We’ve seen a number of reports recently about predictions that electric vehicles will lose value faster than similar gas cars. While predicting the future is a tricky business, there’s a deceptive math trick being used to make the resale values of EVs look bad. The people making these predictions tend to play both sides when it comes to the federal and state incentives that help level the playing field for electric vehicles, which have to compete against gas vehicles running on decades of subsidies, most notably those that keep the price of gas artificially low. The trick is they note that because the incentives lower the average net price paid by consumers for new cars, the resale value of those cars is similarly reduced. However, when calculating the resale value as a percentage of purchase cost, they use the MSRP and ignore the incentives. You can’t have it both ways!
Suppose I buy an EV with an MSRP of $30,000 and get the $7,500 federal tax credit and the $2,500 California rebate, lowering my net cost to $20,000. I then immediately sell the car to someone for $20,000 (perhaps someone who can’t get the federal tax credit for any of several reasons). I break even in this transaction.
To say that the value of the “used” car was only 67% of the MSRP is true but also quite misleading for the practical consumer experience. What the consumer cares about is the value of the car relative to what was paid for the car. While MSRP is a useful proxy for what consumers pay for cars in general, it’s not a fair measure for vehicles that come with incentives.
The same tricky math is being used to make used vehicle values look artificially low. One recent flurry of articles wrote about future resale values of electric vehicles as predicted by Kelley Blue Book, calling out the popular Nissan LEAF as one of the vehicles to have the one of the lowest resale values after five years based on the flawed logic of ignoring the effect of the incentives on price typically paid for a new 2013 Nissan LEAF. The chart below shows how taking into account the actual net purchase price of a 2013 Nissan LEAF S shows that the predicted five-year resale value is 23% of the typical price paid (after the federal and California incentives), a more useful number than stating that value as 15% of MSRP. Taking this a step further, the EPA rating for the 2013 LEAF claims a fuel savings of $9,100 over five years as compared to the average new car. Taking that into account, we find that the projected five-year resale value is 42% of the net out-of-pocket expenses including vehicle purchase and fuel savings.
That all said, I have to question how anyone predicts the value of any car five year into the future, especially those involving new technology. I wonder what these same folks said about the five-year resale value of the Toyota Prius when that car was new on the market. We all know how well those fuel-efficient vehicles hold their value despite much early pessimism from those who underestimated their eventual appeal to mainstream consumers.
Although the current incentives only apply to new car purchases, the good news is that they reduce the price of both new and used electric vehicles. This is a benefit to all potential car buyers, and an answer to the complaint that the incentives only benefit those who can afford a new car.
Of course, Plug In America is interested in bringing the benefits of driving electric to the widest possible range of car buyers. Many people who would not normally be able to afford a new car are also those who have long commutes and stand to gain the most from the tremendous fuel savings of driving electric. Finding ways to make these savings available is an important economic justice issue and an active area of work for Plug In America.