Electric Vehicles’ Depreciation and Resale Value: A Deep Dive

EV Depreciation: A Key Issue in the Second-Hand Market
The electric vehicle (EV) market is evolving rapidly, with increasing consumer adoption driven by environmental awareness and advancements in technology. However, one of the significant challenges for potential buyers and sellers of electric vehicles remains depreciation, which directly affects resale value. While all cars lose value over time, the rate at which EVs depreciate has historically been faster than their internal combustion engine (ICE) counterparts.

Factors Influencing EV Depreciation: Battery Health and Technology
One of the main reasons behind the faster depreciation of electric vehicles is the rapid advancements in battery technology. Newer EV models often feature improved range, faster charging capabilities, and better battery efficiency, which makes older EV models with lower specifications seem outdated. This continuous technological evolution, while benefiting consumers who buy new EVs, has contributed to a higher depreciation rate for older models in the used-car market.

Additionally, battery health plays a critical role in EV depreciation. Although many EVs come with warranties that cover battery life for up to 8 years or 160,000 kilometers, concerns about battery longevity persist. This is particularly true for older models or used vehicles where buyers may worry about the potential for faster battery degradation. However, recent studies, such as one by Recurrent, have shown that battery degradation is often less severe than originally feared, with only a small percentage of batteries requiring replacement outside of manufacturer recalls. This has contributed to growing consumer confidence in the long-term value of EVs.

Government Policies and Fiscal Incentives: Impact on Depreciation
Government policies and fiscal incentives have a significant impact on the depreciation of EVs, particularly in the European market. Subsidies and tax incentives can lower the initial purchase price of an electric car, which in turn affects its resale value. For instance, in some countries, a Tesla Model 3 may be considerably cheaper than a Toyota Corolla due to government subsidies, while in others, EVs are more expensive, depending on the local tax burden and incentive structures.

The variation in fiscal incentives across different countries has created discrepancies in resale values of used EVs. In some markets, where subsidies are higher, the depreciation may be more gradual, while in others, the lack of incentives can lead to faster value loss. As such, government policies play a crucial role in determining the economic viability of used EVs in various regions.

Market Dynamics: Supply, Demand, and Price Cuts
The used EV market is being affected by supply and demand forces, as well as manufacturers’ pricing strategies. A surge in the availability of new EVs, especially with the entry of affordable models from manufacturers in China, has led to an increase in second-hand EV availability. This has created downward pressure on prices in the used market.

Furthermore, recent price cuts on new EV models by manufacturers have added to the challenge of maintaining stable second-hand values. While the lower prices make new EVs more accessible to consumers, they also affect the depreciation of used models, which are often seen as less attractive when there’s a significant price gap between new and used vehicles. As a result, the second-hand market for EVs has faced greater instability compared to ICE vehicles, which have experienced more stable price trends over time.

EVs vs. ICE Vehicles: Depreciation Comparison
When comparing depreciation rates between electric and internal combustion engine (ICE) vehicles, electric cars generally experience faster value loss in the first few years. Data from the Autovista Group reveals that three-year-old EVs tend to retain a lower percentage of their original value compared to ICE cars in markets such as Germany, Spain, Italy, and the UK. This trend is largely attributed to the rapid advancement of EV technology, as well as the increase in supply of used EVs from fleets and lower-cost alternatives.

In contrast, hybrid-electric vehicles (HEVs), which combine an internal combustion engine with an electric motor, tend to retain value better than purely electric vehicles. The performance and longevity of hybrids, which don’t rely entirely on electric power, have made them more attractive to buyers in the second-hand market.

The Growing Second-Hand EV Market
Despite the depreciation challenges, the second-hand market for EVs is showing signs of growth. As EV technology becomes more reliable, especially regarding battery life, the confidence in purchasing used EVs has increased. Lower prices for second-hand electric vehicles have made them more accessible to consumers who may not have the budget for a new car. Furthermore, as more buyers look for ways to reduce their carbon footprint, used EVs are becoming more competitive in the market.

With battery prices expected to decrease and the EU’s 2035 ban on new petrol and diesel car sales, analysts predict that the depreciation gap between EVs and ICE vehicles will narrow over time. As the used EV market matures and consumer demand grows, EVs are likely to retain value more consistently in the future.

Future Outlook: What’s Next for EV Depreciation?
Industry experts suggest that the depreciation of EVs will be influenced by various factors, including government incentives, emissions-based taxation, and the broader market’s transition to electric vehicles. With battery production costs expected to fall and technology continuing to improve, it’s likely that EVs will experience slower depreciation rates in the coming years. The growing availability of affordable EV models and the eventual ban on new petrol and diesel car sales in the EU will further shift market dynamics, potentially leading to greater stability in the resale market for EVs.