The U.S. automotive market is poised for its strongest performance in years, with new vehicle sales expected to climb to levels not seen since 2019. Industry analysts predict an upswing in 2025, driven by improving affordability, lower interest rates, and a gradual normalization of vehicle inventories following years of supply chain disruptions and inflated prices.
Cox Automotive projects that new light-duty vehicle sales will reach 16.3 million units in 2025, slightly ahead of forecasts from S&P Global Mobility and Edmunds, which predict sales of approximately 16.2 million. These estimates represent a modest increase from this year’s expected range of 15.9 million to 16 million units, and they mark a significant rebound from recent lows, though still shy of the 17 million vehicles sold in 2019.
Jessica Caldwell, chief insights officer at Edmunds, noted that while consumers are still feeling economic pressures, the market is becoming more accessible for buyers. “The market has become a slightly friendlier place for car shoppers than it was at the start of the year,” she said on Tuesday.
Entry-level vehicles and affordability take center stage
One of the most promising areas of growth is expected to be entry-level and budget-friendly vehicles. Since the onset of the COVID-19 pandemic, the auto industry has grappled with high prices and limited inventories, leaving many buyers priced out of the market.
Edmunds reported that the average transaction price for a new vehicle in 2024 was $47,465, down slightly from $47,851 in 2023 but still a staggering increase of 27.2% from $37,310 in 2019. The trend toward more affordable vehicles is expected to help drive sales growth, particularly among customers who have been waiting for prices to come down.
Electric vehicles continue to gain traction
Electrified vehicles, including hybrids, plug-in hybrids, and fully electric models, are also expected to see substantial growth in 2025. Analysts forecast that all-electric vehicle sales in the U.S. will set another record in 2024, with total sales nearing 1.3 million units. This would account for roughly 8% of the market, up from 7.6% last year, though still below the initial 10% target for the year.
Tesla, the dominant player in the EV market, is projected to experience its first year-over-year decline in market share since 2014. Despite this, Tesla’s Model Y and Model 3 remain the top two best-selling EVs. According to Stephanie Valdez Streaty, director of Industry Insights at Cox Automotive, Tesla’s share of the EV market has dipped below 50%, as competition from other automakers intensifies.
“The top three manufacturers are Tesla, Hyundai Motor Group, and General Motors,” Valdez Streaty said. “GM posted the largest market share increase year-over-year, while various new models collectively chipped away at Tesla’s dominance.”
Cox Automotive anticipates that by 2025, about 25% of all new vehicle sales will be electrified, with fully electric vehicles accounting for more than 10% of the market. However, the growth of EV sales could be hampered if federal tax credits of up to $7,500 for electric vehicle purchases are eliminated, a policy change promised by President-elect Donald Trump.
Policy uncertainty under Trump administration
Regulatory and trade uncertainties ahead of Trump’s inauguration in January could have significant implications for the U.S. automotive market. In particular, Trump’s proposals to impose tariffs of up to 25% on vehicles imported from Canada and Mexico could disrupt production and supply chains, potentially reshaping the market.
Jonathan Smoke, chief economist at Cox Automotive, described the possibility of such tariffs as a “radical disruption” to the industry. However, he also expressed optimism that any major policy changes would take time to implement and could create short-term boosts in demand.
“With tariffs, we assume no significant new policies will be enacted immediately,” Smoke said during a virtual briefing on Tuesday. “If changes do occur, they are likely to take time, and any near-term impact could stimulate demand as consumers rush to make purchases ahead of potential price increases.”
Pricing pressures and automakers’ earnings
While higher vehicle sales are generally good news for the industry, analysts caution that automakers’ earnings could take a hit next year due to increasing incentives, rising inventories, and declining transaction prices.
“Pricing is reaching unsustainable levels,” Wells Fargo analyst Colin Langan noted in a report on Monday. He pointed to growing dealer inventories and rising incentives as signs that automakers are facing pressure to lower prices, a trend that benefits consumers but weighs heavily on profit margins.
Despite prices remaining near record levels, growth has slowed, signaling a shift in market dynamics. For buyers, this is welcome news, as vehicles become more affordable after years of inflated pricing. For automakers, however, the reduced pricing power may lead to tighter margins and increased competition.
Looking ahead
As the U.S. auto market enters 2025, it faces a mix of opportunities and challenges. Improving affordability and rising inventory levels are expected to drive higher sales, while the growing adoption of electric vehicles continues to reshape the industry’s landscape.
However, regulatory uncertainties under the incoming Trump administration, coupled with pricing pressures and shifting consumer preferences, could create turbulence for automakers in the months ahead.
For now, the industry is cautiously optimistic, with analysts predicting that 2025 will mark a new high point for vehicle sales since the pandemic disrupted the market—though not without its share of obstacles to navigate along the way.
