Is there a depreciation issue with electric vehicles (EVs)?
Currently, the depreciation of EVs is under intense scrutiny. Any buyer investing in a new vehicle is accustomed to the notion of depreciation, but presently, EVs are experiencing a particularly pronounced decrease in value. This is spurred on by falling prices for new models, as well as an indifferent second-hand market where the majority of purchasers are disinclined to acquire the existing selection of used EVs.
This situation is leading to a predicament in the second-hand market for EVs, prompting some owners – hit hard by diminishing resale values – to abandon EVs in favour of the more recognisable petrol, diesel, or hybrid vehicles, incurring financial losses. They are censuring the shift towards EVs vehemently.
Are second-hand EVs failing to sell?
Certain previously owned electric vehicles indeed struggle to find a buyer to such an extent that they are virtually unsaleable. One specific ID. 4 had to be discarded by a financier, implying the previous possessor either relinquished it to satisfy a vehicle finance debt, or it was seized due to missed payments.
Does this imply potential deals on used EVs?
Indeed, the situation presents potential opportunities for obtaining previously owned EVs at discounted prices.
The current state of affairs suggests potential for rather attractive deals on certain automobiles for those who are willing to invest. O’Reilly states that while finance providers setting reserve prices for vehicles are typically willing to negotiate, it’s important they avoid compromising the value of the cars, as it could undermine the assurance underpinning such finances. Nevertheless, there exists an opportunity for a savvy purchaser to negotiate a deal.
Take for instance, the ID. 4. Had a potential buyer shown interest last week and pitched €22,000, they would be the owner by today, comments O’Reilly. Next week, the price might dip to €18,000. No live bids were made, but banks are aware of this flux. This could explain their cautious approach towards electric vehicles (EVs), especially after underwriting multiple Teslas, which subsequently saw their prices drop by €10,000, impacting finance firms with EVs in their portfolio. When one price drops, it can trigger a similar cascading effect for others.
This emphasises the risks of depreciating resale values of EVs. However, there exist two sides to this coin. When the value of your own EV falls, so does the price of the new model to which you might upgrade. This means that your switching costs remain relatively stable, or could become marginally less. For second-hand car purchasers willing to transition to electric, this presents a significant advantage. With a selection of excellent electric cars available – such as the ID.4 at Merlin auctions – eager buyers could acquire these for a substantial discount.
The question arises as to whether this is a persistent pattern for EV prices, or a temporary anomaly. The steep drop in second-hand EV values is largely due to a forceful “adjustment”, pulling back from the inflated valuation of EVs experienced in the immediate aftermath of the Covid-19 lockdowns and the widespread shortage in computer chips.
As the availability of new electric vehicles regained, it was only natural that the prices of the used models would see a significant decrease. They have likely adjusted too much at this point and we can expect a rebound in the next couple of years, particularly if the government decides to introduce an incentive for used EV purchases in the upcoming budget as has been suggested.
Another crucial point to highlight is that as our charging infrastructure enhances, and more EVs start to populate our streets, and more individuals understand the pros and cons of electric driving, a greater number of second-hand buyers will make the transition, which will lead to a stabilisation in pricing. Although currently, it’s indeed a challenging arena.
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