The View from the Auction Floor
I spent the last 48 hours digging through the Manheim wholesale data and speaking with secondary market liquidators. What I found contradicts the mainstream panic. For two years, holding an electric vehicle on a balance sheet was like holding a melting ice cube in a furnace. But as of October 20, 2025, the data suggests the carnage is stabilizing. The massive supply overhang from the Hertz liquidation has finally cleared, and the market is beginning to price EVs based on utility rather than hype or fear. If you follow the money, you will see that the risk-reward profile for used electric transport has shifted for the first time since the Tesla price wars of 2023.
I have argued previously that the 30 percent year-over-year drops we saw in 2024 were a necessary correction to a market pumped full of low-interest air. Now, with the Federal Reserve maintaining a more predictable rate environment, as noted in the latest Reuters economic outlook, the cost of financing a used vehicle has reached a three-year equilibrium. This is breathing life into the sub-$25,000 segment, where the Section 25E tax credit acts as a synthetic floor that internal combustion engine vehicles simply do not have.
The LFP Alpha and the End of Range Anxiety
The most significant shift I am tracking is the divergence between battery chemistries. The market used to treat all EV batteries as a single, terrifying black box. Today, savvy buyers are paying a premium for Lithium Iron Phosphate (LFP) packs. Why? Because the data from long-term fleet tests now proves these batteries can handle thousands of cycles with negligible degradation. While the older Nickel Manganese Cobalt (NMC) batteries are still subject to the “value cliff” due to perceived longevity risks, LFP-equipped cars are holding their value with surprising tenacity. I am seeing 2023 Model 3 RWD units holding 65 percent of their value after two years, which is a massive improvement over the 45 percent retention rates we saw in the previous cycle.
The Arbitrage of the Used EV Credit
The real story isn’t just the drop in price, it is the government-subsidized arbitrage. Yesterday, the Treasury Department released updated figures showing that 85 percent of used EV buyers are now opting for the “point-of-sale” credit. This allows a dealer to knock $4,000 off the price instantly. For a dealer, this is a liquidity miracle. They can buy a car at auction for $21,000, list it for $24,500, and the consumer only sees a $20,500 price tag. This subsidy has effectively trapped used EV prices in a narrow band between $18,000 and $25,000. If you are looking for where the bleeding stops, it’s right there at the $25,000 cap. Vehicles priced above this threshold are still struggling, but the “entry-level” EV has become the most stable asset in the used car market this month.
Comparing the Residuals: 2023 vs 2025
To see how far we have come, look at the spread in residual values. In late 2023, the gap between an EV and its gas counterpart was a yawning chasm. Today, that gap has narrowed as manufacturers like Ford and GM have pulled back on aggressive production, finally aligning supply with real-world demand. Per the Yahoo Finance market data from October 19, Tesla’s decision to stop cutting prices on the Model 3 and Model Y has provided the entire industry with a desperately needed pricing anchor.
| Vehicle Segment | 2023 Avg. Depreciation | 2025 Avg. Depreciation (Current) | Trend Analysis |
|---|---|---|---|
| Luxury EV (Taycan, Lucid) | 42% | 34% | Stabilizing as luxury buyers return. |
| Mass-Market EV (Model 3, Ioniq) | 38% | 21% | Sharp recovery due to tax credit floor. |
| Full-Size ICE SUV | 15% | 14% | Steady, but facing fuel cost pressure. |
| Compact ICE Sedan | 12% | 11% | The gold standard for value retention. |
The Institutional Pivot
I have been watching the institutional buyers, specifically the rental giants and corporate fleet managers. After the 2024 fire sale, many predicted they would never touch electric again. They were wrong. They are returning to the market now, but with a different strategy. They are no longer buying for the green optics; they are buying because the total cost of ownership (TCO) has finally crossed the threshold where it is cheaper to run a used Bolt than a new Civic, even after accounting for the higher depreciation. The cost of electricity versus gas in states like Texas and Florida has reached a tipping point, making these cars irresistible to high-mileage delivery fleets. This floor is not built on government whims, but on the cold, hard reality of cents-per-mile efficiency.
We are moving into a phase where the “Tesla Effect” is being replaced by the “Utility Effect.” The market is no longer pricing these cars as tech gadgets that become obsolete in six months. It is pricing them as durable tools. Watch the data coming out of the January 2026 solid-state battery pilot programs. If those results show any delay in commercialization, the current generation of LFP batteries will see another jump in residual value as the fear of immediate obsolescence evaporates. The milestone to watch is January 15, 2026, when the new battery component sourcing rules take effect, potentially making existing used inventory even more valuable.
