Poor resale values of EVs are a problem for the industry, warn experts

A car loses value as soon as you drive it off the lot, but electric vehicles take this adage to a new level. This is becoming a major barrier to broader adoption, according to some industry and investment experts.

A recent study from iSeeCars.com showed that the average price of a 1-5 year old used electric vehicle in the United States has fallen 31.8% over the past 12 months, equivalent to a loss in value of $14,418. In comparison, the average price of an internal combustion engine vehicle of comparable age has fallen by only 3.6%.

While lower prices for used electric vehicles could increase their appeal to some buyers, it may also reduce demand for new electric vehicles, according to Karl Brauer, executive analyst at iSeeCars.

“The value that a new car loses over the first few years is the most expensive aspect of owning a new vehicle,” he said, explaining that “as more and more “As buyers of new cars become aware of the massive drop in the value of electric vehicles, they will be less interested.” by buying one.”

Speaking to CNBC’s “Street Signs Asia” on Monday, David Kuo, stock analyst and co-founder of Smart Investor, said the inability of electric vehicles to retain their value has stopped him from investing in the industry .

According to Kuo, electric vehicles are analogous to other consumer electronics like laptops and cell phones in that they tend to lose value and relevance quickly after being sold.

“The same (depreciation) is going to happen with electric vehicles; it will probably cost you $20,000 or $30,000 to buy one, but in a year it will depreciate much faster than an internal combustion engine car “, did he declare.

Industry insiders have also reported problems with the resale of electric vehicles. Speaking to Bloomberg late last year, representatives from VW And Toyota said the depreciation hurts the value proposition of their battery-powered vehicles.

Kuo further argued that the software and computing capabilities of used electric vehicles could become outdated and incompatible with updates by the time they are sold or even before. It will be a “watershed moment” when buyers realize they paid too much in the first place, he added.

Despite the apparent problem of electric vehicle depreciation, its causes may have less to do with the technology itself and more to do with market conditions.

According to iSeeCars, dramatic declines in the value of used electric vehicles in the United States are largely due to aggressive price cuts by You’re here amid a broader price war in the electric vehicle market.

Tesla is the leading seller of electric vehicles in the United States, and due to falling prices for its new electric vehicles, buyers are less likely to accept the same price levels for used alternatives.

“If (Elon Musk) continues to cut Tesla prices in an attempt to boost sales, he will continue to drive the entire market down, as he has over the last 15 months,” Brauer said d ‘iSeeCars.

During an earnings conference call in October, Musk defended the price cuts, emphasizing the importance of the cost to consumers.

“It’s not an option for most people; it’s a necessary thing. We need to make our cars more affordable so people can buy them,” he said.

During the following quarter’s earnings conference call in January, CFO Vaibhav Taneja said the company would continue to focus on its cost-cutting efforts in 2024.

Since then, the electric vehicle price war between Tesla and its Chinese competitors has shown no signs of slowing down.

Additionally, overproduction of electric vehicles relative to demand has created excess supply, making a rebound in new and used electric vehicle prices unlikely in the near term, according to Brauer.

However, what has been an ongoing problem for the electric vehicle market could be a boon for electric and combustion hybrids, which are showing growing strength in the new and used vehicle markets.

The average price of used hybrid vehicles fell just 6.5% or $2,135 last year, a fraction of the drop for the average electric vehicle.

“Hybrid vehicles provide a great stepping stone between gasoline and electric cars, and I expect them to increase in popularity over the next ten years,” Brauer said.