Analysis: Plummeting EV resale values will bounce back, say experts – carsales.com.au

The significant growth in new electric vehicle (EV) sales has seen the values of used EVs plummet in many countries around the world, including Australia.

Here, resale values of EVs declined by more 21 per cent in the 12 months to January 2024 – meaning a used EV depreciates more than its internal combustion engine (ICE) equivalent.

So why are EVs suffering in the used car market when they cost more in the first place?

It might sound counterintuitive, but a key factor in the lower resale value of EVs is the higher purchase price compared to its petrol/diesel version (where applicable) when new.

This simply does not carry over to the second-hand market, where buyers have different priorities and motivations.

This is something that impacted the hybrid vehicle market over the last two decades – and electric vehicles are riding the same roller-coaster.

When the Toyota Prius hybrid first went on sale in Australia in 2001 for $39,990, the similarly sized and specified Toyota Corolla Ultima hatch was priced at $31,030.

People looking for the capability of a Prius – in terms of size, comfort and practicality – could achieve the same result for less money with a Corolla or a rival car-maker’s hatch.

“The premium a buyer paid for a new hybrid was not maintained in the used market because the powertrain is less relevant,” says RedBook’s Ross Booth.

“This means hybrid – and now electric cars – lose their premium, so they decline in value at a greater percentage.”

The same issues afflict EVs: the higher price premium of the Nissan LEAF – or older Teslas in recent years – are not carried through to the used market.

The premium for hybrid and now EVs was deemed worth it for early adopters – customers who saw value in the technology, whether that be hybrid or battery-electric.

To get beyond the early adopter phase, new technology must become a rational, pragmatic purchase – electric, hybrid and even the automobile in general have faced naysayers.

“Perception is reality and there are a lot of misconceptions about EVs in general,” says Booth.

Like EVs, new-car consumers did not necessarily understand hybrid technology, so risk-averse buyers shopped elsewhere both in the new and used markets.

“The reason for that was it’s got a battery and therefore has an end of life. So therefore, the perception is, the vehicle has a shorter lifespan,” says Booth.

As car-makers have improved their EVs technologies – primarily in terms of battery range but also charging times – as well as accompanying improvements in charging infrastructure, the appeal of electric cars has begun to spread from early adopters to more mainstream customers.

Again, using hybrids as the roadmap for EVs, battery life improved, prices reduced and the uncertainty began to dissolve as hybrid technology seemed less of a gamble.

This did not mean used hybrids became instantly more valuable on used car lots, however.

Instead, as new-car hybrid technology improved, buyers across the board did not want quickly outdated hybrids – they wanted the latest and greatest.

The rapid pace of advancement in electric vehicle tech works heavily against resale values here.

Love or loathe Tesla boss Elon Musk, the US car-maker has been fundamental to both global and Australian electric car markets.

In 2023, the two best-selling electric cars in Australia came from Tesla – the Model Y mid-size SUV and the Model 3 mid-size sedan – with the electric-only brand itself placing eighth overall.

Around 70 per cent of the 170,000-odd electric cars on our roads are Teslas.

“So when we talk EVs in Australia, we’re really talking Tesla,” says Booth.

“Tesla’s resale values – they’ve taken a bit of a dip – but up until recently were quite strong because the demand for Tesla was real, and always strong compared with the supply,” says Booth.

Yet that’s starting to change.

“If we go back in the Australian market just to two years – not that long ago, the end of 2021 – there were 24 EV models available for sale,” he says.

“By the end of 2023 that doubled to 48 – as we sit today, it’s 57.”

More choice means broader appeal and EVs moving from a tech buy or early adopter phase to becoming mainstream.

“People previously bought EVs that didn’t align with what people want in the market,” says Booth.

Dual-cab utes and SUVs have dominated Australia’s new-vehicle market for the last decade, but most EVs have been B- and C-segment city-cars (BMW i3, Nissan LEAF) or luxury sedans (Tesla Model S and Model 3).

“This is starting to change. We saw that with the [Tesla] Model Y [SUV] and we’re seeing it with [Ford Mustang] Mach-E [SUV], and we see it with lots of others.”

Lower prices for new electric cars make older EVs harder to move, increasing the discounts on the older cars.

This is reflected in resale value down the track.

Again, Tesla’s dominance of the market means its specific price changes – around half a dozen in Australia, both up and down, in 2023 – impacts the entire used EV market considerably.

In the UK, where lower EV resale values have been widely reported, an oversupply of cars in 2023 saw heavy discounting as car-makers had to meet new-vehicle emissions caps.

“There’s also pressure on brand-new electric cars, with the average discount offered off the recommended retail price by retailers on EVs now at more than 10 per cent,” according to Autotrader.co.uk Insights Analyst, Sean Otley.

“This is more than double what they were in January and higher than the average of six per cent for petrol cars.”

In 2024, 22 per cent of all cars sold by each UK car-maker has to be ‘zero-emissions’, meaning battery-electric cars. This will increase annually until 2035, when the quota will be 100 per cent.

There was also an unintended consequence of the UK’s 0 per cent company car tax scheme from 2020, which flooded the market as the leases of EVs ended.

“When those cars came back into market in 2023, there’s a lot more [new car] choice for them. There’s more [battery-electric] Mercedes and BMW families and the Koreans have great electric cars,” said Otley.

The changes saw UK year-on-year EV values nosedive 15-20 per cent in six months.

“Then suddenly [at lower prices] the used EVs become a good proposition so demand accelerated… they aren’t losing value anymore – they’re down 20 per cent year-on-year but they’re at a price where it makes sense.”

The trend saw used EV sales in the UK for 2023 increase by 90.9 per cent to a record 118,973 units. According to the SMMT (Society of Motor Manufacturers and Traders), EVs took a 1.6 per cent share of the overall used car market, up from 0.9 per cent in 2022.

Australia does not have a similar set of legal or economic drivers shaping the buying landscape for EV shoppers, although the proposed New Vehicle Efficiency Standard (NVES) is a big step towards more regulation.

Heavy discounting – whether due to government legislation, more competition or both – will again artificially lower the used values of EVs in the UK for car-makers struggling to make the quota, spelling bargains for buyers.

Used EV prices and the cost barriers that plagued EV uptake are discussed in the latest episode of carsales’ EV podcast Watts Under the Bonnet. So too the vexed subject of price parity.

While Tesla has largely already achieved EV-ICE price parity, the prices of other new EVs will – at some stage – match those of their ICE equivalents and that tipping point will likely be the end of the abnormally low used EV values.

“The technology [development] factor and people’s desire for new EVs with the latest and greatest technology means we won’t have used [EV price] parity for some time,” says Booth.

The progress made by hybrid cars, though – predominantly by Toyota – will also be made by electric vehicles, Booth asserts.

“We’ve seen it before,” he says. “Hybrids give us a view of where EVs are heading.

“It’s not Toyota doing something magic with hybrids, but the price of the new vehicle aligning with what people want – and that will happen with EVs.

“When you increase the range to over 1000km and you can charge it in 10 or 15 minutes, why would I buy an ICE vehicle?

“It’s a major market tipping point. What I do know is that will happen in markets worldwide before it happens in Australia, because we won’t get the supply of that new technology first.

“I’m an economist by trade, but the entire market works on demand and supply. It’s as simple as that.

“It’s how many people want to buy it and how many are there, and that will dictate the price.”

For everything you auto know about EVs, listen to carsales’ Watts Under the Bonnet: the electric car podcast

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