Used EV prices are falling.
Buyers can get some great deals, but some say it is yet another sign that
demand is faltering.
Low resale value could also be a major deterrent to EV purchases
and EV adoption more broadly.
Others say it is just a blip and fears of an EV slowdown are
overblown. Studies show that used EV prices fell somewhere around
30% in September and October 2023, from the same period in
2022. Used vehicle prices overall saw declines in the mid single
digits for that time period.
The mainstream appeal of these cars is still not there.
They're still too expensive and they've got too many limitations in terms of how
you use them. People are broke, interest rates are high.
The demand for EVs is not the issue, it's the affordability.
Some research indicates what many EV supporters insist: EVs are
cheaper to own than gasoline burning cars.
You don't have to shell out for gas, and maintenance costs are lower, but a
car's residual or resale value is a big factor in determining the total cost of
owning it. The volatility in the used EV market shows how much isn't yet known
about EVs, including how to predict what one will be worth in a few years
. A single change to policy, battery technology, even a single manufacturer's
prices can upset the whole market.
These price drops come at a time when many other data points suggest EV demand
is stalling. New EVs are collecting dust on dealer lots.
Tesla, which controls nearly two thirds of the EV market, has been aggressively
cutting prices and its third quarter deliveries fell short of investor
expectations.
Let me give you this general thought that I hear from everybody in this
business, including people at Tesla.
This is still new.
CNBC looked at data and talked to insiders to determine whether used EV
prices are a sign of a larger slowdown in the EV market, or a bad investment
altogether.
One study showed that all used vehicles up to three years old lost
4.8% in value from September 2022 to September 2023,
but EVs specifically fell 29.5%.
Another show that from October 22nd to October 23rd, the
average price for 1 to 5 year old used EVs dropped
33.7%. Meanwhile, used car prices only fell
5.1% in the same period.
A third showed they had fallen about 32% from September 22nd to
September 23rd.
That study said the average EV price as of October 18th was
$27,863, roughly the same as what it was in early
2021. Some research indicates EVs have the worst depreciation
rates of any vehicle type, including, by a narrow margin, big value
losers like luxury vehicles.
Hybrids are doing extremely well in holding their value and EVs are doing
extremely poor.
Why is that?
Because when you buy a hybrid, what do you get?
You get much higher fuel efficiency and a higher fuel price.
World we live in and zero range anxiety.
That's a powerful, desirable combination.
The trouble is not limited to the used market.
In January 2023, new car dealers had about 52 days worth of
EVs and internal combustion cars, but internal combustion
inventory held pretty steady between 52 days and 58 days throughout the year,
while EV inventory soared to 111 days in early July,
then settled at 97 days by October.
These numbers have fueled concerns that demand for EVs is waning, but not
everyone agrees.
There has been a fierce debate over what's actually happening.
There's been this wave of what I would call pretty misleading headlines over
the last few weeks, like you would think that EVs were dead and buried if
you paid attention just to what the news headlines were.
Scott Case is CEO of Recurrent, which creates vehicle history reports
specifically designed to measure EV battery life.
It also publishes the Recurrent Price Index, which tracks used EV sales.
That index is among those showing prices have fallen dramatically.
If you wanted to say what's the single biggest cause of used EV price
drops, it's Elon Musk.
Tesla controls about 60% of the new EV car market, and in
2023, the company started a price war that drove a lot of
customers who would buy used EVs toward new ones, especially Teslas.
It also forced a lot of other manufacturers to lower their prices as
well, and the timing corresponds pretty tightly with the Tesla price drops.
Many of the 2022 models were current tracks depreciated 20 to 40%
over 2023.
Nobody's going to pay the same for a used car as they would for the new
alternative. So you saw an immediate drop in used Tesla
prices, which then was followed by a like a time delayed
drop in the used prices for Tesla competitors.
In other words, plummeting EV values don't reflect some kind of inherent
problem with EVs, just the fact that consumers who might otherwise buy used
are opting for new Teslas instead.
In addition, 2023 is the three year anniversary of the Tesla Model Y,
which in the third quarter of the year was the best selling EV in the US.
Three-year-old cars are a kind of benchmark in the used market.
Leased vehicles are often held for a period of three years, and a large share
of the cars on the used market are vehicles coming off lease.
Recurrent has found that on average, new EV owners hold on to their cars
for about 3 to 4 years before selling.
That means a lot of 2020 Model Y's are entering the used market.
Driving up inventory.
2018, 2019 was just an incredible step up in new EV
production in the US.
Tesla, but other manufacturers as well.
And so that's what we're now seeing, kind of come on to the used market at
scale.
Used EV sales now outpace the sales of all new EV models except the
model Y, and dwarf the sales of most of them.
They do, however, make up only a tiny share of total used sales, about
1%. Finally, new federal tax credits kicked in in 2023.
These replaced the EV credits that had been in place since 2009.
The original plan offered buyers a $7,500 credit for each of the first
200,000 EVs a manufacturer sold.
The new credits offered the same amount of money, but introduced a few new
conditions centering on the price of the vehicle, the buyer's income, battery
capacity, and where the car is assembled, among other things.
January 1st of 2023.
The $7,500 tax credit appeared on the scene for new
cars, so the immediate impact was essentially dollar for dollar
$7,500 decreases in used prices like right at January
1st for any car that was sort of getting eligibility for this new
credit.
In April 2021, there were about 11,000 used vehicles on US dealer
lots and on dealer or manufacturer websites.
That doesn't include private sellers.
By October 2023, there were three times that.
Two concepts to keep in mind.
Residual value is what a car is expected to be worth at the end of some
term a lease, financing period, subscription rental, or something
else. It is often based on the price the car would be expected to fetch on a
wholesale market like a dealer auction resale value is what a car is
likely to be worth once you sell it on the retail market.
Used EV prices matter because residual value and resale value
are factors in determining the total cost of owning a vehicle.
Tesla has long argued that its cars have a lower cost of ownership than
comparably priced internal combustion vehicles.
When you include gas prices, which EV owners don't have to worry about, and
maintenance costs, which tend to be lower as EVs have fewer moving parts.
Calculating cost to own is complex and varies tremendously depending on
insurance costs, gasoline prices, and electricity rates, among other things.
In its 2023 five year cost to own rankings, Kelley Blue Book said the
Tesla model three had the lowest cost of ownership in the luxury car category.
The also electric Polestar two came in second.
What matters is that this idea that we're going to all be driving electric
vehicles in a relatively short timeframe: 3, 4 or 6 years, this
latest six months, and what's gone on with electric cars really puts that
into question. In my mind.
The reality is that EV sales growth, both on the new and the used side, is
vastly outstripping combustion engine sales growth.
Case cites several statistics from September 2022 to September
2023. New US vehicle sales on the combustion side rose 13%,
new US EV sales rose almost 60%.
Sales of used EVs were up 40%, used combustion cars
fell 2%.
But skeptics say that doesn't cover the full story.
Remember, there are three types of lies lies, damned lies, and statistics.
On the one hand, sales are growing, but in the new market it is taking longer to
sell an EV than a gasoline car.
And in the used market, prices are falling more dramatically.
Elon wanted to hit a certain sales each of his quarters this past year, and he
was dropping his prices to do that, and he still didn't hit his sales.
What do falling prices and not hitting your sales goals mean?
They mean people are not buying the cars at the rate that you thought they
would.
EV sales are not growing uniformly across the country.
Some evidence suggests that states with the highest share of EVs like
California, Oregon and Washington are also the slowest growing markets.
Brauer says there might be a kind of natural ceiling for EV demand somewhere
between 7 to 10% of the market, but other data suggest EV sales are still
growing steadily, In many of these places.
EVs tend to cost more than gasoline counterparts, even with Tesla's price
cuts and EV subsidies for at least some models, new EVs often have higher
sticker prices.
Public charging is something that people worry about.
If I don't have a Tesla, where am I going to charge it?
La la la. Well, you know something?
Somewhere between 70 and 75% of people just charge at home.
Most of the time.
I think people and the government need to embrace the
reality that electric cars have some advantages, and they can serve a role
in personal transportation.
They cannot be the solution and serve the role in personal transportation
until some big problems are solved.
In 2024, what is now a tax credit needs to be filed on a tax return will
become a point of sale rebate, $7,500 on a new EV and
$4,000 on a used EV.
I wouldn't be at all surprised to see a coming surge in both categories
starting in January, when someone can basically get cash in their pocket right
at point of sale rather than having to wait.
You know what essentially would be 18 months to file their taxes and have a
reduction in their tax liability.
But for people who have bought a new EV in 2023, there might be another hitch to
pay attention to. Three years down the road, the terms for the $7,500 tax
credit on new EVs in 2023 were tightened considerably.
If you're buying an EV, you would have to fit certain eligibility requirements.
For example, the car has to be below a certain sticker price and assembled in
the US, among other things.
However, there was a workaround a manufacturer could still offer the
credit if the buyer leased the vehicle.
The lease rates on those cars have just absolutely skyrocketed this year,
which is the interesting sort of knock on effect in the used market, is that
means that three years from now, a ton of them start showing up
in the used market.
Skeptics like Karl Brauer think that more will really need to change before
the used car market looks more like its internal combustion counterpart.
So they need to cost as much as combustion engines.
They need to travel as far as combustion engines, and they need to
refuel as quickly as combustion engines.
When EVs can do those three things, why would you not buy an EV?
In addition, larger economic factors like high interest rates would need to
change.
The factors that are in place, which is a budding oversupply of
new EVs, which is making them less valuable and pushing their prices down,
and economic concerns and high interest rates.
I don't see any of those changing in the next few months, so there's no
reason to believe in the near term at least, that you would suddenly see a
reverse in used EV pricing.
A spike in gas prices could also spur demand, but under certain conditions,
interest in hybrids and EVs tends to rise when gas prices are rising, but
level off when prices settle, even if the price is high.
Understanding the used EV market and EV depreciation presents serious
challenges. First, the dataset is small.
As mentioned, only a tiny share of all used cars are EVs.
Second, because the market is still new and the technology changes rapidly,
there are still unknowns.
Battery technology is one such area.
It's something people worry about because they're like, you know, my
iPhone is down to 80% after two years, what's going to happen to my car?
So it's one of these things that may be more of a consumer perception thing in
real life. I mean, what we're seeing with Teslas is the batteries do tend to
go 7 or 8 years and are still pretty good at the end of that.
The short story on battery longevity is that EV batteries are holding up
better than people's expectations.
It is not the case that an EV is an iPhone with wheels on it.
It doesn't work the same way, but there is variability between different cars of
the same make, model and year.
And that's especially true as vehicles age.
So if you start out with a car that has a range of 250 miles, after
five years, it could have a range of 200 or 220, depending on how it's used,
how it's charged, what weather conditions it's exposed to.
A simple change in federal tax credit rules can lead to a flood of used
vehicles three years down the road and just one manufacturer, Tesla, can move
the entire market just by changing prices on its website.
This is still a new market.
We are still figuring out how EVs at scale work.
We are still figuring out how charging at scale works.
It's all these little things.
People are doing this stuff for the first time, used EVs that aren't Teslas
are a new thing to some extent.
Use. Teslas are still a new thing, and we're all still learning how this is
going to work. It's all still emerging.