumes and dropping prices and negative headlines. But that doesn’t mean I need to jump into a market for what is essentially a luxury item that doesn’t make economic sense without government support. Especially when that support is going away.”
Long-term investors, however, look at cost trajectories and economic fundamentals such as the total cost of ownership (TCO) of new versus incumbent products. For many EV models, the TCO advantage already outweighs the magnitude of those federal incentives – in other words, they make sense even without them. Why? Because fuel and maintenance costs are much lower for EVs than for ICEs. This adds up over time and overtakes the upfront higher prices and more rapid depreciation of EVs.
And as noted, prices are about to drop even more, especially in the used EV market. That will temporarily further increase the depreciation hit for these vehicles, yes, but could also eliminate the historic higher prices of EVs versus ICE equivalents. If two vehicles cost the same up front, but one costs a lot less to operate, which one has the TCO advantage? And that’s even before considering that EVs should also last a lot longer than ICEs, with motors often rated for 400,000 miles and fewer components that can break.
(My personal bet is that we are going to see a different shape of the “depreciation curve” for EVs than for ICEs – it will be steeper at first due to rapid innovation, but then it will flatten out as the EVs maintain more residual value than their ICE counterparts due to significantly longer useful life. If true, this would be important for stabilizing used EV values over time.)
But taking a step away from that level of granularity to look at the bigger picture, EVs already have or soon will have a TCO advantage across most vehicle types, even without incentives. And that type of fundamental value proposition should lead to resumed demand growth before long.
Investors should look to take advantage of this price opportunity
If fundamentals-focused investors look carefully at the U.S. market for EVs, they will recognize a buying opportunity.
Just as individual car buyers, the next few months will see really attractive prices for purchasing a used EV for personal use. Something to keep in mind when your teenager demands a car for their birthday…
But as investors, these dropping prices mean that the TCO advantages of EVs should become even clearer, and lower prices should also open up entire new segments of buyers who previously couldn’t afford these vehicles. This will be especially true for used EVs, and also especially true for commercial fleet markets as demand there doesn’t seem to have stalled at all.
When solar panel prices dropped quickly in the late 2000s, the solar panel manufacturers suffered lower margins, and entire segments like thin-film solar saw great hardship. But downstream businesses took advantage of the lower prices and launched a period of dramatic growth in solar installations and associated markets.
For investors with a longer-term view, the next few months may represent a similarly attractive time to get into similar “downstream” businesses focused on taking advantage of lower-cost EVs. New sales channels, financial innovations, and operations and maintenance services catering the special needs of EVs.
For example autonomous vehicles (AVs) are largely based on EVs, and companies in that space who are building out fleets of AVs should enjoy lower vehicle acquisition costs, accelerating their efforts toward profitability.
Here’s another example for software investors: The fact that EVs are basically “rolling computers” generating tons of useful data for predictive maintenance and operational efficiency means new fleet management tools can be built off of those telematics.
And of course for specialty finance investors, vehicles are not just important tools, they are also assets, and as the higher residual values of EVs becomes clearer that should provide an advantage to financial platforms who recognize that before their peers do.
Lower prices should also lead to a resumed growth in demand overall, which should lead to resumed growth in need for charging stations as well. This growth will likely be very regional and not nationwide, of course.
So while the headlines will be rough over the next few months, look at more fundamental facts. The EV market isn’t spinning its wheels, if anything it’s getting set up to go through another growth spurt, as lower prices mean TCO thresholds are crossed.
In short, bottom-up investors should see rapidly-declining prices for EVs as opening up all kinds of downstream opportunities. That is, if they’re willing to step in before the resumed market traction becomes obvious to all.