Used-Vehicle Market About to Get Complicated as Returning EV Lease Volumes on Track to Spike in 2026
E-Vision Intelligence Report
October 2024
Key Findings
- Electric Vehicle (EV) Returning Lease Volumes on Track to Spike 230% in 2026: Lease volumes for new EVs surged 355% throughout 2023 and 88% through September 2024. Franchise-only (excluding Tesla) EV lease volumes were even higher, rising 438% throughout 2023 and 109% through September 2024. As a result, returning EV lease volumes are projected to dip slightly in 2025 before spiking 230% in 2026. This trend runs counter to what’s happening industry-wide where total lease volumes for gas-powered vehicles have been lower than pre-pandemic levels, creating a likely shortage in used-vehicle availability in 2025 and 2026.
- Current EV Incentives Make it Significantly Cheaper to Lease New EV: Increased EV availability and big manufacturer and dealer incentives have caused EV prices to drop significantly, creating a situation in which it could be cheaper for returning lessees to lease a new EV than to buyout their existing lease or buy or lease a gas-powered vehicle.
- Uncertainty About Future of Incentives, Overall Used-Vehicle Volumes, Battery Health Create New Complexities for Consumers: Uncertainty about whether the federal EV tax incentive will continue and how long high manufacturer incentives will last, concern about long-term battery health, and a shortage of used gas-powered vehicles will complicate the traditional balance of supply and demand in the used-vehicle marketplace.
Executive Summary
All those hefty incentives that have made leasing a centerpiece of the EV sales strategy may create some complications for the used-vehicle market during the next two years. According to JD Power data, a glut of used EVs will be coming off lease throughout 2026 and beyond, while, at the same time, there is likely to be a significant slow-down in returning lease volumes for gas-powered vehicles. That lopsided dynamic in supply, combined with changes in EV pricing, uncertainty about the future of tax credits and incentives and concerns about long-term battery health will create some new complexities for consumers.
This E-Vision Intelligence Report dives into key data points trending in each monthly JD Power EV Index update, along with other data points gathered from JD Power studies and pulse surveys, to spotlight emerging trends and important shifts in consumer sentiment.
Wave of Used EVs Coming
Due in large part to a provision in the federal Clean Vehicle Tax Credit, which allows auto dealers to pass along a $7,500 tax credit to all EV lessees, nearly half (46%) of all franchise EV sales and 21% of total EV sales (including Tesla) in 2023 were leases. That trend continued throughout the first nine months of 2024, with the lease share of total franchise and Tesla EV volume reaching 30%. Meanwhile, lease volumes for gas-powered vehicles have been lower than pre-pandemic levels. Industry-wide, just 2.4 million gas-powered vehicles were leased in 2023. While that represents a 17% increase from 2022, it is still considerably lower than the pre-pandemic average of more than three million leases annually, which will likely create a shortage in used-vehicle availability in 2025 and 2026.
As a result, returning EV lease volumes are projected to decrease 2% in 2025 before surging 230% in 2026, when a total of 215,000 EVs will come off lease. Meanwhile, overall returning lease volumes, including both gas-powered vehicles and EVs, have been on a sharp decline, falling 37% since 2020. That trend is expected to continue through 2025 when roughly two million total vehicles will come off lease, down from four million in 2020. That means that, by 2026, the total share of EVs in the returning lease mix will be 5.3%, up from just 1.6% today.
Cycle of New EV Leasing Likely to Continue
Another trend influencing the dynamics of the used EV market is the steady decrease in EV prices during the past two years. For example, in the compact SUV segment, the average customer-facing transaction price (CFTP), for a new vehicle is currently $35,900, down $12,700 from $48,500 in 2022. Driven by a combination of increased sales incentives and increased supply of new models, the steady decline in EV prices has created a scenario where lease buyouts, which had been a popular option for the past few years during supply constraints, no longer make economic sense.
The average returning lessee in the compact SUV segment is paying $583 per month for their vehicle, and the average residual value of their vehicle is $29,645. Importantly, that means the buyout price of the majority of compact SUV EVs is higher than the $25,000 threshold that would qualify for the used EV tax credit. Accordingly, it would cost the average returning lessee in the compact SUV EV segment $477 per month to buyout the lease. Meanwhile, the average lease payment on new vehicles in the same category is just $457 per month.
Add to these stats the facts that it would be significantly more expensive to lease or buy a comparable gas-powered vehicle, and that 94% of current EV owners say that they are likely to consider an EV for their next vehicle purchase or lease, and it becomes clear that—under current cost and incentive structures—returning EV lessees are likely to lease new EVs.
Uncertainty Abounds
Of course, all these projections assume that current federal tax incentives and manufacturer incentives on EVs continue to be offered at the same rates—neither of which is a certainty. The results of the U.S. presidential election, consumer demand for new EV models, and continued improvements in EV range will all weigh heavily on the future dynamics of the used vehicle marketplace.
Long term battery health will also be a factor in this equation. With federal regulations requiring minimum EV battery warranties covering owners for eight years or 100,000 miles, this potentially costly maintenance item will start to become a much bigger factor in the consumer calculus of used vs. new vehicle purchases. Together, this new mix of variables, which has not previously affected used-vehicle valuations, will now become a big part of the consumer value equation. With 279,300 EVs set to come off lease in the next two years, the results will tell us a lot about the future of the used-vehicle marketplace.
Methodology
This JD Power E-Vision Intelligence Report is based on data and insights from the JD Power EV Index, the JD Power EV Retail Share Forecast, the JD Power 2024 U.S. Electric Vehicle Experience (EVX) Ownership Study, the JD Power 2023 U.S. Electric Vehicle Experience (EVX) Public Charging Study and the JD Power U.S. Electric Vehicle Consideration (EVC) Study. The JD Power EV Index is an analytics tool to benchmark the growing EV market in the United States. It tracks millions of data points aggregated into six categories—interest, availability, adoption, affordability, infrastructure and experience—to evaluate the progress to parity of EVs with gas-powered vehicles in the U.S. Each month, the JD Power electric vehicle practice will analyze these data points, and others to spotlight emerging trends and important shifts in consumer sentiment that are helping to define the fast-moving EV marketplace.
Find out More
This report was authored by Elizabeth Krear, vice president, electric vehicle practice; Brent Gruber, executive director, electric vehicle practice; and Kristen Richter, senior manager, electric vehicle practice. The JD Power E-Vision initiative is a company-wide program focused on maximizing JD Power industry-leading EV data, analytics, insights and solutions. Please contact us at the numbers below to connect with the authors or to learn more about the underlying research.
Media Contacts
Shane Smith; East Coast; 424-903-3665; [email protected]
Geno Effler, JD Power; West Coast; 714-621-6224; [email protected]