Used EVs under $25,000 propel sales even as new models languish

Used electric-vehicle sales strengthened in Q4 2025 as affordability and growing supply from expiring leases drove nearly 89,000 used EV transactions (up 13.5% year-over-year) and inventories turning over in about 50 days, slightly faster than gasoline cars. New EV sales tumbled 36% in the same quarter, while roughly 40% of used EVs sold for under $25,000; depreciation has been steep (e.g., Nissan Leaf down ~70% to ~$12,000) and 2.5 million EVs from 2023–24 are now entering the used market. Analysts highlight lower operating costs, multi-year battery warranties and younger/mileage advantages for used EVs, suggesting the mature secondary market may bolster longer-term demand for electrified vehicles.

Analysis

Market structure: The used-EV surge (≈89k units in Q4 2025, +13.5% YoY) reallocates value toward dealers, aggregators and captive-finance balance-sheet managers who monetize rapid turnover (~50 days). Winners: margin-stable public dealers (CarMax, Lithia), online marketplaces with scale in reconditioning and warranties; losers: smaller franchised new-car dealers, loss-making EV startups reliant on retail ASPs and residual-value assumptions (new EV sales -36% Q4). Pricing power shifts from OEM new-vehicle pricing to used-vehicle arbitrage and certified-preowned finance economics.

Risk assessment: Tail risks include a systemic battery-recall or accelerated degradation event that could wipe 20-40% of used-EV values, and tightening in auto ABS spreads that would raise funding costs for used-vehicle purchases. Near-term (days–months): watch lease-return cadence and used-inventory days; medium (3–12 months): ABS spreads and OEM Qs calling out residual adjustments; long-term (3–5 years): a mature used market supports adoption but compresses new-vehicle margins. Hidden dependency: OEM captive finance exposure to residual mismatches and subprime used-loan delinquencies.

Trade implications: Tactical longs: scaled exposure to large used-car retailers (KMX, LAD) and aftermarket warranty providers for 6–12 months (2–3% NAV each). Tactical shorts/hedges: select new-EV OEMs with negative free cash flow and heavy retail exposure (RIVN, LCID) via 3–6 month put spreads sized 1–2% NAV. Options: buy 3–6 month KMX/LAD calls or sell covered calls on existing positions to monetize low implied volatility; hedge with auto ABS or IG credit protection if entering larger positions.

Contrarian angles: Consensus prizes raw new-EV volumes but underrates residual-driven OEM pain; used-EV normalization may mean lithium/commodity demand growth slows near-term—avoid long commodity miners (LIT exposure) until new-vehicle orders re-accelerate. Mispricing exists in dealer equities with clean balance sheets versus overowned speculative EV names; watch metrics (used-EV median sale price < $25k, QoQ move >10%) as trigger to rotate capital.

Key Decisions for Investors

• Establish a 2–3% long position in CarMax (KMX) or Lithia Motors (LAD) over 6–12 months to capture rising used-EV volume and higher gross margins; size add-ons if used-inventory days remain ≤60 and used-EV sales growth stays >10% QoQ.
• Put on a 1–2% NAV short via 3–6 month put spreads on Rivian (RIVN) or Lucid (LCID) to express downside if new-EV retail demand and ASPs remain weak; target breakeven if new EV sales stay down ~30–40% YoY.
• Buy 6-month call spreads on KMX/LAD (or long single-stock calls if liquidity allows) sized 1% NAV to retain upside with defined risk; exit or roll down if used-EV median price falls >10% QoQ or ABS spreads widen >50bps.
• Reduce discretionary exposure to pure-play lithium/miner ETFs (e.g., LIT) by 25% until OEM orderbooks or incentive policy flags indicate renewed new-EV demand; monitor OEM guidance and global lithium spot price moving >+20% as re-entry signal.