Drivers charge their Teslas in Fountain Valley, California, on March 20, 2024.
Jeff Gretchen | Medianews Group | Getty Images
A car loses its value as soon as you drive it off the lot, but electric vehicles take that saying to a new level. This is becoming a major barrier to wider adoption, according to some industry and investment experts.
Recent study from iSeeCars.com showed that the average price of a 1- to 5-year-old used EV in the U.S. dropped 31.8% over the past 12 months, equating to a $14,418 loss in value. By comparison, the average price for an internal combustion engine vehicle of a similar age fell just 3.6%.
While lower prices for used EVs could increase their desirability among some buyers, they can also reduce demand for new electric vehicles, according to Karl Brauer, executive analyst at iSeeCars.
“The value that a new car loses in the first few years is the most expensive aspect of owning a new vehicle,” he said, explaining that “as more new car buyers realize the massive drop in EV prices they will care less. in the purchase of one’.
Speaking on CNBC’s “Street Signs Asia” on Monday, David Kuo, an equity analyst and co-founder at Smart Investor, said the inability of electric vehicles to hold value has kept him from investing in the sector.
According to Kuo, EVs are analogous to other consumer electronics such as laptops and cell phones in that they tend to lose value and relevance quickly after being sold.
“The same [depreciation] it’s going to happen to electric vehicles. it will probably cost you $20,000, $30,000 to buy one, but in a year it will depreciate much faster than an internal combustion engine car,” he said.
Industry insiders have also pointed to EV resale problems. Speaking to Bloomberg late last year, representatives from VW and Toyota said depreciation was hurting the value proposition of their battery-powered vehicles.
Kuo further argued that the software and computing capabilities of used electric vehicles may be outdated and incompatible with updates by the time they are sold or even before. This will be a “lightning moment” when buyers realize they paid too much to begin with, he added.
Adverse market conditions
Despite the obvious depreciation problem of electric vehicles, its causes may have less to do with the technology itself and more to do with market conditions.
According to iSeeCars, the dramatic declines in used electric vehicle prices in the US are due in large part to aggressive price cuts by Tesla amid a wider price war in the EV market.
Tesla is the dominant EV seller in the US, and as a result of its lower prices for new EVs, buyers are less likely to entertain the same price levels for used alternatives.
“If [Elon Musk] continues to lower Tesla’s prices in an effort to boost sales, it will continue to drag the entire market down, as it has done for the past 15 months,” iSeeCars’ Brauer said.
In an October earnings call, Musk defended the price cuts, stressing the importance of cost to consumers.
“It’s not optional for most people, it’s necessary. We need to make our cars more affordable so people can buy them,” he said.
In the next quarter’s earnings call in January, CFO Vaibhav Taneja said the company would continue to focus on its cost-cutting efforts in 2024.
Since then, the EV price war between Tesla and Chinese rivals has shown little sign of letting up.
Additionally, the overproduction of EVs relative to demand has created an oversupply, making it unlikely that new and used EV prices will recover in the near term, according to Brauer.
What is an ongoing issue for the electric vehicle market, however, may be a boon for electric and combustion-powered hybrids, which are showing increasing strength in the new and used vehicle markets.
The average price for used hybrids fell just 6.5%, or $2,135, last year — a fraction of the drop for the average EV.
“Hybrids are a great stepping stone between gasoline and electric cars, and I expect to see them grow in popularity over the next 10 years,” Brauer said.