An anti-EV narrative is emerging around battery electric vehicles in the U.S.: “the market is slowing” and “the EV tipping point is years away and may never arrive.”
Like many narratives, there’s an element of truth. EV sales aren’t increasing as quickly as a few years ago. And there are headwinds with the removal of some federal incentives that were pushing EV sales and charging infrastructure. But this misses a larger point we see in the McKinsey Center for Future Mobility’s annual Consumer Pulse survey. There is a lot of strength in the EV market, especially if you include transition vehicles like plug-in hybrids and extended-range EVs (EREVs).
A Dynamic EV Market
What do the sales say? In the first quarter of 2025, automakers sold 374,841 electric vehicles in the U.S., including battery-electric vehicles (BEVs), plug-in hybrid (PHEV), and fuel-cell electric vehicles. That was 9.6 percent of the overall light-vehicle market. The two quarters before that, EV sales eclipsed 10 percent of the market. Year over year, EV sales increased by 9 percent, compared with a 5.6 percent for overall car sales.
This was a slower increase than the last few years, to be sure. In 2021, the EV market nearly doubled. In 2022 and 2023, it grew by 62 percent and 35 percent. On the other hand, just five years ago, EV market share was 2 percent. Now it’s 10 percent.
There are headwinds. U.S. automakers continue to struggle with making EVs profitable. Consumer EV subsidies will end Sept. 30. In the short term, we’re seeing a bump in sales as consumers who were on the fence rush to buy before the deadline. Over the longer term, there is going to be far less government support and funding for public infrastructure. That’s a challenge, but it also may make it more straightforward for private investors. Improving availability and reliability of public chargers will be up to them alone.
Slowdown Now, Growth Coming
Yet, even with the US slowdown, the International Energy Agency predicts EVs will account for 40 percent of global auto sales by 2040, versus 20 percent in 2024. As longtime auto journalist Mike Colias says in his new book, “InEVitable: Inside the Messy, Unstoppable Transition to Electric Vehicles,” the forces pushing legacy automakers toward electrification – Tesla and the Chinese – aren’t letting up.
“As messy as the EV story is today, automakers can’t afford to rip up their EV strategies,” Colias says.
Perhaps the biggest determinant if EV momentum will see a resurgence is the availability of much more affordable EVs (like we see e.g., in China). Given the still high battery cost this is difficult, and with the subsidies going away that challenge just got bigger.
An important question is what’s next? Will the electric vehicle market forever be a niche, or is slowing sales growth a mere bump in the road?
According to our models, the U.S. policy changes will slow down rather than stop the shift to electric vehicles. We think the adoption curve could be pushed out by five years or more. Recent regulatory changes also give U.S. automakers more time to get EVs profitable and more powertrain flexibility to focus on hybrids, plug-in hybrids, and extended-range EVs. They will need to be adaptable, and they will need to spread capital investments across multiple electrified powertrains with flexible platforms.
The McKinsey Consumer Pulse survey, which hails from our Center for Future Mobility, has some other important information for the industry trying to adapt to the new landscape. We have been polling consumers going back to 2016 to measure how attitudes are changing each year. This year’s survey included about 26,000 car owners around the world. What we’re seeing should give confidence to those who are rooting for more electrification.
First, there’s not a lot of backsliding among people who actually own BEVs. More than three-fourths of BEV owners say their next car will be battery-electric. Of the 24 percent who say they’ll switch, 5 of 8 say they’ll go with a plug-in hybrid, not gasoline. Only 1 percent say they’ll never go back to electric.
Second, while the growth of the overall EV market is slowing in the U.S., results vary widely by region. In California, Washington and Oregon – states where there have been major investments in infrastructure – EV adoption rates are on par with Europe. Other states on the East and West Coasts are seeing much more rapid EV adoption. For example, 19 percent of Maryland vehicle owners say their next car will be a BEV, even though the electric-vehicle market share is just north of 12 percent today.
By contrast, there are some states with a larger rural population mix where fewer than 4 percent of consumers say their next vehicle will run on batteries alone. This underscores the huge difference between urban, suburban, and rural consumers. Overall in U.S. urban areas, 51 percent say their next vehicle will be BEV or PHEV. In rural areas, it’s 18 percent.
A third differentiator is age. The younger the consumers, the more likely they will shift to electric soon. For Gen Z, 47 percent say they’ll buy a BEV or PHEV next. For Millennials, it’s 45 percent. It drops to 22 percent for Generation X and 21 percent for the Baby Boomers.
PHEVs Play an Important Role
The most important finding may be the role that PHEVs are playing in the electric transition. Because of their smaller battery packs, they’re cheaper than BEVs. And since they run on gasoline when their EV-only miles are used up, there’s no range anxiety. But this taste of battery power acts like a gateway drug. Once they realize battery power can meet most of their needs, they keep going. Households that were holding onto a second, gasoline-powered car are ready to give it up for their next vehicle.
Another class of vehicle that may serve as a bridge is known as an extended-range EV, or EREV. These are similar to PHEVs, but instead of having an engine that can put the vehicle in motion, an EREV’s gas engine serves only as a generator to charge the battery pack. EREVs like the Ramcharger are coming to the U.S., with more electric-only range and total driving range than a typical PHEV. In China, where they’re more common, twice as many consumers say their next vehicle will be an EREV than say they’ll buy a conventional gas-powered vehicle.
The biggest determinant of EV sales over the long term will depend on the availability of much more affordable electric vehicles, the kind that are available in China today. For now, U.S. automakers will breathe a sigh of relief, gaining several years, and at least one product cycle more, to make EVs more profitable. They also know there is increasing risk of falling further behind Chinese OEMs who now sell more than 50 percent ‘new energy vehicles’ domestically and are building massive capacity for global EV exports with high tech content per vehicle at affordable prices.
The EV Market is Evolving
What’s the bottom line? The full picture isn’t one of a stagnant U.S. market. It’s one of a market that is changing in significant ways. Key states and regions are already at the tipping point for EVs while others will continue to be slow to adopt. Important demographics like urban and young consumers are going electric. If PHEVs and EREVs become more common, that taste of electrification may accelerate changing attitudes and expectations.
Beyond the market slowdown and the removal of incentives, we can see signs of continued movement toward hybridization and electrification. It confirms what we have long known: consumers still have plenty of voice in the market’s actions.
Philipp Kampshoff is a senior partner and global co-leader of McKinsey’s Automotive & Assembly practice, based in Houston, and Patrick Hertzke is a partner and co-leader of McKinsey’s Center for Future Mobility, based in Boston.