EV Depreciation SUCKS

Most electric vehicles lose about 60 percent of their value in five years. Most non-EVs lose about 45.

There’s a big gap between how much depreciation a gasoline or diesel vehicle loses over time and how much a battery-electric vehicle loses. The average internal combustion engine (ICE) car or truck loses about 45 percent of its value in its first five years. That includes luxury models, pickup trucks, sedans, crossovers, sport utilities, hybrids, and everything else in the consumer-side of automotive. The average electric vehicle (EV) loses about 60 percent of its value in that same time period.

That 15 percent gap is a lot of value. The reason for it is pretty complicated.

There are four major factors in EV depreciation that don’t generally affect non-electric vehicles: obsolescence, incentives, batteries, and prices. Let’s look at each.

Obsolescence

Technology moves fast. Generally speaking. In electric vehicles, since they’re so new (in terms of their modern return to market), the tech behind them is evolving quickly. Battery chemistries, charging architectures, and so on change rapidly.

Think of it this way: a 2021 Nissan Leaf is now 5 years old. When new, that Leaf sold for about $38,000 (averaging its standard battery model trims) and had a range of 150 miles per charge. A 2026 Nissan Leaf has the same average price, but has a range of 259 miles per charge. That’s over 100 miles of range added with no price uptick.

To further exacerbate things for the 2021 model, charging times for the 2026 model are about the same, but its battery is roughly 50 percent larger. Meaning you get more driving range for that same charge time. Further, the new model can charge on two different fast charging networks inherently, having plugs for both the NACS (Tesla) and SAE J1772 plugins.

I’m going to pick on the Leaf a little in this article because it’s the most illustrative and least politically polarized of the EVs on the market. It’s also one of the longest-lived.

Incentives

It’s been widely advertised that federal incentives for buying an EV are gone. No more tax breaks for banks, consumers, or whoever else purchases the car initially. There is still a federal incentive for purchasing and installing a home charging unit and many states and local jurisdictions have incentives still in place as well.

For the most part, though, incentives from the manufacturer are the biggest cost-reducers seen right now. Most EVs are heavily incentivized by their makes thanks to the market dropping as consumers lose interest in the electric car.

The loss of federal incentives has forced EVs to compete on a more even playing field against their ICE counterparts to find buyers. So far, that hasn’t been going well for electrics. Comparatively, an EV is more expensive to its equivalent ICE option and may have a more expensive after-sale cost as well.

The idea of saving on maintenance, fuel, etc. because the car is electric is largely offset in reality. This is thanks to higher road taxes as local governments try to recoup lost revenue from gas taxes and higher insurance costs. Many jurisdictions have instituted an EV tax on registration and insurance for an EV averages about 42 percent more than for an ICE vehicle.

Batteries

Battery costs and technologies are improving rapidly. More technology means more interest, but also means that older tech loses that interest in favor of the new. In the case of the Nissan Leaf, for example, the battery chemistry changed a lot, with denser lithium-ion modules and an active thermal management system on the newer models.

On top of that, the costs per kilowatt hour for batteries has also gone down significantly. Hence the new Leaf with 100 miles more range has the same price tag as the older one when it was new.

Other changes, like faster charging thanks to better software and hardware in the vehicle, and a more versatile design also improve the new Leaf over the old.

The other side of the battery problem is consumer fears. Even those who are big EV proponents (aka “EVangelists”) often believe that an electric vehicle’s battery loses significant charge capability after ten years. Now that we have more than ten years of used electrics to go from, it’s clear that this is not the case. It’s a question of charge cycles rather than time. Meaning, as with ICE vehicles, an EV’s lifespan is more about miles driven than time that’s passed.

Most consumers, however, aren’t aware of that and are still under the impression that old batteries are just waiting to brick on them at the least convenient time. This is a significant driver of used EV pricing. And it’s probably not going to be easily debunked for most people.

Prices

I briefly touched on pricing before, but it’s worth going deeper. The average price for a new electric vehicle is about $72,000 versus a $50,000 average for a non-EV. Studies have shown that this price gap takes roughly ten years to equalize in terms of cost of ownership.

That’s on average. Specific EV vs ICE options will vary within that average. But none of them will get down to five years. In that same time period, however, the EV will have lost much more of its value.

Both the 2021 and 2026 Nissan Leaf sold new for about $38,000. The average price for a 2021 Nissan Leaf on the used market right now is about $13,500. A 64.5 percent drop in value. Just over the average for an EV. And it’s about 9 percent more than the average luxury car loses in the same five years and about 15 percent more than the average non-luxury vehicle loses.

The depreciation difference also illustrates why electric vehicles are sold via lease programs at a rate roughly equal to luxury vehicles. They’re about equal in terms of up-front cost, have similar depreciation, and have similarly higher costs of ownership.

When Will This Change?

The near-future for electric vehicles, in terms of price parity with non-electrics, is pretty grim. At least in North America. Other markets are seeing far different numbers, mostly due to government incentives both before and after the sale.

What should be kept in mind here is that the rush to EVs was just that: rushed. Over time, they will reach parity with ICE vehicles and will eventually become a much larger market share. Perhaps even dominant. The key word there was “time.”

The frenzy to massively adopt EV as the norm has backfired in several ways. It will take a while to dig them out of that hole and put them back on parity with their competition. The step of removing heavy government incentivization is a big help with that. Removing the politics and allowing EVs to mature and compete on their own, I believe, will make the biggest difference socially.

And that social perception is the biggest part of the overall EV adoption problem. If EVs can be perceived as being on even ground and competing with their ICE counterparts without intervention, they’ll gain more over time than the short-term gains from the opposite approach has had.

I’ve long predicted that battery-electrics will take at least two decades to gain double-digit market share in the U.S. automotive market. I’m sticking with that 2040 prediction for them. I think growth in share will speed up at about that same time, but it will take at least another decade to see close to 50/50.