Are you wearing your seatbelt?
The EV market is in for a “roller coaster ride” in the coming months thanks to a bevy of federal policy changes, according to Cox Automotive Chief Economist Jonathan Smoke. And that’s on top of tariff-driven disruptions that are likely to upend the new-vehicle market in the second half of the year.
“Now we face the risk of cooling demand, as rates remain high and are unlikely to go lower, while uncertainty for world peace, inflation, interest rates, and the end game for tariffs remains incredibly high,” Smoke said during a presentation Wednesday. “We also have seen steps taken that will lead to a roller coaster ride for EV sales over the next nine months, as policy changes remove tax credits and emission targets are dialed back.”
Reality sets in: The anticipation of tariff-induced price increases drove consumers to lock in new-vehicle purchases, sending sales surging in March and April. Sales showed signs of cooling in May—and that’s likely to be the story for the rest of the year.
“The impact of tariffs have not yet been felt, and that will change in the second half of this year,” Charlie Chesbrough, senior economist at Cox, said. “We expect the sales pace to slow as fewer summer buyers remain after a frenzied spring, and the high prices and tight inventory grows as a headwind in the fall.”
Analysts have repeatedly warned that the Trump administration’s trade policies, particularly 25% tariffs on imported vehicles that went into effect in April, are likely to lead to higher prices, lower production, and slower sales.
Cox’s June forecast estimates a seasonally adjusted annual rate of 15.3 million sales, down from 15.6 million in May and 17.5 million in March and April. Q2 sales are expected to be 1.7% higher YoY, but June sales are estimated to be down more than 6% YoY.
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Cox’s baseline forecast now calls for 15.7 million sales this year, down from last year’s 15.9 million and its original forecast of 16.3 million.
Headwinds: Cox now expects EVs to make up 9% of the new-vehicle sales, down from its previous estimate of 10%. Preliminary Q2 numbers suggest that EV sales were down 6% YoY, largely due to Tesla’s sales decline.
“One of the most pressing headwinds is policy uncertainty. The Inflation Reduction Act has played a pivotal role in accelerating EV adoption, particularly through tax credits and leasing incentives,” Stephanie Valdez Streaty, Cox’s director of industry insights, said. “However, many of these benefits are set to phase out or become more restrictive in the coming years. This looming expiration could dampen consumer enthusiasm and slow the pace of adoption, especially among price-sensitive buyers.”
Also significant for the EV sector: Republican lawmakers’ challenge to California’s ability to set its own emissions standards. Valdez Streaty said that if California loses this authority, it’ll have major implications for automakers that have made product plans around the state’s more aggressive EV targets.
Despite these challenges, Valdez Streaty pointed to a silver lining: a new wave of EV models hitting the market. In 2020, she noted, there were only 17 models. There are now 75, with more on the way.
“While this growing diversity is a clear sign of market maturity and a win for consumers, offering more choices across price points and lifestyles, it also presents challenges for automakers,” she said. “Ramping up production across so many models can strain supply chains and delay profitability. Even so, the broader takeaway remains positive: More consumers than ever can now find an EV that fits their lifestyle, budget, and brand preference.”