01.15.2014 - by Tom Saxton
Assessing the Predicted Resale Value of EVs Fairly

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.

9 comments on “Assessing the Predicted Resale Value of EVs Fairly”
  1. Pete Mumbas says:

    What are the most reliable sources for used EV pricing?
    What are the most reliable, readily available and comprehensive sources for Federal, State or other EV credits and financial incentives for purchasing a new (or, if any, used) passenger vehicles?

  2. Ron Smith says:

    One problem that you don’t mention though is the effect the “Blue Book” price has on refinancing.
    I purchased a Mitsubishi I MIEV in 2012 for 32K.
    Now I want to refinance with a different lender to get a lower intrest rate and lower monthly payment.
    I love the car, I love being an EV owner, but the payments are a bit of a strain, and refinancing would be a great help.
    But “Kelly BB” only rates the value at 14K. This amount will not cover the still outstanding amount on my original purchase, I owe more on it than the car is currently said to be worth. So I cannot refinance unless I can come up with significant capital to add in.

    1. Robert B says:

      So has anyone found a lender that will refi a ev? without dropping 10000 out of pocket?

  3. Richard says:

    Quote from the Tesla website:

    “If you do your financing with Tesla, we guarantee that the Model S will have the top residual value of any high volume premium sedan brand (Audi, BMW, Mercedes or Lexus) after three years of ownership. This means you will receive cash back in three years that exceeds the principal remaining on your loan.”

    Any journalist without an agenda needs to include this fact in any discussion about residual value. At least for Tesla owners, the company is taking on this risk for its drivers.

    1. Anonymous says:

      To take advantage of the resale guarantee you are required to refinance through Tesla on their terms. Perhaps their interest rate includes some extra to cover their added risk.

  4. Paul Scott says:

    As one who sells the LEAF, I’ve been surprised at the reticence people have over paying a reasonable price for the used 2011 LEAFs. In my opinion, they are great bargains. Part of the problem is that the 2013 models were significantly improved and the price reduced. This makes it hard for customers to consider the used option even though it’s a great deal. Combined with an incessant barrage of negative comments by the right wing press, this has kept many people from considering used EVs. The good news is that those who do understand the value of these cars are getting some terrific deals.

    Our biggest problem is the artificially low price of gasoline and diesel. The external costs are significant, yet no one buying those products pays a single penny toward these costs. This is a massive failure of leadership that will keep our country dependent on filthy oil for a long time to come. Our best hope is for average consumers to be educated by organization like Plug In America and the many people who are buying EVs. This peer to peer education will result in greater EV adoption on a scale that will help mitigate the problems we have because of oil.

  5. Richard says:

    Tom,

    Your example of buying a plug-in for $30K and selling it for $20K is spot on.

    A pedantic accountant might call this a 33% depreciation, and they may be right if depreciation is strictly defined as “sale value divided by purchase price”. But no driver cares about this. They’re thinking “sale value divided by out-of-pocket purchase cost”, which takes rebates into account.

    This almost seems so obvious it shouldn’t need to be stated. But then again, USAToday, NADA, and a bunch of other sources put out breathless articles about this all through December. All had a “gotcha”-quality, which makes for great headlines, but don’t do anything to help educate the public.

    Much of this was ignited by KBB, which came out with some ridiculous statements (eg. “2013 Nissan Leaf SL will retain just 15 percent of its original value (about $5,355) after five years”). Time will tell, right? But I suspect these predictions say more about KBB’s models and their lack of certainty with a new technology, than they do about reality. Here’s a quote from an article in Gas2 titled “Clueless Kelley Blue Book: EVs Will Depreciate Faster than Gas Cars”.

    “My suggestion? Skip KBB for a few years, at least until they replace guys like Ibara with people who are up-to-date with current market trends, market history, and technology that has more in common with an iPad than a Model T.”


    1. Tom says:

      Great points, Richard.

      How do they even come up with an estimate for a Chevy Spark, a very limited production compliance car that’s only been on the market for six months? I can’t say for sure where they are pulling these numbers from, but I have an idea.

      1. Jim L says:

        Another gap in data for ROI or TCO models for EVs are maintenance cost benefits. Modern day ICEs are very reliable and while maint costs have decreased across the board, brakes, oil changes, tune ups,etc. are eliminated or at extended intervals for BEVs, less so for EREVs or PHEVs but still better that ICEs. I’ve seen a range of zero benefit (lack of data?) to 28% lower maint cost attributed to EVs(DOE). Some work is being done on accessory loads to allow climate sensitivities to be introduced and fine tune benefits for phevs/erevs. Under extreme accessory loads (3000w?) elec range will be less, and for phevs or erevs, gasoline use will increase. I am interested in any emerging sources of this data that any are aware of.

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