'Don't sleep' on US EV market: 3 reasons for optimism in 2026
Sat, December 20, 2025 at 8:00 AM EST
It has been a challenging year for the US electric vehicle (EV) market, marked by the expiration of EV tax credits and other regulatory changes.
Despite these hurdles, TD Cowen equity analyst Itay Michaeli explains that there's still reason for optimism in the EV space in 2026 and beyond.
To watch more expert insights and analysis on the latest market action, check out more Market Catalysts.
Video Transcript
00:00
Speaker A
So I this year really felt like an important one for the electric vehicle industry, and not necessarily in a good way. In your view, have we seen a really fundamental change in the, not only the policy support, but also the consumer demand for electric vehicles?
00:30
Speaker B
Absolutely. Thank you for having me. In the near term, there's no question that the uh demand environment is going to be challenging. Companies generally expect EV adoption uh to equate to about 5 to 7% of new vehicle sales over the at least the very near term. But our message over the next couple of years is don't sleep on the US EV market. While the near term is is likely to be pretty difficult and there's not a whole lot of visibility over the next few months. There are a number of tailwinds that we still think are out there that do kind of provide a a more of an optimistic backdrop over the next couple of years. Um, so I think we're still optimistic in the next few years that EV adoption can can grow. And to your point, a lot of it will be driven as it has in the past, really by consumer demand as well as new product.
01:21
Speaker A
Okay, so you've got a couple of reasons to be optimistic. Let's go through them. Um, what do you see what are the indicators of consumer demand that you see that there still is that desire for EVs because we've seen hybrids really take off in a in a different way, in an accelerated way, but that hasn't necessarily been happening for the EVs and we've seen car makers pull back from their plans.
01:54
Speaker B
Absolutely. There's three reasons to be more optimistic over the next couple of years. One is let's not forget the US is a very dense auto market. We have on average about two vehicles per household, higher than than any other country. And so the burden of EV adoption is simply having more consumers kind of wake up and conclude uh that that you could have the best of both worlds. If one of your vehicles is is combustion or hybrid, and the other one uh an electric vehicle. If you were to start to see more consumers make those decisions, and we are seeing that in some regions in the US, you can model a very robust, you know, decade or more for US EV sales and still be left with a society that has one EV in the household and then one combustion or hybrid in the household as well. That's a very overlooked tailwind that we could have structurally as a country over the next few to several years. The second reason is that when you look at loyalty of of EVs, meaning what are current EV owners doing when they're coming back to market, they're still buying EVs at a higher clip than what we're seeing in other proportion systems including um hybrids. And so EV to EV loyalty uh being that high is a sign that we're not really seeing uh consumer regret or people kind of really turning back uh from their prior EV purchases. Once you buy an EV, it's pretty sticky. And the third reason really is product. Uh even though we have seen automakers pull back in the near term, uh we'll see probably even more restructuring actions. Uh there's still are a lot of investments in next generation products and we can't forget that EVs are innovating still at a pretty rapid pace where every generation is better and cheaper than the prior. So think of upcoming vehicles like the Rivian R2, of course Tesla Cybercab, uh even Ford, right, making their their mid-sized uh truck investment that will launch 2027 at a $30,000 or so starting price, and GM making their investments in next gen batteries and product as well. And within that, a final point is autonomy. You know, we are very bullish on consumer autonomy in the next few years, and autonomy does tend to kind of relate itself well with EVs. And so if autonomy does pick off at the consumer level in the next few years and and really kind of pick up, you're going to see uh potentially a tailwind to EV adoption off the back of that as well.
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