Drivers charge their Teslas in Fountain Valley, California on March 20, 2024.
Jeff Gritchen | Medianews Group | Getty Images
A car loses value as soon as it leaves the lot, but electric vehicles are taking this adage to a new level. According to some industry and investment experts, this is becoming a major barrier to broader adoption.
A recent study by iSeeCars.com showed that the average price of a 1- to 5-year-old used electric vehicle in the United States decreased 31.8% over the past 12 months, representing a loss in value of $14,418. By comparison, the average price of a similarly aged internal combustion engine vehicle fell by just 3.6%.
While lower prices for used EVs may increase their attractiveness to some buyers, they may also reduce demand for new EVs, according to Karl Brauer, executive analyst at iSeeCars.
“The loss of value of a new car in the first few years is the most expensive aspect of owning a new vehicle,” he said, explaining that “as more and more new car buyers realize the massive decline in values of electric vehicles, they will be less interested in purchasing one.”
Speaking on CNBC’s “Street Signs Asia” on Monday, David Kuo, equity analyst and co-founder of Smart Investor, said the inability of electric vehicles to retain value has prevented him from investing in the sector.
According to Kuo, electric vehicles are analogous to other consumer electronic devices such as laptops and mobile phones in that they tend to lose value and relevance quickly after being sold.
“The same [depreciation] it will happen to electric vehicles; it will probably cost you 20,000, 30,000 dollars to buy one, but within a year it will depreciate a lot faster than an internal combustion engine car,” he said.
Industry insiders have also reported problems reselling electric vehicles. Speaking to Bloomberg late last year, representatives of VW AND Toyota said depreciation was hurting the value proposition of their battery-powered vehicles.
Kuo also argued that the software and computing capabilities of used EVs could become obsolete and incompatible with upgrades by the time they are sold or even sooner. That will be the “lightbulb moment” when buyers realize they paid too much, she added.
Unfavorable market conditions
Despite EV’s apparent depreciation problem, its causes may have less to do with the technology itself and more to do with market conditions.
According to iSeeCars, the drastic drops in the value of used electric vehicles in the United States have largely been caused by aggressive price cuts Tesla amid a broader price war in the electric vehicle market.
Tesla is the dominant seller of electric vehicles in the United States, and due to lower prices for its new electric vehicles, buyers are less likely to maintain the same price levels for used alternatives.
“Self [Elon Musk] continues to drive down Tesla’s prices in an attempt to spur sales, it will continue to bring down the entire market, as it has for the last 15 months,” iSeeCars’ Brauer said.
In an October earnings call, Musk defended the price cuts, stressing the importance of the costs to consumers.
“It’s not an optional thing for most people; it’s a necessary thing. We need to make our cars more affordable so people can buy them,” he said.
In January’s next quarter earnings call, Chief Financial Officer Vaibhav Taneja said the company will continue to focus on cost-cutting efforts in 2024.
Since then, the electric vehicle price war between Tesla and Chinese rivals has shown little sign of abating.
Additionally, overproduction of EVs relative to demand has created oversupply, making a recovery in new and used EV prices unlikely in the near term, according to Brauer.
What poses an ongoing problem for the electric vehicle market, however, could be a boon for electric and combustion hybrids, which are showing increasing strength in the new and used vehicle markets.
Last year the average price of used hybrid vehicles fell just 6.5%, or $2,135, a fraction of the decline of the average electric vehicle.
“Hybrids are an excellent stepping stone between petrol and electric cars and I expect to see them increase in popularity over the next 10 years,” Brauer said.