Depreciation plays a major role when it comes to buying electric cars. It will ultimately impact your bottom line when you decide to sell your EV. Many factors go into the art of depreciation.
The first is the lack of demand for electric cars. We still have a long way to go before electric cars in California truly become mainstream. Other reasons include the difficulty of maintenance and parts procurement. Let’s take a deep dive into why EVs depreciate so rapidly.
The Stigma of Buying Used
Buying anything used comes with an expectation that quoted prices would be lower than retail. We expect used products to have a lower price tag.
This market strategy is hardwired into the buyer’s psychology. The only way to get around this ‘stigma’ is for the product to be rare. This is not true for electric cars.
Electric car makers around the world are manufacturing EVs at scale. Tesla aims to make 10,000 EVs per week. Rivian wants to produce 150000 EVs per year by 2023.
This means that electric cars are more common than you think. Moreover, government subsidies cover part of the retail price for EVs.
In other words, buyers are going out of their way to buy used electric cars. Why should they buy used when they can leverage government subsidies for new EVs? This will be discussed later.
Read Should I Buy a Used Electric Car? The Pros and Cons
Tech Moves Fast in the World of EVs
Electric car makers are pouring billions to make more efficient models with fancy gadgets. New EV models are being announced yearly with better batteries and faster processors.
They also feature ‘hip’ new features such as ‘towing mode,’ rapid charging, and funky design. And the world of EVs moves at a breakneck pace.
Compact batteries with faster charging and superior capacity make older cars redundant. The ‘old’ models are no longer valuable when a new EV model comes out.
This will shock you, but your brand new EV depreciates the moment you drive. This is true regardless of the car maker.
You could be driving Tesla, Rivian, or Ford – they all lose their value over time. Some EVs lose their value faster than others.
Buying a flagship EV will not circumvent this market rule. They may lose their value at a slightly slower pace compared to budget trims. But this depreciation is inevitable.
EV Make and Model
This should come as no surprise to anyone. Some electric cars have better reputations than others. These reputations may not always correlate with vehicle durability.
For instance, Tesla’s Model 3 and Model S are renowned for their quality and engineering. However, they are criticized for their poor resale value.
Generally, traditional car makers like Honda and Toyota exhibit excellent resale potential. Note that Tesla and other EV-only makers have gained tremendous ground in recent years.
Vehicle Trim, Body Style, and Color
Believe it or not, the car’s body style will influence its depreciation rate. EVs with a neutral color like black will retain value compared to exotic colors.
Neutral colors are universally popular with a higher resale value. EVs that have been customized to fit the owner’s personality will sharply lose value.
Read How Much Does a Used Tesla Cost
Repair is a Major Concern with Electric Vehicles
Another reason why EVs depreciate faster is that it’s harder to repair them. EVs that break down cost an arm and a leg in repair costs.
Insurance premiums for EVs remain at an all-time high. Fewer insurance providers are willing to cover EVs. This means more out-of-pocket costs for owners.
The good news is that routine maintenance for EVs is relatively more affordable. Most high-end EVs are easy to maintain year-round.
In general, the average cost of maintaining an EV is about $1000 per year. However, maintenance costs for gasoline-powered cars are $1300 per year.
EVs don’t require oil changes – that may have something to do with the lower prices. It is recommended to take EVs for routine maintenance at least twice a year.
Things such as tire rotation and checking for battery performance are important with EVs.
However, electric vehicles are extremely expensive to repair. For starters, they require more labor hours from skilled technicians who are well trained.
CNET found that service centers log more hours when working on EVs. It takes more time to diagnose problems with electric vehicles compared to gasoline-powered cars.
Chalk it up to inexperience or lack of technical expertise, repairs are expensive either way. Technicians need to acquire specialized training to work on EVs.
EV makers require some service centers to invest over $100,000 in tools alone. Technicians are encouraged to spend upwards of $10,000 for training.
However, you can expect these issues to improve as the EV market matures. Repair costs will normalize once EVs become more widespread, and technicians get more experience.
These extra fees will disappear as repairs become easier. Batteries, on the other hand, are an entirely different concern.
Batteries are not Cheap
Batteries are the biggest reason why electric car repairs are so expensive. The average electric battery weighs well over 1,000 lbs. Most scales only go up to 500 lbs or less!
Hauling them out of the car makes for some backbreaking labor. It will take several mechanics to move them around.
Also, electric car batteries are perilous to work with. The price of replacing an electric car battery ranges from $20,000 or higher. For perspective, the cheapest EV has a starting price of $25,000.
Mileage is a Major Concern
Like ICE cars, mileage is a significant factor that determines the EV’s value. The car’s odometer will play a role in how quickly it depreciates.
On average, an electric vehicle will run 10,000 or more per year. Crossing this limit will lead to even more depreciation.
If we consider high-performance EVs, their value will plummet once the odometer touches 10,000.
You won’t have to cover the replacement cost if the battery is under warranty. Most manufacturers offer warranties of 8 years or 100,000 miles.
For the most part, buyers won’t have to replace their batteries for eight years. Most experts believe that an average electric car battery will last 10 to 20 years.
Read 15 Facts You Didn’t Know About Electric Cars
Other factors will determine how quickly an EV will depreciate. Prices will fall off a cliff for every scratch and chip.
A visibly beat-up EV will fetch anywhere from 50% to 60% less than retail prices. Giving the EV a good makeover is recommended before listing it for sale.
Thoroughly clean the car’s interior before showing it to a prospective buyer. It is crucial to mask any orders, clean vinyl, and plastics, and replace floor mats.
We recommend that readers sell their EVs directly to buyers instead of through dealers.
How Much Does an EV Depreciate?
New EVs depreciate anywhere from 10% to 20%. Their values will plummet the moment you take them for a spin.
To illustrate this, let’s look at the value of the Tesla Model 3. The base trim starts at around $47000. You can expect to sell the Model 3 for $25,000 in the used market.
Prices will go down even if you don’t drive the EV. Its value will plummet to $30,000 just by signing on the dotted line.
Market demand also ties into how faster EVs depreciate. EVs in high demand will decline at a lower rate than low-demand EVs.
The popularity of a particular car also plays a role in its depreciation value. The price of electricity is likely to go down. As prices go down, EVs will be in higher demand.
And when gas prices go up, larger gasoline-powered cars will go out of style. The global supply chain for gas is not looking good. So the trend in favor of EVs will likely continue.
However, the market for gasoline cars could make a comeback at any time. This tug of war will lead to fluctuations in demand for EVs.
In other words, how fast your EV depreciates depends on where you live. The resale values of EVs in a state like California are likely to be strong.
The resale value of EVs in states like Florida may plummet more. This is likely because of regional politics and consumer attitudes favoring ICE vehicles.
Read Electric Car or Gas Car: Which is a Better Option?
How EVs Depreciate Compared to ICE Vehicles
The good news is that EVs depreciate at a lower rate compared to gasoline-powered cars. Petrol cars usually have the fastest rate of depreciation.
Diesel cars are also depreciating rapidly because of changing consumer opinion. Your average motorist is more well-informed because of climate action advocates.
Gasoline-powered cars are surrounded in controversy because of their contribution to global warming.
It doesn’t help that countries around the world are announcing the ban on ICE cars. The UK is all set to ban petrol and diesel vehicles by 2035.
Expect the deadline to be pushed a few years further as it gets closer. But the point remains: governments have turned on electric vehicles.
The ban on diesel and petrol cars is suitable for electric vehicles. Their depreciation rate will decrease because motorists won’t have a choice.
Moreover, don’t expect the government to subsidize the sale of EVs forever. The government will pull their subsidies as consumer interest leans toward electric cars.
Governments will also announce affordable prices for renewable electricity. This would make it cheaper to drive electric cars. The demand for EVs will increase in both the used and new markets.
It is worth noting that hybrids are faring well in the used market. They have extremely promising resale values. Hybrids are better for the environment.
Read Why you should not buy an electric car
Best Electric Vehicles that are Most Likely to Retain Their Value
Check out the following list of EVs with strong resale values. These cars show the tiniest drop in percentage value after driving 36,000 miles.
Porsche Taycan Cross Turismo at 71%
The Porsche Taycan has one of the slowest depreciation rates compared to electric cars. They tend to lose within 29% of their value after three years.
Taycan habitually gets featured on the list of slowest depreciating electric cars. It features a two-deck Performance Battery Plus with a capacity of 93 kWh.
The driving range for the Taycan is over 282 miles. Careful optimization of the car’s design allows it to maximize performance.
Polestar 2 at 62%
Next up is Polestar, which loses just 38% of its value. It has a range of 245 miles and top speeds of 200+ km/h. The Polestar 2 can accelerate from 0 to 100 km/h in 4.7 seconds.
It is easy to drive, looks amazing, and offers many features to drivers. Another plus point is a well-built cabin with lots of spacing for cargo and passengers.
The Polestar 2 is a no-nonsense electric car that does it all.
Tesla Model 3 at 61%
Tesla leads the world when it comes to electric cars. It can rack up to 300 miles on a single charge. The expansive Supercharger network is another reason its resale value is so strong.
We recommend choosing the Long Range version for the best prices. All Model 3 trims are expected to retain at least 50% of retail value.
The starting price for the Model 3 is also a major selling point. Prices start at under $50,000.
BMW iX3 at 59%
The BMW iX3 is a hybrid car. It uses petrol, diesel, and a plug-in hybrid X3. Using a home charger, it can take 10 hours to charge from 0 to 100%.
You can use rapid charging to get the car up to 80% in 30 minutes. All these features make the BMW iX3 a popular choice for buyers.
So there you have it, a quick look at why EVs depreciate so quickly. The bottom line is that depreciation is inevitable for EVs, just like any other commodity.
Trends are likely to improve as mechanics get acquainted with the technology. Consider investing in a Porsche Taycan for the best resale value. Always take your car to a skilled technician for periodic maintenance. This will improve its resale value in the coming years.
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My name is Matthew, staying in Seattle, Washington. Electric Vehicles (Electric Cars & Electric bikes) caught my attention for the last few years and my love for electric cars and bikes is everlasting. I spend many of my weekends traveling to various places all over various cities with my electric vehicle (e-bike and electric car). Here I am sharing my expertise, experience, and invaluable information about electric cars and electric bikes. Check out more.