Will EV Stocks Make a Comeback in 2026?

**Travis Hoium** (0:02)
Do we have a new winner in the EV market? Motley Fool Hidden Gems Investing starts now.
Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoium, joined today by Lou Whiteman and Rachel Warren. And before we get started, I actually want to mention that we have the SpaceX IPO coming out later this week. And we're going to be covering that on Breakfast News. If you are not getting that, you can go to news.fool.com, get that in your inbox every morning. Big highlight of the SpaceX coming out Thursday morning. But now on to our regularly scheduled topic, that is electric vehicles. Guys, we don't talk about electric vehicles nearly as much as we did a couple of years ago. A lot of different changes in the market from incentives to the amount of competition in the market. But we did get some news yesterday. Rivian is actually starting to sell the R2. So, I wanted to kind of dive into what's going on in this EV market because this is where there potentially could be some hidden gems for investors because some of these stocks are pretty beaten up from their all-time highs.
Rachel, does the EV market still have growth after some of these tax changes? And what's sort of the competitive dynamics there? Because I want to get kind of an overview of what's going on. This is no longer just a Tesla-centric market anymore.

**Rachel Warren** (1:23)
Yeah, that's very much the case. And it's interesting some of these dynamics as we've seen a shift to consumers leaning towards used versus new EVs. And I'll dive into that a bit. I think the shift from the federal incentive structure has had more of maybe a trickle-down effect than some would have thought. I mean, this idea of transitioning from a one-time point of sale credit to a multi-year loan interest deduction, obviously it applies to multiplicity of vehicles, not just EVs, but we're going to focus on the EV market here. You've got a $10,000 annual tax deduction on American-made auto loan interest. It offers long-term savings for certain brackets, but obviously, as a buyer, you have to have the upfront capital or credit to absorb that initial purchase price.
When the federal government ended the $7,500 point of sale credit for new EVs, obviously this created a dynamic where these cars became a lot more expensive for a lot of average consumers. Now, what's been really interesting to look at is how we're seeing growth in the used EV market. Obviously, these are vehicles that will have already absorbed that massive first-year depreciation that we tend to see. There's an upfront discount built into the sticker price.
For manufacturers, it's created a bit of a bifurcated market. You've got tech forward or premium brands that can leverage these shifts, but a lot of the legacy manufacturers are maybe going to be struggling to lower some of their retail prices fast enough to keep pace. One final thing I'll note, early adopter EVs leased or bought in recent years are now hitting the used market in massive numbers. That means that secondary market supply is very high, and in some cases, it could drive used EV prices down to near parity with traditional gas cars if we look ahead the next five years or so. I also think as these early generation EVs, they lease out, they flood the secondary market. There's a question, could this cannibalize new car demand? That we will have to see.

**Travis Hoium** (3:15)
Yeah, Lou, it's really interesting to see the competitive dynamics in this space. And we've been looking at the industrials in the auto industry for a very long time. But if you just look at the number of new EVs sold, it seems like the tax credit ending did impact sales starting in the fourth quarter, as you would naturally think, of 2025 when that rolled off.
216,000 units according to Cox Automotive, that's down from about three or four years ago. And the numbers are essentially flat over that period of time. So there has not been this huge adoption curve at the same time. And I think this is what's really interesting as we look at this from an investment perspective. I just pulled the number of electric vehicles in the SUV category. And there's now with the R2, that puts us at 20 competitors in the market. Five years ago, there was essentially two. It was either you get a Model Y or a Model 3

**Lou Whiteman** (4:12)
Yeah, I will forever wonder how much of the drop-off is due to the tax credit and how much of it is just every all the early adapters got theirs. And it's just not a mainstream product yet. But that's sort of what the R2 is trying to solve. In theory, they are trying to become kind of the Subaru of the EV market.