The car market is moving into a scenario where the remaining combustion-engined models are becoming much more valuable second-hand than their electric equivalents.
However, as EV values slide for the 21st consecutive month, a two-tier narrative is emerging in which newer, higher-tech electric cars are hanging on to their value better than earlier models.
“The differential between electric residuals and ICE residuals is quite significant,” said Andrew Miller, CEO of the vehicle provider Motability Operations.
The gap between ICE and EV is going to widen as legislation forces car makers to sell fewer combustion-engined models, Miller predicts. “It’s going to be fascinating to watch,” he said.
As the UK’s biggest seller of used cars, Motability is watching closely the impact on its profits as its EV fleet grows, now currently around 50,000 vehicles.
“On the EV side, we've got to carefully navigate [residual risk] but we see a clear difference between values between first-gen, second-gen EVs and the new-generation ones coming through,” said Miller.
The 21-month decline in used EV prices, as tracked by price experts CAP, has made both buyers and car makers jittery. The car makers are especially worried because weak residuals make their task to increase EV sales to 22% of their overall total this year much harder.
This is because depressed used values increase monthly finance payments that are already swelled by higher interest rates, making already expensive cars even more expensive. The alternative is the one being followed by many car makers: take a hit on profits by increasing discounting.
The UK has been hit much harder on EV residuals than other countries in Europe, where the tail-off in used EV prices has been less prolonged or steep.
That's partly due to a correction from a much more pronounced surge in used EV pricing back in July/August 2022, something not experienced to the same degree in France or Germany, according to figures from banking firm Jefferies. It’s also because car makers and big fleets can’t shunt used stock to countries with higher EV demand due to the difference in steering wheel position.
However, it’s also partly in reaction to the reduced desirability of older models as the fast pace of technology brings advances in range, charging speed and overall appeal.
“Nobody wants a car with technology from the stone age,” Ingo Stein, director of automotive and mobility at consultants Bain, told Autocar. “The residual value of old-fashioned slow-charging cars like the Nissan Leaf or the Volkswagen e-Up is basically zero.”
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