Against the Current: The Looming U.S. EV Comeback

What You Need to Know:

• EV sentiment in the U.S. appears to be bottoming, with demand growth possible sooner than expected (2027–2028).
• The prevailing bear case is flawed, as today’s EV market is still limited and EV buyer loyalty remains high.
• High U.S. vehicle density creates potential for rapid EV adoption via “1 ICE + 1 EV” households.
• Over 20 new EV models and more affordable next‑gen vehicles could sharply expand market coverage.
• Consumer autonomous vehicle features may further boost EV demand and sentiment within the next three years.

The TD Cowen Insight

We believe electric vehicle (EV) sentiment in the U.S. is approaching a lower limit. Our report makes the case of why the next phase of growth is likely to come sooner than some might think:

• The prevailing the bear case for U.S. luxury touring (LT) is flawed.
• The U.S. is structurally set up for a potential surge in EV demand.
• The next 12–18 months could see EV product and related autonomous vehicles (AV) catalysts.

Our Thesis

If you’re bearish on the 12–18 month U.S. EV demand outlook (as many are), this report will either challenge those assumptions or entice you to consider the other side of the trade. We believe U.S. EV sentiment is approaching a bottom, with the next phase of EV demand growth closer than commonly perceived, perhaps as soon as 2027–2028. With EV valuations still depressed, risk/reward is starting to tilt more favorably. Our call is out of consensus and possibly early, but it is backed by new analyses leveraging datasets that are overlooked in today's EV discourse.

Flaws observed in the prevailing U.S. EV bear case

First, forecasters are making LT extrapolations off today's unevenly developed EV market. Consider that today's U.S. EV "market" is still largely composed of two models from one established brand plus several niche vehicles. Our newly released U.S. product coverage matrix suggests EVs only genuinely address ~11% of the U.S. auto market.

Second, there's an absence of signs suggesting EV buyer regret. EV-to-EV loyalty (measuring the percent of EV customers returning to purchase another EV) remains very high – even above hybrids – suggesting anything but buyer regret. In calling all these discrepancies out, we remind investors of past consensus auto demand conceptions that were also fraught with similar analytical flaws, and that ultimately led to alpha opportunities. Is history repeating itself?

High U.S. vehicle density could inflect EV demand "overnight"

Consider what might happen if U.S. consumers in households with two internal combustion engine (ICE)/hybrid vehicles came to view a "1+1" household fleet (one ICE/hybrid and one EV) as the best of both worlds? The U.S. has approximately 296 million light vehicles on the road, of which only around 6 million (~2%) are EVs. A theoretical "1x ICE + 1x EV" equilibrium could require well over 100 million EVs on the road – an adoption scenario that could play out rather quickly. Our new deep-dive analysis reveals early signs of this rapid adoption phenomenon playing out in certain pockets of the country.

This vehicle density trend could quickly boost EV demand once specific conditions are met. We see two such conditions materializing in the coming months: New EV models set to enter the U.S. market and the advent of consumer autonomous vehicles (AV).

Many new EVs (>20 models) are forecast to enter the U.S. market. We expect this overlooked accelerant in the coming 12-18 months. Next-gen EV models will likely be more affordable and performant, expanding U.S. EV market coverage (i.e., the percentage of new auto sales where EVs are competing) to an estimated 47% from 26%, using conservative assumptions. We also expect the introduction of new EREVs (extended-range EVs) to contribute to demand growth.

With most headlines seemingly focused on recent EV write-downs, the upcoming EV product cycle is either being dismissed or overlooked. If successful, this product wave could set our density thesis into motion by the latter part of the decade. And while it's still early to gauge the impact from rising gasoline prices, that too could drive incremental EV demand in the coming months as new products roll out.

The era of Personal Autonomy will be ushered in by autonomous EVs. In the coming one-to-three years, we expect consumer AVs to unleash new and possibly game-changing features/service. Strong demand for initial EVs would likely trigger an immediate competitive response, with followers likely matching leaders in both tech and propulsion.

What Is Proprietary?

This report includes several proprietary analyses leveraging unique datasets.

These include:

• Our detailed county-level EV demand model showing early signals of our density inflection thesis. We also apply predictive machine learning (ML) analytics to our dataset.
• A newly introduced U.S. compact electric SUV bottom-up demand model/scenario analysis, done at the state level.
• A newly introduced U.S. EV market coverage model leveraging unique datasets allowing us to model the U.S. market by price bands and key segments, including taking actual observed trim-mix sales allocations into account (solving a key modeling challenge).
• While not refreshed in this report, we leverage our prior proprietary vehicle density surveys to inform us of EV density opportunities.

What To Watch?

First, even before new EVs fully enter the market, the next few months' seasonal adjusted annualized rate (SAAR) and EV penetration could provide notable clues towards our thesis. A soft SAAR combined with soft EV penetration might suggest that would-be EV buyers are reluctant to shift to ICE and are instead possibly awaiting new/affordable EV products. That could be taken as a bullish indicator for future EV pent-up demand. On the flip side, a strong SAAR combined with weak EV penetration would suggest would-be EV buyers are indeed shifting to ICE, which would go against our thesis. While these datapoints are unlikely to be conclusive, they might also be overlooked in the broader conversation - providing investors with some early signals around consumer behavior. Of course, the impact from rising gas prices on EV demand will also be a key watch item in the coming months.

Second is the early success of newly launched EVs. By success, we refer to absolute sales volume and pricing following the initial ramp but also the regional distribution of that demand. Whoever can catalyze demand in underperforming counties stands the best chance of seeing outsized success vs. expectations.

Third is the progression of personal autonomy (Consumer AV). As noted, we believe that incremental consumer demand for AV features/services could support improved EV sentiment.