Electric cars have not been in the market for long but have proven to lose their value faster.
Let’s explore the reasons behind their depreciation.
First: How Vehicle Depreciation Works
Before jumping into the various causes of a high rate of depreciation in electric vehicles, it’s important to understand the concept. Depreciation is the difference in value between a new car and its value after a few years.
The main difference is how some vehicles depreciate faster than others.
Regardless of the power source, every car is bound to decrease in value.
Cars depreciate by approximately 30% to 60% after three years.
The depreciation assumes that the car makes approximately 10000 miles in a year. A vehicle’s maximum value is lost within the first year.
The depreciation rate varies from one vehicle to another and depends on various factors.
Now that you know how the concept works, let’s get into why electric cars depreciate faster than other vehicles.
6 Reasons Electric Cars Depreciate Faster Than Regular Cars
Let’s dive into the facts.
We start with one of the main factors.
1. Depreciation value includes incentives
Governments encourage people to purchase electric vehicles for their contribution to reducing the world’s carbon print. One way through which they encourage the purchase is by offering tax credits.
Some states have also given rebates to early adopters of the technology.
Hence, people buy the vehicles at a reduced price than they would have bought without the incentives.
When selling these vehicles in the market for second-hand items, the buyers would subtract the incentives and depreciation. In turn, you would sell the vehicle at a lower price than you would have without the incentives.
These factors don’t apply to other vehicles.
2. Technological Changes Have Bypassed Some Electric Cars
Automobile manufacturers have invested a lot in implementing the latest technologies in electric vehicles.
As technology continues to change, better models enter the market, thus affecting the demand and value for electric cars.
Vehicles such as the Chevy Volt (53 miles) and the 2018 Nissan Leaf (151 miles) have rendered their predecessors obsolete.
Nowadays, people can buy a used 2016 Leaf (107 miles) for as low as $12000 because the newer models have a higher value.
When it comes to vehicles, many people prefer to buy those that offer the highest efficiency level.
It’s common in the market for second-hand vehicles because no one wants to buy a vehicle that would present major issues.
With this in mind, people are likely to buy newer models of electric vehicles because they are considered more efficient than older models.
The market for electric vehicles is in its growth stage. Therefore, manufacturers must work their level best to produce the best models to stay competitive.
As technology changes, a few people might be interested in buying 2013 models in the next few years.
If you have such a vehicle, you will be forced to dispose it at a low price.
3. EVs Are Prone to Battery Degradation
Every person who has owned a smartphone for a long time knows that lithium-ion batteries degrade with time.
When such happens, it becomes challenging for the phone to keep charges as it used to when new.
The situation applies to electric vehicles.
When the car is new, its battery can keep a charge for long hours, making it efficient, especially if you don’t have easy access to EV charging points.
Over the years, its battery would degrade, which means you would be required to charge it every few miles. Such a car is considered inefficient.
The good news is that these batteries are replaceable, which shouldn’t worry you. Also, batteries in electric cars are getting better.
Our main concern, in this case, is how fast the vehicle loses its value compared to other types of cars. When you own an electric vehicle, it means you would replace the batteries more frequently than an individual who owns an engine combustion vehicle.
If you had to resell the car, the buyer would consider the battery’s condition before making an offer.
Hence, you are likely to get a depreciation value for the EV.
4. The Demand for New Models
Given the surge in demand for electric vehicles, the value for older models would depreciate faster than other vehicles.
Technology has proven effective in terms of energy consumption and acceleration, so people are on the lookout for new models in the market.
If you’ve an older model, its price will depreciate fast in the market for second-hand vehicles because most people would want to test the new and more efficient models.
As EVs’ demand continues to grow, manufacturers will make innovations to provide customers with a better user experience.
Many consumers prefer the most effective good and, in this case, would choose the latest models over the older ones.
5. The Popularity of the Electric Car Brand Affects Its Depreciation Rate
People have different tests when it comes to the brand of a vehicle.
Undoubtedly, some brands in the market have built a good reputation for manufacturing electric vehicles. Their vehicles have been on the market for years and continue releasing more models.
When a car has been on the market for a long time, researchers will have sufficient information to know how quickly the vehicle depreciates.
Hence, a vehicle’s brand could be a determining factor in its depreciation.
If a particular brand keeps releasing new vehicle models, it increases the depreciation rate for the older models because most people would seek to buy the new cars.
The most popular brands are well known for releasing new cars from time to time, which has shifted the demand for their older vehicles. If you own a vehicle from these brands, you are likely to resell it at a lower price than it would have cost without the aspect of brand popularity.
6. The Depreciation Rate Depends on the Vehicle’s Maintenance
The lifespan of all vehicles highly depends on how well you care for them.
Every vehicle needs regular maintenance to ensure its parts are in good condition. During the maintenance process, your mechanic identifies the parts of your car that might need repairs in the future.
Failure to make such repairs risks damaging your car more.
Electric vehicles don’t need much maintenance due to:
- fewer moving parts,
- regenerative braking,
- and the absence of engine oil.
The maintenance cost for EVs is lower than that of gas-fuelled vehicles.
Therefore, some people tend to overlook the fact that their EV needs regular maintenance. These vehicles are also more prone to software glitches than other cars and, therefore, likely to depreciate faster.
If such happens, your car will depreciate faster than a car maintained frequently.
Do I Need to Understand EV Depreciation Better?
Before you own a vehicle, it’s important to understand its ins and outs.
There are a lot of new car features to consider, like the warranty. Understanding EV depreciation is something that can impact you for years to come.
EV depreciation means an electric car can potentially lose its value faster than a gas-powered vehicle.
It doesn’t have such an obvious major problem as burning fuel and creating emissions, but it has several other issues. Therefore, you need to understand these issues to make the right care purchase decision.
A car might be effective to drive, but you also need to look at what would happen if you wanted to sell it or upgrade it.
Would the market value for your second-hand vehicle be worth the investment?
If you’re looking for a used EV, you must look at several factors to ensure you get a truck that’s not going to drop in value quickly. The most important factor is knowing how much your vehicle would have been worth when it was new.
The biggest factor in determining how much you’ll lose when you sell a used car is what percentage of its initial value it has lost.
Even if your car is working fine and not causing damage to the environment, you may have to pay more to get rid of it.
Is EV Depreciation Predictable?
EVs have been on the market for years, making it easier for people to estimate vehicle depreciation rates. However, this is a difficult task.
That’s because depreciation rates are largely based on market conditions, technology dynamics, and the supply and demand for EVs.
What’s more, these rates are different in various countries and regions.
For example, in Sweden and Norway, more than half of EVs are used for taxi services.
Manufacturers have frequently introduced new models for the EV market in Europe, the US, and China. As a result, people will pay attention to these models only when launched.
In addition to this, EVs have different price tags globally.
Based on this information and other market drivers, it’s not easy for one to predict EV depreciation rates accurately.
Is the Depreciation Rate for EVs Expected to Reduce?
Electric vehicles will continue to depreciate faster than other vehicles due to the demand for new models and price destabilization.
However, as the market continues to grow, it’s expected to stabilize, and the depreciation rate for EVs will reduce.
Technological advancements would also reduce some issues which cause cars to depreciate faster than gas-fuelled vehicles.
Is the Depreciation Rate for All EVs the Same?
No. the depreciation rate of electric vehicles varies, depending on various factors.
Among them are:
- the vehicle’s brand,
- market demand,
- and technological changes.
The depreciation rate for all vehicles is different, not just the EV. Therefore, you must research a specific vehicle to determine how soon it would lose its initial value.
The information would ensure you make the right decision when buying an EV.
The most important thing to remember about the EV is that you need to compare it with other investment options.
When deciding whether to buy one or not, you would need to consider its depreciation rate and the number of new models released. You should also look at the vehicle’s maintenance cost, as your vehicle might depreciate faster than what you initially paid.