Used EV supply set to skyrocket in 2026 after lease surge

Dealers are set to see a surge in electric vehicle lease returns starting in 2026, creating uneven supply dynamics as consumers continue to lease gas-powered vehicles in lower numbers.

Driving the news: J.D. Power’s latest intelligence report forecasts a glut of used EV inventory hitting the market over the next two years due to the recent surge in electric car leases.

• New EV leases were up 88% year-over-year by the end of last quarter after booming 355% over the course of 2023.

• This increase is being driven by manufacturer, dealer, and government incentives, which make EVs a cheaper option for leasees than buying out their current lease or leasing a gas-powered car. Leases have accounted for 30% of franchise and Tesla EV sales in 2024, up from 21% last year.

• At the same time, consumers are still leasing gas-powered cars less than they used to. While volume has improved since the pandemic, leases of internal combustion engine (ICE) vehicles were down about 600,000 units last year compared to the pre-2020 average of 3 million.

Looking ahead: There are some factors that could impact these trends over the next two years.

• Federal incentives, which are currently putting downward pressure on new and used EV prices, may disappear under the incoming presidential administration. This could reverse consumer interest in electric cars and boost demand for ICE cars.

• Battery health could also become a major deterrent for used EV purchases or leases, depending on the age or condition of the vehicle. With federal regulators currently requiring manufacturers to cover EV battery warranties for eight years or 100,000 miles, buyers may decide to avoid the used electric car market if they can’t find an affordable option with a warranty still in place.

Bottom line: Used EV supplies are due for turbulence, assuming trends continue to shift in favor of electric car leasing. Dealers should use the next year to prepare for a surge in off-lease EVs while closely watching ICE demand levels in their local markets.

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