The depreciation of vehicles once they leave the dealership lot is a well-known phenomenon, but electric vehicles (EVs) are taking this to another level, posing a significant hurdle to wider adoption, according to industry and investment experts.
A recent study revealed that the average price of a 1- to 5-year-old used EV in the U.S. plummeted by 31.8% over the past year, translating to a staggering value loss of $14,418.
In contrast, the average price of a similarly aged internal combustion engine vehicle dropped by a mere 3.6%.
While the lower prices of used EVs might attract some buyers, they could also dampen the demand for new electric vehicles, as noted by Karl Brauer, executive analyst at iSeeCars.
Brauer emphasized, “The value a new car loses in the first few years is the single most expensive aspect of owning a new vehicle,” adding that awareness of the significant drop in EV values could dissuade potential buyers.
David Kuo, stock analyst and co-founder at the Smart Investor, echoed similar sentiments, citing the rapid depreciation of EVs akin to consumer electronics like laptops and cell phones.
Kuo cautioned that the high initial cost of EVs could result in steep depreciation within a year, making them less appealing compared to internal combustion engine cars.
Industry representatives, including those from VW and Toyota, have also raised concerns about EV resale values, highlighting how depreciation undermines the value proposition of battery-powered vehicles.
Kuo further pointed out potential issues with outdated software and computing capabilities in used EVs, which may render them incompatible with updates, leading buyers to realize they overpaid.
The depreciation of EVs may not solely stem from technological shortcomings but also market dynamics.
Tesla’s aggressive price cuts have been a significant driver behind the dramatic drop in used EV values in the U.S., amidst a broader price war in the EV market.
Brauer emphasized Tesla’s role, stating, “If [Elon Musk] continues to reduce Tesla prices… he’ll continue to pull the entire market down.”
Tesla’s CEO, Elon Musk, defended the price reductions, emphasizing affordability as crucial for consumers. Despite this, the price war between Tesla and Chinese competitors persists, with little indication of slowing down.
Moreover, Brauer noted that overproduction of EVs relative to demand has exacerbated the issue, making it unlikely for new and used EV prices to rebound soon.
The average price of used hybrid vehicles dropped by only 6.5% last year, suggesting their increasing appeal as a transitional option between gasoline and electric cars. Brauer predicted a rise in popularity for hybrids over the next decade.
