J.D. Power says the US EV market is about to be flooded with affordable vehicles in 2026 as leases expire and uncertainty grows about battery health and tax credits.

Leasing plays an important role in the EV market, but countless leases are set to expire in 2026. As a result, J.D. Power says returning EV lease volumes will jump 230% in 2016.

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.

Another factor impacting the market favorably is the dropping price of EVs, with the average price of a new vehicle dropping $12,700 to an average of $35,900. In addition, the average value of a returning SUV EV is $29,645, which is outside the threshold of the $25,000 EV tax credit threshold.

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.

The final factors leading to the glut of EVs is uncertainty in the market, including concern regarding battery longevity.

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.

Ultimately, when taking the above factors into consideration, consumers looking to purchase an affordable EV would do well to wait until 2026.