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Depreciation is one of the most significant costs in vehicle ownership. The moment a car leaves the dealership, it begins to lose value, and over time, mileage and wear further reduce its resale price.
But how do electric vehicles (EVs) hold up compared to internal combustion engine (ICE) vehicles? Do they retain their value better or depreciate faster?
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What is depreciation?
Depreciation refers to the difference between what you originally paid for your car and its current market value.
Across Europe, most cars lose about 50 per cent of their value in the first three years, with the depreciation rate slowing by the fourth to fifth year.
By eight to 10 years, many vehicles have lost the majority of their value.
What influences depreciation?
The rate at which a car depreciates depends on several factors, including mileage, condition, supply and demand, brand, and model.
For electric cars, additional factors come into play, such as battery health, technological advancements, and government policies.
A recent Italian study found that national fiscal policies significantly impact depreciation by influencing purchase prices and the residual values of cars.
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For example, in some countries, a Tesla Model 3 is up to €8,524 cheaper than a Toyota Corolla due to subsidies, while in others, it can be as much as €6,590 more expensive.
The tax burden between the two models varied dramatically, from as little as €448 to as much as €16,022, depending on the country’s specific tax and incentive structures.
These differences in fiscal incentives have a considerable impact on car resale values across Europe.
External factors like economic downturns or manufacturing slowdowns also have an impact. For instance, during the COVID-19 pandemic, reduced production led to supply shortages, which increased the value of used cars.
EV depreciation: A unique pattern
Electric cars have historically followed a different depreciation curve compared to ICE cars.
Initially, EVs depreciated faster, primarily due to rapid advancements in battery technology. As newer models with better range and charging capabilities emerged, older EVs lost value more quickly.
Several key factors affect EV depreciation, including battery degradation.
Despite new EVs typically offering warranties of up to eight years or 160,000 km, concerns about battery longevity persist. However, data from Recurrent, a company specialising in EV battery health and performance, provides reassuring insights.
A survey of 20,000 EV owners found that only 2.5 per cent of batteries had been replaced outside of manufacturer recalls. This suggests that battery degradation is occurring at a much slower rate than initially feared, offering potential buyers greater confidence in the long-term durability of EV batteries.
The second key factor to take into account is technological advancements: Newer electric vehicle (EV) models continue to deliver longer driving ranges and faster charging times, making older models appear outdated. As a result, this rapid technological progress can negatively impact the resale value of older EVs.
Supply and demand is also a factor. The sharp increase in new EV sales in recent years has led to a growing supply of used EVs, especially from fleet companies, which is saturating the market and driving prices down.
The introduction of more affordable models from China has also contributed to this trend, further increasing the pressure on the resale values of used EVs.
Lastly, price realignment is causing some issues. Recent price cuts by car manufacturers for new EVs have significantly impacted the second-hand market. While these lower prices are attractive to consumers, they raise concerns about the long-term stability of used EV values.
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How does EV depreciation compare to ICE cars?
Data from the Autovista Group shows that battery-electric vehicles (BEVs) are depreciating more rapidly than ICE cars in several European markets.
Three-year-old electric vehicles with 60,000 km on the odometer continue to have low residual values, meaning they retain a smaller percentage of their original list price compared to other major powertrains in countries like Austria, Germany, Italy, Spain, Switzerland, and the UK.
In contrast, hybrid-electric vehicles (HEVs) have shown much better value retention, highlighting the growing challenges that BEVs face in the secondhand market.
A September 2024 report from DoneDeal, Ireland’s largest Car selling website showed that used EV prices in Ireland dropped by 15 per cent year-over-year due to increased supply and aggressive new-car pricing strategies from manufacturers.
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Is there a market for second-hand EVs?
Despite these depreciation challenges, the second-hand EV market is growing. Falling prices present an opportunity for buyers who may not have been able to afford a new EV.
As battery technology becomes more reliable and public confidence in electric vehicles (EVs) grows, depreciation rates are improving, making EVs more competitive in the used car market
What does the future hold for EV values?
Industry analysts predict future values based on a range of factors, including battery production costs, emissions-based taxation, road charging schemes, and government incentives.
The EU-wide ban on new petrol and diesel car sales by 2035 will also influence EV resale values.
Batteries account for the largest share of an EV’s production cost, making up approximately 40 per cent of the total.
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However, battery prices are expected to decrease due to falling raw material costs and production capacity exceeding global demand for EVs.
While EVs have historically depreciated faster than ICE cars, the gap is expected to narrow as the used EV market matures and demand increases.
Ultimately, car depreciation depends on what future buyers’ want – and as EV technology continues to improve, the likelihood of EVs retaining their value more consistently over time will increase.
