As Fall arrives throughout the U.S., the leaves have begun to fall and temperatures has started to cool, a trend not limited to just the weather. The auto market has experienced a significant, though anticipated, slowdown in October, as the expiration of federal electric vehicle (EV) tax credits triggered a sharp decline in sales. According to a joint forecast from J.D. Power and GlobalData, total new-vehicle sales are projected to fall 6.9 percent year-over-year.
This decline, largely driven by the drop in EV market share, offers a clear view into the current state of consumer affordability and the impact of government policy. The rest of the year will serve as a crucial test for the EV market’s organic demand and a preview of the challenges awaiting dealerships in 2026.
The EV Pull-Ahead Reverses
The primary story of October is the dramatic contraction in EV sales. After a record-breaking September where EVs accounted for 12.9 percent of all new-vehicle retail sales, their share plummeted to just 5.2 percent in October. This was an expected consequence of the federal EV tax credits expiring on September 30, which had caused a significant “pull-ahead” effect as shoppers rushed to complete their purchases before the deadline.
“On a volume basis, EVs account for 1.0 million of the 1.2 million-unit decline in the industry sales pace compared with a month ago,” said Thomas King, president of the data and analytics division at J.D. Power. “Despite the sharp deterioration in EV sales, the decline could have been worse. Actions by multiple manufacturers to reduce EV prices and increase discounts to offset the loss of the federal credit are helping to maintain EV affordability, thereby preventing an even larger decline in EV sales.
The average incentive on an EV rose to $13,161 in October, an increase of over $2,000 from both the previous month and the prior year. As King mentioned, this quick action helped prevent an even more severe sales drop, but it highlights the market’s current reliance on incentives to drive EV adoption.
Affordability Challenges and Market Shifts
Beyond the EV segment, broader affordability issues continue to shape the market. The average retail transaction price for a new vehicle is expected to reach $46,057 in October, a 2.2 percent increase from a year ago. Paired with elevated interest rates, this has pushed the average monthly finance payment to $758, a record for the month of October.
Consumers are responding to these high costs by seeking longer loan terms. Financings of 84 months or more are projected to account for 11.8 percent of all financed sales, one of the highest levels on record for the month. This trend allows buyers to lower their monthly payments, but it also increases the total cost of borrowing and the risk of negative equity down the road.
Interestingly, the decline in EV sales had a positive effect on retailer profitability. Since EVs typically generate lower profit margins for dealers than internal combustion engine (ICE) vehicles, the shift in sales mix contributed to an increase in total retailer profit per unit to $2,295.
Consumer Preferences and Powertrain Dynamics
The expiration of EV credits has also revealed underlying consumer preferences. With EVs becoming more expensive overnight, attention has shifted toward traditional hybrids (HEVs). Hybrid market share is projected to reach 14.2 percent in October, a near all-time high and a 2.0 percentage point increase from a year ago. All while plug-in hybrids also saw a decline.
“While hybrid growth is encouraging, the recent EV market correction underscores a critical lesson: consumers prefer having access to a range of powertrain options that deliver comparable value,” said Tyson Jominy, senior vice president of data & analytics at J.D. Power. “A singular focus on any one technology—be it EVs or hybrids—risks repeating past missteps. A diversified strategy that embraces multiple powertrain solutions will be essential to meeting evolving consumer preferences.”
Looking Ahead to the Holiday Season
As the industry moves into the traditionally busy holiday sales season, all eyes will be on manufacturer incentive strategies. November typically marks the beginning of year-end sales events featuring enhanced promotional activity. However, with restrained incentive spending throughout 2025, particularly on non-EV models, it remains to be seen how aggressively automakers will push to clear inventory.
Compounding the challenge is a significant reduction in lease maturities. The number of leases set to expire in November and December is nearly 15 percent lower than in 2024, meaning fewer consumers will be automatically returning to the market. With tariff-related cost pressures and ongoing affordability concerns, manufacturers must carefully balance profitability with the need to stimulate demand. For now, the data points toward a conservative approach, suggesting a modest end to a volatile year for the auto industry.
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