AutosRapid depreciation hits electric car market, surprising experts

Rapid depreciation hits electric car market, surprising experts

Electric drive doesn't have to be an advantage - at least not in a used car.
Electric drive doesn't have to be an advantage - at least not in a used car.
Images source: © WP

10:28 AM EST, November 7, 2023

Used electric cars are depreciating more rapidly than previously expected, posing significant challenges for both owners and manufacturers of these vehicles.

While electric vehicles have been available for some time, it is only in recent years that their popularity in Europe has surged and gone mainstream. As a result, the development of the secondary market for these vehicles is underway. However, the initial trend is showing disappointment for both manufacturers and users of electric vehicles, as reported by Automotive News Europe.

The calculations from Fintana Knight, head of the analytical firm Automotive Equity Management, reveal that the depreciation rate for a used electric car against its combustion counterpart ranges between 10 and 12 percentage points, unfavorably, for the electric car.

This data applies to Western Europe, but the situation could be even worse in the USA. Estimates cited by ANE suggest that the depreciation for a new car after three years in the USA stands at 28% for a combustion vehicle and a whopping 41% for an electric car. This vast depreciation is not solely due to the lower popularity of electric vehicles. For instance, in Sweden, where electric cars constitute about a third of the market, the most extreme case indicated that the value of a used electric car was 23 percentage points below that of its combustion equivalent.

The origins of this trend, and its repercussions, can be traced back to several potential causes. The first could be the subsidies issued for new electric cars, which are not extended to used electric vehicles. Secondly, the rapid evolution of electric cars might result in a few-year-old model being perceived as outdated in terms of range and other features. A significant factor may be the battery's condition; it constitutes a substantial part of the vehicle's value, but assessing its condition isn't always straightforward. Mileage comparisons aren't always accurate, as a well-maintained battery from a much-used car could be in a better state than one from a lesser-used car with a history of regular fast charging.

Ultimately, potential buyers may have additional misgivings about purchasing a used electric vehicle compared to a combustion one. This apprehension translates to lower resale prices, making leasing a new electric car often less appealing than leasing a combustion vehicle. This vicious cycle could potentially be broken by extending battery warranties, although manufacturers may see it as a risky proposition. As it stands, the secondary market for electric cars may not see significant changes as long as they continue to compete with gasoline vehicles.

Related content