The U.S. automotive industry closed 2025 with its best sales performance in six years, as Americans purchased approximately 16.3 million new vehicles despite economic uncertainty, elevated interest rates, and the expiration of electric vehicle tax credits. The milestone marks a significant recovery from the pandemic-era supply chain crisis—but industry analysts warn that 2026 may prove more challenging.

Final tallies from major automakers confirm that new vehicle sales rose nearly 2% from 2024, the first time the market has exceeded 16 million units since 2019's pre-pandemic peak of 17 million. The achievement came despite—or perhaps because of—the impending expiration of federal EV incentives, which pulled forward significant demand into the third quarter.

How the Year Unfolded

The 2025 auto market can be understood as a tale of two halves, with the EV tax credit expiration serving as the dividing line.

First half: Sales proceeded at a measured pace as consumers contended with elevated borrowing costs. The average new car loan rate exceeded 8% for much of the year, pricing many potential buyers out of the market. Dealers reported slower foot traffic compared to 2024.

Third quarter surge: The Trump administration's "One Big Beautiful Bill," which eliminated the $7,500 federal EV tax credit effective October 1, triggered a rush of electric vehicle purchases. Q3 became the best quarter for EV sales in U.S. history as buyers scrambled to claim the credit before it disappeared.

Fourth quarter decline: As expected, EV sales collapsed after the tax credit ended. Tesla, Rivian, and other manufacturers saw sharp sequential declines. Traditional internal combustion and hybrid vehicles partially offset the EV weakness.

Winners and Losers

The competitive landscape shifted meaningfully during 2025:

General Motors: The Detroit giant is expected to finish as the top-selling U.S. automaker with over 2.8 million vehicles, a year-over-year increase exceeding 5%. Strong truck and SUV demand, particularly for the Silverado and Tahoe, powered GM's gains.

Toyota: The Japanese manufacturer maintained its position as the leading foreign brand, with hybrid models proving particularly popular as consumers sought fuel efficiency without full EV commitment.

Hyundai/Kia: The Korean duo posted record U.S. electrified vehicle sales, with hybrids up 36% and accounting for a third of total sales. Their ability to offer electrification across price points resonated with value-conscious buyers.

Tesla: Despite the stock's strong performance, Tesla's vehicle deliveries declined for the second consecutive year. Fourth quarter deliveries of 418,227 fell 15.6% from the prior year and missed Wall Street expectations. The company acknowledged that consumer backlash to Elon Musk's political activities affected sales.

Stellantis: The parent of Jeep, Ram, and Chrysler struggled throughout 2025, with inventory buildup and steep discounting pressuring profitability. The company announced significant restructuring in the fourth quarter.

The EV Market Transformation

Electric vehicles captured significant market share before the tax credit ended but face an uncertain future without federal support. Key developments include:

  • China's BYD overtakes Tesla: For the first time in a full year, BYD sold more all-electric vehicles globally than Tesla (2.26 million vs. 1.64 million), though most BYD sales occur in China
  • Hybrid resurgence: Plug-in hybrid and traditional hybrid sales accelerated as consumers sought electrification without range anxiety or charging infrastructure concerns
  • New entrants struggle: EV startups including Fisker entered bankruptcy, while Rivian and Lucid continue burning cash
  • Chinese manufacturers blocked: Despite their competitive products, Chinese automakers remain effectively locked out of the U.S. market by tariffs exceeding 100%

The EV transition continues, but 2025 demonstrated that it will be neither as fast nor as linear as early enthusiasts predicted. Without tax credits, electric vehicles must compete on price and utility alone—a higher bar for most current offerings.

Pricing and Affordability Concerns

Despite strong overall sales, affordability remains a significant industry concern. The average new vehicle transaction price exceeded $48,000 in 2025, down slightly from 2024's peak but still roughly 30% higher than pre-pandemic levels.

Several factors contribute to the affordability challenge:

  • Interest rates: Auto loan rates near 8% add hundreds of dollars to monthly payments compared to the near-zero rates of 2020-2021
  • Extended loan terms: To make payments manageable, many buyers now finance vehicles over 72 or even 84 months, paying substantial interest while building negative equity
  • Insurance costs: Auto insurance premiums have risen over 60% since 2020, adding a significant ongoing expense
  • Repair costs: Parts shortages and technology complexity have pushed repair costs higher, affecting total cost of ownership

These pressures are pushing more buyers toward used vehicles, leasing, or delayed purchases, trends that could intensify in 2026.

The 2026 Outlook

Cox Automotive, the industry's leading forecaster, projects new vehicle sales will decline approximately 2.4% in 2026 to 15.8 million units. Several factors support this cautious outlook:

Economic headwinds: GDP growth is expected to slow, with some economists forecasting a mild recession. Job creation has weakened substantially from 2024 levels.

No EV incentives: The absence of federal tax credits removes a significant purchase motivator for electrified vehicles

Tariff impacts: Even vehicles assembled in the U.S. contain imported components subject to elevated tariffs, potentially pushing prices higher

Credit tightening: Banks have become more selective in auto lending, with subprime approval rates declining

Fleet replacement complete: Much of the pent-up demand from the supply chain crisis has been satisfied

What Investors Should Watch

For investors in automotive stocks, 2026 presents a mixed outlook:

Traditional automakers (GM, Ford): Truck and SUV strength provides earnings support, but EV investments continue consuming capital. Dividends appear sustainable but growth is limited.

Tesla: The stock trades on factors beyond vehicle sales, including AI, robotics, and energy storage. Vehicle deliveries may decline further without equivalent offerings to competitors' hybrids.

Suppliers: Auto parts manufacturers face pressure from both volume declines and the industry's EV transition, which requires different components

Dealers: Publicly traded dealer groups like AutoNation and Penske benefit from service revenue and used vehicle sales, providing some insulation from new car weakness

The Global Context

The U.S. auto market's strength contrasts with challenges elsewhere. European sales remain well below pre-pandemic levels, constrained by emission regulations and economic weakness. China's market is fiercely competitive, with domestic manufacturers grabbing share from foreign brands.

This divergence has strategic implications. American automakers are focusing resources on their most profitable home market while international competitors seek growth wherever they can find it. The result may be a more fragmented global industry with regional champions rather than true multinationals.

The Bottom Line

The U.S. auto industry's 16.3 million sales in 2025 represent a remarkable recovery from pandemic disruption and demonstrate the enduring American appetite for new vehicles. But the achievement came with help from one-time factors—particularly the EV tax credit expiration that pulled forward demand—that won't repeat in 2026. With economic growth slowing, borrowing costs elevated, and no new incentives on the horizon, the industry faces a more challenging year ahead. Investors should expect continued volatility in auto stocks as these crosscurrents play out.