Wednesday, August 10, 2016

Tesla Aside, Resale Values for Electric Cars Are Still Tanking

2012 Nissan LeafNever mind those electric-car bargains we told you about mere months ago. Prices have been on such a steep downward trajectory that there’s already an entirely new, sweeter set of deals to be found. You might find a five-year-old vehicle with relatively low mileage, very low operating costs, and nothing wrong with it—for the price of a beater.

The asterisk: That car would most likely be a Nissan Leaf, and you’ll only be able to go about 60 miles before needing many hours plugged in—unless you’re fortunate enough to have fast-charging hardware nearby.

Apparently most people aren’t willing to live with that asterisk, or the few others that accompany life with a used electric car. According to the pricing authority Black Book, retail values for the used 2013 Nissan Leaf are at an average 22 percent of the original MSRP—in the range of $8000 to $8500—while that five-year-old Leaf is selling at just 11 percent of its original sticker.

A three-year-old Leaf—a $30,000 to $40,000 car new—returned from lease gets sold at wholesale auction at $6000 to $7000 or, on average, just 18 percent of its original price. For gasoline vehicles, a three-year residual is typically in 45- to 65-percent range. “To be under 20 percent is fairly telling,” said Anil Goyal, Black Book’s senior VP, operations. “A lot of it has to do with demand.”

In all fairness, the original buyers didn’t lose quite that much money. They likely received a $7500 federal tax credit, along with a range of other possible state or local rebates, credits, or incentives; but even factoring those in, owners of a three-year-old Leaf won’t recover much more than 30 percent of their original net cost.

Goyal has tracked electric-car prices as they’ve exhibited a massive slide the past couple of years, first as an initial round of Nissan Leafs returned from lease in 2014, and more so last year and this year, as the 2012 and 2013 Leaf models, with their expanded trim levels and lower selling prices, came back from lease.

There are a multitude of reasons for the weak used-EV market. Goyal calls demand for the used Leaf “extremely limited” due to a number of reasons that include battery degradation, diminished range, and the potential cost of battery replacement. “A lot of the people just can’t seem to find a need for an EV with such a limited range,” he says. But dig deeper, and the question of supply and demand in the electric market gets much more complex—with the interplay of technology, regulation, and market forces leading to some shockingly good deals.

Electric Cars, with a Smartphone Shelf Life?

Vehicle life cycles used to be a given. Typically you could buy a car, time that purchase smartly, and know that it wouldn’t change radically in three to five years. And for much of the market, that’s still true. But in the electric-vehicle market, new sticker prices keep edging downward, while new versions with higher battery capacity (Leaf, BMW i3, and Volkswagen e-Golf) are slotting in at the previous year’s price point. And it’s leading some would-be electric-car buyers or lessees to play “wait and see” with the market—like they would in advance of the next big smartphone or tablet launch.

“The auto industry hasn’t really seen something like this in a while; it kind of mirrors the electronics industry,” said Goyal, noting that some of these models are making others just a year earlier seem “fairly outdated” and definitely inferior in driving range.

Another part of the cold shoulder given to some EVs could have to do with their relatively polarizing styling: for example the Leaf, i3, and Mitsubishi i-MiEV. “In the past there has been this trend of having electric vehicles look very different,” said Goyal. “Do you really want to drive that?”

2013 BMW i3Looks aside, Goyal anticipates that the same set of problems will continue to plague all EVs with a range of around 100 miles or less. That group includes the i3 and the Ford Focus Electric, as well as a group of vehicles that are mainly limited to ZEV mandate states—the e-Golf, i-MiEV, Mercedes-Benz B250e, Kia Soul EV, and Fiat 500e.

The impending arrival of vehicles that have a range of around 200 miles or more—including the Chevrolet Bolt EV, the Tesla Model 3, and potentially, the next Nissan Leaf—is also making matters worse, tempering demand and contributing to the even more rapid plunge in values for the sub-100-mile EVs. The Bolt EV is expected to have a base price of around $37,500—which would undercut a number of those 100-mile models and further affect values up and down the market.

Low Gas Prices: Bypass Small and Green

It’s not just pure-electric cars that are running low on resale juice—it’s anything with a plug. The Chevrolet Volt plug-in hybrid has underperformed on the used-car lot, too. It stands at just 31 percent of original value after three years (versus the 47-percent norm for compacts).

Plug-in hybrids like the Volt struggle to keep their value for several reasons, said Patrick Min, senior analyst at TrueCar. On one side, people may not grasp how they work, and those without garage parking might not understand you don’t need to plug it in all the time. Furthermore, fuel prices continue to be low (now well under $3.00 a gallon nationally), and with an initial premium of thousands versus a comparable gasoline car and gas prices, it’s just not penciling out.

The compact-car segment has also been hit harder due to low gas prices and consumers favoring SUVs and larger vehicles; compacts overall retain about 47 percent of their original value (versus the 52 percent for the average vehicle, according to Black Book).

How Does Tesla Do It?

The Tesla Model S, on the other hand, retains to 62 percent of its value after three years, according to Black Book.

“Tesla resale values are an anomaly if you look at the electric-vehicle competitive set,” said TrueCar’s Min, who points to the brand’s maverick image, different company culture, and over-the-air updates as reasons why the brand stands out—as well as how the vehicles manage to fit in alongside other luxury models. “The Model S finally gave eco-conscious consumers something that fit their image.”

Tesla Model XDemand continues to outstrip supply for the Model S and Model X, which is one of the keys to keeping used-vehicle values on the high side. Tesla recently discontinued its resale value guarantee, which allowed the car to be traded in for a specified (generous) price as an option after 36 to 39 months of ownership. Goyal notes that the program “has created headaches on the accounting side for Tesla,” yet he doesn’t expect that values will fall with its discontinuation.

TrueCar’s Min points to the Tesla Supercharger network as contributing to the strong resale value. “They’re the only one that can keep usage cycle as close as can be to gasoline cars…that usability is unique to Tesla.” Currently, the cobbled nature of public charging networks offers nothing close to that experience.

So can luxury automakers such as Mercedes-Benz, Audi, and Porsche—all of whom have confirmed plans for future electric vehicles—expect value retention like Tesla’s? Or a Leaf-like slide? That depends on how well mainstream higher-range models such as the Bolt are received. And then there are things that car buyers tend to take for granted that remain unhappy sticking points for Tesla owners in some cases. “Traditional automakers definitely have a leg up in build quality and consistency, which Tesla has continued to struggle with,” said Min.

One thing we are going to see, anticipates Min, is a continued downward shift in pricing on the affordable, 100-mile EVs to better match demand. “Automakers have been doing a pretty good job responding to where prices were, but they are still somewhat inflated.”

A Market Segment Charged with False Pretense

Some of the slide in post-lease EV value comes from the nature of the leases themselves. Many of these cars were initially leased under some very fuzzy figures. Through a so-called subvented lease—done through an automaker’s captive finance company—several of these EVs have been offered at $149 a month, or even less, with very little money down. According to Min, there’s nothing rule-breaking about this strategy, although it’s a cost hit that automakers ultimately take for getting the vehicles out there.

Those strategies are partly out of necessity. With California’s zero-emission vehicle (ZEV) mandate, larger automakers must sell a certain percentage of plug-in vehicles in that state—with tougher requirements to also make those vehicles available in nine ZEV-mandate states in 2017.

“It’s an extremely challenging environment,” summed Min, pointing to predictions of sub-$3.00 gas prices for the next few years. “There definitely seems to be more of a push to meet those ZEV mandates rather than actual consumer demand.”

In the meantime, it’s a win for anyone who’s curious about plugging in, as analysts expect to see prices continue their gradual descent, toward the level of equivalent gasoline models, while driving range rises. The regulation-created era of the $4000 used EV and cheap leases on vehicles with plugs will be here for some time.


from Car and Driver Blog http://blog.caranddriver.com/tesla-aside-resale-values-for-electric-cars-are-still-tanking/


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