The depreciation of electric vehicles (EVs) has become a widely discussed topic, and for good reason. On one hand, the used market is presenting some incredible bargains, but on the other hand, some EVs can lose as much as half their value within a single year.
This trend is particularly evident in the more expensive segment of the market, where cars often start to depreciate the moment they are driven off the dealer’s lot. However, if you plan to keep your shiny new EV for a long time, the value after just a year or two becomes less significant.
Analysts advise that if you decide to sell your EV within the first year—perhaps because it doesn’t meet your expectations or your local charging infrastructure is inadequate—you should be prepared for a substantial loss. They have taken a balanced approach to assessing trade-in values to avoid generalising all EVs.
The tale of a Mercedes EQE that lost more than $600 a day, or the US dealer who forbade reporters from purchasing their EVs are just two examples of the colourful stories that could be covered here, but for the time being, analysts presented the hard data.
What news reports are suggesting?
A recent study from iSeeCars.com showed the average price of a one-to-five-year-old used electric vehicle in the United States fell 31.8% over the past 12 months, equating to a value loss of $14,418. In comparison, the average price for a comparably aged internal combustion engine vehicle fell just 3.6%.
While lower used EV prices could increase their desirability to some buyers, they can also reduce demand for new electric vehicles, according to Karl Brauer, executive analyst at iSeeCars.
Speaking to CNBC’s “Street Signs Asia,” David Kuo, stock analyst and co-founder at the Smart Investor, said that the inability of EVs to retain value had prevented him from investing in the industry.
According to Kuo, EVs are analogous to other consumer electronics like laptops and cell phones in that they tend to lose value and relevance quickly after being sold.
He also added that the software and computing capabilities of used EVs may become outdated and incompatible with updates by the time they are sold or even beforehand. That will be a “lightbulb moment” when buyers realise they paid too much in the first place.
According to iSeeCars, dramatic drops in used electric vehicle values in the United States have largely been driven by aggressive price cuts by Tesla amid a broader price war in the market.
Tesla is the leading seller of electric vehicles in the US. Due to the lower prices of its new EVs, buyers are now less inclined to consider the same price range for used alternatives.
What is an ongoing issue for the EV market, however, may be a boon for electric and combustion-powered hybrids, which are showing increasing strength in new and used vehicle markets. The average price for used hybrid vehicles fell only 6.5% or $2,135 in 2023, a fraction of the decline of the average EV.
Main offenders
Recently, WIRED’s analysts carried out a study on the subject using two instruments. First was an online appraisal system from the US automotive industry resource Edmunds, while the second was a vehicle valuation service for the UK auto trade called Cap HPI. They examined the electric trade-in market in the UK and then drew comparisons with the US.
The first thing they found out was that, in the United Kingdom, several new EVs lose half of their value in the first year. Some vehicles even lose 50% of their value. Granted, not all EVs will experience this, but six distinct EVs are all expected to see a halving in value after a year and 10,000 miles, according to Cap HPI data provided by Parkers, a reputable UK online car resource.
Among these are the Ford Mustang Mach-E, which dropped by 52% from £59,325 to £28,575, and the Audi e-Tron GT, which fell by 49% from £107,675 ($138,000) to £54,700 ($70,100). The data also showed that in just a year, a Polestar 2 would lose 52% of its £52,895 sticker price.
While the Porsche Taycan dropped by 49% and the Hyundai Ioniq 5 lost exactly half in the same period, the Tesla Model 3 fared only marginally better, falling by 45% in its first year and 10,000 miles. All of these prices are based on the mid-spec model of each vehicle because trade-in value can vary significantly depending on things like paint colour, trim level, and battery size.
Mileage effect
However, mileage has less effect on depreciation than you might think. The long-range Polestar 2 mentioned above would have only lost an additional 2% of its initial cost, or £975, if it had driven 20,000 miles in its first year as opposed to 10,000, which is significantly more than the 7,000 miles per year average in the UK.
The Taycan’s story is comparable. After just a year and 10,000 miles, the price of a 4S model with a long-range battery dropped from £100,200 to £50,700. However, it would have dropped by just £2,650 more if it had travelled 20,000 miles in the same year. Alternatively, based on the Cap HPI data, it would be worth £44,175 after two years and 20,000 miles. Age (after the first 12 months) has an equally negligible impact. After a year, a 10,000-mile Taycan is worth £50,700, and after two years, it is worth £46,600.
Additionally, after the first year, the Tesla Model 3’s depreciation slows down considerably. From £50,000 to £27,550 after a year and 10,000 miles, and then by just £2,500 more after two years and 20,000 miles, according to Cap HPI data, a 2023 Model 3 Long Range would cost.
In six months, the price would decrease by only £825 if the first 10,000 miles were spread over 18 months instead of 12. Long-term depreciation is likely to be supported by Tesla and other electric vehicle manufacturers, which can provide software updates and upgrades to their vehicles months or even years after they leave the factory.
It has been observed that Tesla is capable of releasing significant updates to its user interface and even introducing new features via an online portal. Polestar 2 received Apple CarPlay, a feature that manufacturers used to charge hefty prices for, through a free over-the-air (OTA) update in 2022, while Jaguar released a software update in 2019 that promised to extend the range of its I-Pace by up to 8%.
EVs vs gas-powered vehicles
After a year and 10,000 miles, the gas-powered Audi Q7 55 SUV was worth 42% more than the electric Audi e-tron 55 SUV, even though it was originally less expensive. Even with cheaper cars, this is true. A gas-powered Volkswagen Golf costs 46% more than an electric Golf after three years and 30,000 miles, according to Cap HPI data.
Comparing the gas-powered Porsche Panamera and the electric Porsche Taycan, analysts anticipated finding a comparable difference. However, according to Cap HPI data, over a two-year and 20,000-mile period, comparable midlevel 4S variants of each lose a comparable amount of value. Prices for the Panamera and Taycan dropped from £93,140 to £63,250 and £84,030 to £53,000, respectively.
The US prices are now available. A 2022 Porsche Taycan Turbo with 10,000 miles, much less than the 14,000-mile annual average in the US, was valued at approximately $106,000 as of July 2024, according to Edmunds. That’s roughly $50,000 less than it would have cost new, excluding optional extras that drive up the retail price but generally have no bearing on resale value.
According to Edmunds’ historical data, the car’s value increased from $129,000 to almost $131,000 between August and October 2023. However, after that, it declined sharply, falling by as much as $4,000 per month between November 2023 and February 2024 before falling by an additional $10,000 over the following five months. The valuation tool indicates that the vehicle’s value is likely to decline over the next month.
Even though the US doesn’t have as severe initial price depreciation as the UK, there are still many good deals to be found. The WIRED discovered a fully equipped 2020 Taycan Turbo with only 5,000 miles on it for $92,000, which is $86,000 less than what it would have cost at launch. That translates to depreciation of more than $17 per mile.
According to Edmunds’ appraisal tool, a 2023 Polestar 2 Long Range Single Motor with 10,000 miles on it is worth $30,500 as a trade-in. The tool estimates a dealer price of $35,000, and if sold privately, this rises to $32,500. From the car’s estimated retail price, the trade-in value represents a $20,000 or 40% reduction.
Edmunds revealed that the Polestar 2’s value is declining, much like the Taycan. However, remarkably, it has increased in three of the last eight months, ending in July 2024. The report observed that Edmunds occasionally advised retaining the car because prices were rising.
COVID’s impact
The pandemic turned the used-car market upside down, with production slowing, essential parts like microchips becoming scarcer, and used prices rising. Car search and research firm iSeeCars in the US claims that the effects are still being felt and that all cars held their value better in 2023 than in 2019. The company claimed that, before the pandemic, the typical car would lose 50% of its value in five years, but by late 2023, this had dropped to 38%.
Meanwhile, an analysis of over a million cars sold between 2022 and 2023 from the 2018 model year shows that electric cars are not doing well, losing an average of 49.1% of their value in three years. Used EV costs have finally dropped below those of gas-powered vehicles, according to a June 2024 iSeeCars study.
In May 2023 and May 2024, iSeeCars examined over 2.2 million used cars. The average used electric vehicle (EV) decreased from $41,000 to $28,800, while the average gas car only marginally decreased from $32,700 to $31,400.
The data is fantastic for those who purchase used vehicles, but it is concerning for those who intend to sell their almost-new electric vehicle. Fantastic deals can be found on anything from a £5,000 ($6,400) Renault Zoe and a £12,000 ($15,000) Citroen e-C4 to a $25,000 Polestar 2 or a $30,000 Jaguar I-Pace.
In addition, Recurrent, a community of 20,000 EV drivers, reports that EV batteries are lasting longer than anticipated. Only 2.5% of battery packs have been replaced outside of manufacturer recalls. Owners of electric vehicles are aware of the high cost involved in replacing a malfunctioning battery pack. Recurrent estimates $6,500 to $20,000 as the price range for replacing an EV battery that is out of warranty.
If an EV owner’s battery is no longer covered by the manufacturer’s warranty, which typically lasts for eight years or 100,000 miles, they are likely to worry about having to replace a broken pack for more money than the car is worth. The RAC, a British breakdown company, states that although battery failure is uncommon, many aftermarket warranty providers now offer EV battery cover.
However, there are still horror stories about year-one depreciation even though EV batteries last longer than anticipated. The most extreme example we’ve seen involved TopGear running a Mercedes EQE for six months. In just three months and 4,500 miles, it had lost £40,000 ($51,000). That is approximately 50% in 12 weeks, or roughly £480 ($615) per day.
Why is this happening?
Depreciation on cars is nothing new, particularly in the luxury segment of the market; anyone who has paid six figures for a German executive sedan understands the feeling of suffering significant losses. When you take into account the even higher costs of electric vehicles and their add-ons, as well as the persistent worries about EV range and charging infrastructure, you can see that soft residuals are inevitable.
After all, EVs are getting better with every update, with new models gaining more performance, range, and charging speed than their predecessors. Also, remember that a large number of electric vehicles (EVs) making news these days for their depreciation are first-generation vehicles.
The Mercedes EQ, Audi e-tron, and Porsche Taycan are examples of first attempts by established manufacturers that were taken advantage of by Tesla and, more recently, by several low-cost, state-backed upstarts from China. These were the first iPhones, predating 3G technology, and are already being replaced by updated models that have faster charging times and greater range.
The used market is impacted by new EV discounts as well. Although Tesla’s price fluctuations are well-known, other companies have also recently slashed prices. Official Porsche dealerships in the UK were found to be selling several brand-new Taycans (albeit from a previous generation) for a cool £20,000 ($25,000) less than their £110,000 list price. For instance, a £33,500 discount was available on a GTS Sport Turismo. Discounts on the 2025 Taycan, which just arrived, are available.
What should you do?
EV sales are increasing despite the rapid depreciation. They are outselling plug-in hybrids two to one and made up 18.5% of all new car sales in the UK in July, according to the Society of Motor Manufacturers and Traders. This is an increase of 18.8% from the previous year. Fully electric cars made up 68.8% of new car sales in the US in May, four times more than plug-in hybrid cars.
When purchasing a new electric vehicle, if you intend to keep it for a long time and can charge it at home, you may be able to save money by taking advantage of available tax incentives. However, if you buy the car outright or finance it with a bank loan and then sell it within a year, your out-of-pocket expenses are expected to be high.
As data from the US and UK shows, vehicle prices typically stabilise over the years. To get the best value on an EV with low maintenance and operating costs, consider buying a used vehicle unless you can genuinely afford a new one and take advantage of the remaining five years or more of the battery warranty.