The depreciation of a car as soon as it is driven off the lot is a well-known phenomenon, but electric vehicles (EVs) are facing an even more drastic dropping trend in their value. iSeeCars.com conducted a recent study that revealed a staggering 31.8% decline in the average price of a 1- to 5-year-old used EV in the United States over the past 12 months. This equates to a loss of $14,418 in value. In contrast, the average price of a similar-aged internal combustion engine vehicle only fell by 3.6%. The significant decrease in used EV prices could potentially make them more appealing to certain buyers. However, it also has the downside of reducing the demand for new electric vehicles. Karl Brauer, an executive analyst at iSeeCars, points out that the loss in a new car’s value during the initial years of ownership is the most expensive part of owning a new vehicle. This awareness of the massive depreciation in EV values might deter potential buyers from investing in these vehicles.
David Kuo, a stock analyst and co-founder at the Smart Investor, has raised concerns about the inability of EVs to retain their value. He draws parallels between electric vehicles and other quickly depreciating consumer electronics like laptops and cell phones. Kuo predicts that a significant cost – ranging from $20,000 to $30,000 – will be incurred to purchase an EV, only for it to rapidly lose its value within a year. This rapid depreciation trend might discourage investors from entering the EV industry. Representatives from major car manufacturers like VW and Toyota have also highlighted challenges related to EV resale value. The software and computing capabilities of used EVs might quickly become outdated and incompatible with updates, leading buyers to realize they overpaid for their vehicle.
While the rapid devaluation of electric vehicles raises concerns, it might be more closely linked to market factors than the technology itself. iSeeCars reports that the sharp decline in used EV values in the U.S. is largely influenced by aggressive price reductions by Tesla in the midst of an escalating price war in the EV market. Tesla’s dominant position in the EV sector and its continuous price cuts for new vehicles have caused a ripple effect on the value of used EVs. Elon Musk’s strategy of lowering Tesla prices to boost sales has inadvertently driven down the overall market. Despite criticisms, Musk defended these price adjustments as essential for making EVs more affordable. The ongoing price war between Tesla and its Chinese rivals signals a prolonged period of intense competition in the EV market.
Furthermore, an imbalance between the production of EVs and consumer demand has resulted in an excess supply of vehicles. This oversupply scenario makes it unlikely for both new and used EV prices to rebound in the near future. Brauer suggests that the continuous price decline and oversaturation in the market pose significant challenges for the EV industry. As Tesla and other competitors focus on cost reduction strategies to attract more buyers, the cycle of value depreciation in electric vehicles persists. Buyers, investors, and industry experts are closely monitoring the developments in the EV market to navigate through the complex dynamics of supply, demand, and pricing.