Electric vehicle (EV) stocks are closing out 2025 in a markedly different market than the “straight-line adoption” narrative many investors anticipated just a few years ago. As of December 20, headlines reflect ongoing corporate governance concerns at Tesla, a renewed focus on autonomy at Rivian, and fresh uncertainties regarding incentives and regulations in both the U.S. and Europe. Each of these factors carries significant implications for margins, volumes, and valuation multiples as the industry heads into 2026.
The prevailing trend indicates that EV stocks are increasingly driven by factors beyond mere “EV penetration.” Instead, they are reflecting (1) software and autonomy optionality, (2) policy and tariff risks, and (3) the realities of affordability and inventory in core markets. This shift has led to a sector capable of robust rallies, but often for reasons distinctly different from those in the previous cycle.
One pressing signal for EV investors is not merely a company’s delivery estimates but rather the overall demand landscape. According to estimates from Cox Automotive, U.S. EV sales are projected to decline by 2.1% in 2025 to approximately 1.275 million units, marking a decrease in battery-electric vehicles’ share of total U.S. sales to 7.8%. The final quarter of 2025 alone is expected to see around 230,000 EV sales, resulting in an EV market share of 5.7%.
The affordability gap poses a critical challenge, with only 9 EV models available under $40,000 compared to 56 internal combustion engine (ICE) models. Vehicles priced below $40,000 account for 38.7% of total industry sales, but only 3.7% of EV sales as of November 2025. This disparity highlights the shift in narratives from broad adoption to a more segmented market where pricing power is crucial.
The changing backdrop of incentives is also significant. InsideEVs indicates a surge in demand before the expiration of the $7,500 U.S. EV tax credit on September 30, followed by an anticipated drop-off in sales. This pattern—where consumers rush to purchase before subsidies disappear—has become a defining characteristic of the EV market.
Market Realities for Tesla and Rivian
Tesla made significant headlines following the Delaware Supreme Court’s restoration of Elon Musk’s 2018 pay package, now valued at approximately $139 billion due to rising stock prices. Shareholders also approved a new pay package that could reach $878 billion depending on performance targets. This ruling is perceived to alleviate some governance concerns surrounding Tesla, at least temporarily, while also keeping scrutiny on how these equity awards impact future shareholder dilution.
On the fundamental side, Deutsche Bank analyst Edison Yu forecasts Q4 2025 deliveries at around 405,000, reflecting a year-over-year decline of 14% and a quarter-over-quarter decrease of 19%. The report highlights that Tesla’s deliveries may fall by 34% in Europe and 33% in North America, with a more modest decline of about 10% in China. This forecast raises concerns over Tesla’s margins, projected at 14.4%, down 100 basis points sequentially.
As for Rivian, its recent “Autonomy & AI Day” has reignited interest in the company’s potential to leverage AI and autonomy technologies. Rivian plans to roll out custom AI hardware and aims to enhance its software offerings with a paid “Autonomy Plus” package priced at $2,900 or $49.99 per month. Analysts, including Wedbush’s Dan Ives, have raised Rivian’s price target from $16 to $25, viewing 2026 as a potential inflection point tied to the launch of Rivian’s R2 SUV.
The EV market’s dynamics are shifting, with legacy automakers facing tough decisions. Ford recently terminated a $6.5 billion EV battery supply deal with LG Energy Solution, citing policy changes and an altered demand outlook. This decision is emblematic of a broader recalibration within the industry, affecting not only manufacturers but also battery suppliers and charging infrastructure providers.
Changes in Europe could further complicate the landscape. Stellantis CEO Antonio Filosa highlighted concerns over new EU automotive regulations jeopardizing investments in the region. The European Commission’s proposal to reconsider the effective ban on new combustion-engine cars by 2035 has received mixed reactions, underscoring the uncertain regulatory future for EV manufacturers.
As the landscape evolves, investors are advised to keep a close eye on deliveries, pricing signals, and the development of software as a revenue stream. The shifts in policy and market dynamics are likely to determine which companies can navigate this complex environment successfully. With competition heating up and regulatory frameworks changing, the future of EV stocks increasingly appears to depend on their ability to adapt to a more nuanced demand landscape.
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