The Use of Pre-owned EVs Significantly Contributing to Electric Vehicle Expansion, while Tax Credits Garner Less Attention
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Amidst market stagnation, margin compression, and evolving electric vehicle (EV) dynamics, auto dealers are employing strategic approaches to navigate tariff-driven cost increases and maintain profitability.
Dealers are grappling with the pressure of tariff pass-through as more vehicles subject to tariffs enter the market, requiring careful pricing strategies to avoid driving away price-sensitive customers. To "hide" or manage these price increases, dealers are using incentive adjustments and inventory management, rather than direct sticker price hikes, to soften the impact on consumers while preserving margins.
Despite a 0.4% increase in average transaction prices (ATPs) compared to May and a 1.2% increase from the same month in the previous year, dealer incentives remain steady, creating a potential profitability squeeze. In June 2025, the average new vehicle ATP was $48,907, while EV ATPs declined to $56,910, a 2.8% decrease year over year, with incentives reaching a record 14.8% of ATP or more than $8,400 per vehicle.
In response to these challenges, dealers are increasingly focusing on used electric vehicles (EVs) and certified pre-owned vehicles as promising growth areas. The disappearance of the Mitsubishi Mirage, for instance, is pushing more budget-focused customers towards certified pre-owned (CPO) or value trims. The Mitsubishi Mirage's ATP reached $18,484 in June, but production has halted, and only fewer than 1,700 units remain nationwide.
Used EVs and CPO vehicles represent significant opportunities for dealers. Growth in these segments can drive volume and profitability as demand for affordable EV choices expands, particularly since new EV prices remain high and inventory is increasing. Some dealers are also capitalizing on the growing used vehicle market for certain vehicle classes, gaining improved pricing power amidst market equilibrium trends.
Tesla's Model Y had its best month in 2025 with 25,095 deliveries in June. However, more tariffed products are entering the pipeline, raising concerns for the coming quarters. It remains unclear if the Model Y's price reflects the federal tax credit.
Cox Automotive forecasts July's seasonally adjusted annual rate (SAAR) at 15.6 million sales, slightly above June's 15.3 million but still down from 15.8 million a year ago. Dealers are expected to respond to the rising MSRP and the modest increase in transaction prices by reassessing pricing transparency and exploring how to position F&I products and loan term flexibility to preserve profitability as MSRP rises faster than ATP.
Moreover, the likely expiration of the $7,500 federal EV tax credit could benefit electric vehicle sales. Moody, executive editor at Kelley Blue Book, sees a growing opportunity in the used-EV market due to fast depreciation and generous warranties. He suggests that dealers are using strategies such as financing tools and cost distribution to avoid increasing prices noticeably for consumers.
In the face of these challenges, educating consumers on warranty transfers and the total cost of ownership could unlock new volume for electric vehicles. As average MSRPs continue to climb, the modest increase in transaction prices suggests businesses are absorbing more of the burden, according to Erin Keating, executive analyst at Cox Automotive.
In conclusion, dealers are balancing tariff-related cost pressures and margin compression by employing pricing incentives, managing inventory carefully, emphasizing used and certified pre-owned EV sales, and strategically adjusting price increases to preserve customer interest and business sustainability in a challenging market environment.
- As electric vehicles (EVs) dominate the industry, finance and banking-and-insurance sectors are undergoing significant changes to accommodate this shift.
- The manufacturing industry faces challenges in keeping up with the demand for EVs, as small-business entrepreneurs scramble to enter the automotive market.
- The growth of EVs in transportation is causing a shift in consumer lifestyle choices, with a focus on energy-efficient and eco-friendly options.
- Outdoor-living enthusiasts are increasingly turning to electric vehicles for their adventurous activities, as car-maintenance becomes less of a concern.
- In response, the home-and-garden industry is capitalizing on this trend, offering EV charging stations as a new product for consumers.
- The rise of EVs is also impacting the retail sector, as more stores cater to the needs of EV owners through the sale of EV accessories.
- Data-and-cloud-computing companies are partnering with automotive businesses to improve the efficiency and connectivity of electric vehicles.
- This leads to promising careers in the EV sector, as skilled professionals are needed to navigate the complexities of technology in the automotive industry.
- The shift towards electric vehicles also affects the way consumers shop, with a focus on online research and digital services.
- As the EV market evolves, the competition between dealers and small-business owners becomes even more intense, making it essential to stay up-to-date on trends and consumer preferences.
- With the growing popularity of electric vehicles, the traditional automotive business model may undergo major changes, calling for innovation and adaptability in the industry.
