The EV tax credit is gone. But it’s about to have a boomerang effect that should greatly benefit consumers.
Why? Because the used-car market is going to see a flood of three-year-old EVs coming off lease. That’s going to upend not just the EV market but the business of selling used cars.
Between January 2023 and September 2025, more than 1.1 million EVs were leased under some very attractive terms—terms that were made possible by a $7500 credit. Automakers may have called it a “capital cost reduction,” but yup, the money came from the federal government, under a policy called the Commercial Clean Vehicle Credit, or IRS 45W.
How the Credit Changed the Market
That credit turbocharged the portion of new EVs that were leased rather than purchased—until last year, when the Trump administration nixed the credit. By the second quarter of 2024, according to data from TransUnion and S&P Global Mobility, nearly half of all EVs were leased. In the second quarter of 2025, nearly 58 percent of new EVs were leased, according to Experian.
That cohort of leased vehicles is hitting used-car lots very soon. While the first of these generously subsidized leases were made available in January 2023, the subsidized leasing boom really took off around April 2023. With the most common lease term being 36 months, that means EV lease turn-ins will be surging in April 2026 and, soon after, they’ll be elbowing in for a bigger piece of dealers’ inventories.
“Before the pandemic, about 30 percent of all new cars in the U.S. market were leased. That sank to a low of 16 percent in late 2022, and since then it’s been gradually rising,” explained Jeremy Robb, interim chief economist at Cox Automotive. “All the increase has really been driven by EVs and plug-in hybrids.”
New Math at the Lease End
Vehicle leasing and pricing have had some extreme ups and downs the past five years, but what makes this wave different on the used-EV front is one thing: negative equity from leases.
Traditionally, leases have intentionally been set with a buyout price that isn’t too favorable, so that around 60 percent or so of leased vehicles will be returned rather than purchased at the end of the lease term. The pandemic upended that, raising vehicle prices so much that the market value of the vehicle was often much higher than the buyout price, making it a very good deal for lessees to buy their car at lease-end. Thus, only a very small percentage—roughly one in 10, in 2022—of vehicles came back to the used-car market as lease returns.
Now the pendulum has swung way back in the other direction for EVs and plug-in hybrids. Their buyout prices are generally higher than the current market value, meaning that, at lease end, a majority of drivers are expected to just turn in the keys rather than purchase their vehicle.
Those lease-return cars will pile up in the system. Cox Automotive expects that from September 2025 to September 2026, the EV share of its off-lease vehicles heading through its Manheim wholesale auctions will nearly triple, from around 5 percent to 15 percent. On a whole-year basis, Cox says that in 2025, just under 5 percent of lease turn-ins were EVs; in 2026, that will grow to about 12.5 percent, then nearly 19 percent in 2027. Already, today, 20 percent of Manheim’s used cars at auction in California are EVs.
2024 Ford Mustang Mach-E EV.
Which EVs Will Be the Most Plentiful?
Over the next few years, Cox Automotive anticipates that the Tesla Model Y, Tesla Model 3, Hyundai Ioniq 5, Volkswagen ID.4, and Ford Mustang Mach-E will be among the top models with off-lease volume. Among plug-in hybrids, where the incentive also subsidized leases, the Jeep Wrangler 4xe tops the list. Hybrids are very popular, and they hold their value better as a group, but automakers have not been emphasizing hybrids in lease programs.
Some automakers—like Tesla, perhaps—might instead look into programs that would incentivize customers to stay in their leases longer than the original term.
“Every OEM is going to have their own type of plan to try to address the volume of these coming back,” said Robb, who added automakers may also let the customer purchase the vehicle for less than the contract-stated residual value. “Historically, that’s what captive finance companies and OEMs do when they have too much of a certain type of product coming back to the market.”
Dealers need a plan, argues Scott Case, the CEO of Recurrent, which offers vehicle reports for used electric cars. He suggests that retailers need to prep for second-time EV buyers, and families who are going to split EVs with gas vehicles, for instance. “Dealers who recognize these segments have fundamentally different needs—from range anxiety solutions to social proof to family troubleshooting—will dominate the next wave of mass adoption,” said Case, emphasizing the opportunities on certified pre-owned EVs with battery warranties and affordable EVs for newbies.
Should You Trade Your Used EV Right Now?
What if you currently own an EV? “If you’ve purchased the car, and you know you’ll need to trade it in, then sooner than later would be better,” confirmed Robb. Popular used EVs like the Tesla Model Y or Nissan Leaf are definitely going to depreciate at a steeper rate for the next couple of years, simply because of this influx of vehicles.
While values won’t go into freefall, the off-lease cars will pull prices down. “Generally speaking, an increase in available inventory tends to place downward pressure on wholesale prices,” said CarMax. “When that happens, it can help create a wider range of more affordable options for customers.”
With EVs making up a larger portion of off-lease vehicles, and gas-powered models a smaller percentage of lease returns, what started as a government subsidy is now playing out in the market forces of supply and demand. According to analysts, with a relative scarcity of gasoline models on used-car lots, we could see prices for gas-powered used vehicles rise. If that happens, used EVs will seem like even more of a bargain.
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