Consumers Seized the Opportunity of Peak Affordability in February

Based on CarGurus analysis, February appears to be the best time to purchase a used vehicle, as inventory typically reaches its peak before the tax sales season, leading to lower prices. This held true this February, with used vehicle inventory up 8.7% year-over-year (YoY) and prices reaching their lowest point since 2021 in mid-February. Consumers seem to have taken advantage of this situation, as the CarGurus Used Vehicle Demand Index increased 11.2% month-over-month (MoM) and 9.8% YoY. Even considering the additional selling day in February, the rise in demand was significant. So, are we finally witnessing a return of tax season demand?

It certainly appears so. The average tax refund increased by 4.3% to $3,213 through the week ending February 23, 2024, meaning consumers benefit from both lower-priced vehicles, rising incentives, and larger refunds. Additionally, those considering an electric vehicle (EV) can now receive their tax credit at the point of sale, further reducing their monthly payments. The only major remaining challenge is interest rates, which are expected to stay elevated into the second half of the year.

More Used EVs Now Fall Under $25k Tax Credit Cap, Bringing Relief to Consumers

In a welcome development for consumers, a larger portion of used electric vehicle (EV) inventory now qualifies for the used EV tax credit. This credit applies to "previously owned clean vehicles" purchased from licensed dealers "for $25,000 or less." At the end of February, 32% of all EV listings were under $25k, up from 16% at the same time last year. This represents a nearly 61% increase in the number of eligible used EVs.

For qualified consumers, this credit could reduce the average monthly payment by roughly $90 per month, making used EVs even more attractive. However, it is crucial to note that the used EV tax credit is only available once in the lifetime of the vehicle, which could influence the appeal of specific used vehicles in the future. For shoppers concerned about used EV depreciation, our analysis of EV valuation identifies the top factors influencing prices declines, along with the top models most likely to retain value.

Further Price Cuts Needed for New EVs to Spur Demand

The average price of new EVs has fallen by 8.2% over the past year, compared to a 1.3% decline for the broader market. This represents a seemingly strong correction. However, the price disparity between internal combustion engine (ICE) vehicles and EVs remains significant. The average list price for EVs sits at $62.4k compared to $47.7k for ICE vehicles, translating to a monthly payment premium of nearly $300 for EVs.

This price gap results in EVs spending considerably longer on dealer lots, with an average of 107 days’ on the market compared to just 76 days’ for ICE vehicles. This translates to an average new EV sitting for over a month longer than its traditionally powered counterpart. This extended duration, coupled with high interest rates and floorplan financing pressures, could potentially dampen dealer enthusiasm for stocking EVs.

Other key trends:

• The average monthly payment for a used vehicle remained relatively flat month-over-month at $572.
• New vehicle inventory continues its recovery from the semiconductor shortage, up 65.2% YoY to offer shoppers the largest selection of inventory since Jan. 2021. As inventory levels approach days' supply targets previously set by OEMs, time will tell whether we’ll see levels plateau.
• Among the new models experiencing the most significant YoY price increases, a mix of both commercial and light trucks are prominent. This suggests that consumers seeking utility vehicles will be facing higher prices.