- According to a study, most three-year-old electric vehicles (EVs) generally lose 52% of their price tag as brand-new units, which is higher than the 39.1% of conventional counterparts.
- Tesla cars preserve more of their original value because of brand exclusivity and regular remote updates.
- Factors that cause EV price depreciation rates include financial incentives, low gas prices, decreasing sticker prices on new EVs, and technological advancements.
- EVs offer savings on fuel costs, repair bills, and price tags for older vehicles that compensate for their higher original price and faster depreciation rate.
Electric vehicles (EVs) have become more affordable over the years.
Automakers have been developing models with price tags that are not far off from the cost of vehicles that run on an internal combustion engine (ICE). On top of that, there are federal and state incentives that can further reduce their final price. And once you get an EV, it can more than pay for itself with advantages like lower cost of ownership and big savings on fuel costs.
While the cost of acquiring an EV has made it accessible to more people, electric cars are still affected by car depreciation. Let’s take a look at electric vehicle depreciation and how it can put off people from buying an EV.
What Is Car Depreciation?
Car depreciation is the loss of value that a vehicle goes through every year. It’s a way to gauge the monetary value of a car as it ages. It’s helpful if you’re planning to resell your daily driver in the future.
All vehicles lose value over time. Driving them around wears out various parts, which will eventually fail and need repairs or replacements. Even if you install brand new parts that match your stock parts, you can only restore your car to a like-new condition instead of a true factory-fresh state. This loss of value gets worse as the vehicle puts on more years.
Does the Resale Value of EVs Decline Faster Than Gas Cars?
Yes, electric vehicles lose their resale value faster than their gas-powered counterparts. Various factors drive the precipitous drop in value, from value adjustment for tax credits to rapid obsolescence.
The only exceptions to this rule are Tesla cars. Compared to other EV brands, a Tesla depreciates at roughly the same rate as a gas-powered vehicle.
Gas Car vs. Electric Vehicle Depreciation
To get a better understanding of how EV and gas car depreciation differ, let’s take a look at a study by iSeeCars. It focused on off-lease cars, which are leased vehicles that have completed their contract.
iSeeCars looked for the off-lease car models that lost the highest value at the end of a three-year contract. The study showed that the typical model lost 39.1% of its original price by the time it turns three years old.
Among the off-lease car models covered by the study, the Audi A6 was the biggest loser. The luxury car depreciated by 55.8% of its original selling price.
- Audi A6 – 55.8%
- Ford Fusion Hybrid – 54.9%
- BMW 3 Series – 53.4%
- Volvo S60 – 53.2%
- Mercedes-Benz E-Class – 52.7%
Of those five vehicles, the Ford Fusion Hybrid and the Volvo S60 are electric vehicles. But they are not the EVs with the highest loss of value.
The study also analyzed the depreciation rates for off-lease EVs. It found that three-year-old electric cars generally lost 52% of their price tag as brand new units. That’s 140% as much as the average loss of value for all types of vehicles.
Here are the five EV models with the highest depreciation rates after three years of use:
- BMW i3 – 60.4%
- Nissan LEAF – 60.2%
- Kia Soul EV – 58.7%
- Hyundai Ioniq Electric – 47.7%
- Chevrolet Bolt – 47.5%
The depreciation rates of the BMW i3, the Nissan LEAF, and the Kia Soul EV are higher than that of the Audi A6.
Why Do Tesla Car Depreciation Rates Differ From Other EVs?
While most EV models lost a considerable chunk of their original value, Tesla cars defied the trend. The iSeeCars study showed a depreciation rate of 36.3% for the Tesla Model S and 33.9% for the Model X, two of the company’s most popular models.
So what makes Tesla cars more resilient when it comes to preserving their value?
For one thing, Tesla cars receive remote updates throughout their service life. This reduces the loss of value caused by obsolescence because any upgrades to new model years will also apply to older Teslas.
Another factor is the exclusivity that consumers have come to associate with Tesla. The company not only keeps updating older models but also operates a supercharger network. Tesla also doesn’t rely as much on buyer incentives as other manufacturers.
The combination of these factors makes Tesla vehicles more resilient to depreciation. They can match gas vehicles in terms of preserving their value.
Factors Behind EV Depreciation
Nothing happens in a vacuum. Various factors can affect car depreciation rates, such as who made the vehicle, what model it is, and what year it rolled out of the factory. EVs also come with unique factors when it comes to depreciation.
EV Financial Incentives
Many incentives make it easier to buy an electric car. Some are backed by the federal government, while others are offered by the state. There are also incentives provided by local financial institutions.
Car resellers will subtract those incentives, tax credits, and rebates from the EV’s original price. Then they’ll calculate the resale price of the electric vehicle.
Low Gas Prices
The cost of gasoline and diesel can affect the electric vehicle depreciation rate. While fuel prices will never be as low as EV charging prices, they can get low enough to make people stick to ICE vehicles. The resulting loss of interest will reduce the value of EVs, especially the older ones.
Of course, the opposite can also happen. In fact, gas prices are several times higher than their EV charging equivalent halfway through 2022.
Decreasing Sticker Prices on Brand-New EVs
Every year, car manufacturers introduce new EV models. Most have been designing electric cars for cash-strapped drivers to expand their market base.
The lower sticker prices on budget-friendly options not only encourage drivers to invest in an EV but also increase the depreciation rate.
Technology advances at a rapid pace. Yesterday’s cutting-edge marvels can become obsolete in a matter of months, which can greatly reduce their value in the future. Because electric vehicles rely more heavily on technology than their ICE counterparts, they are more sensitive to this factor.
Many people are concerned that their EVs cannot match the range of ICE vehicles. Depending on the type of EV, their concerns may be valid.
Hybrid and plug-in hybrid EVs have gas or diesel engines that can power their electric motors when their batteries run out. However, all-electric vehicles (AEV) rely exclusively on their batteries. There are also fuel cell vehicles that burn hydrogen fuel.
AEVs can only replenish their batteries at a charging station. While there are more than 46,000 charging stations in the US, gas stations still outnumber them throughout the country. As for hydrogen stations, there are less than 60 and most are in California.
Are Electric Cars Worth It?
EVs lose their original value much faster than gas or diesel vehicles. However, this should not deter you from getting that EV you have been eyeing. After all, there are a lot of benefits that make up for both the high original price and depreciation rate.
For one thing, charging the battery costs far less than topping off a gas vehicle’s fuel tank, so your fuel bill will drop. An EV also has fewer moving parts, especially if it is an all-electric car. This reduces the number of times you have to repair it, which lowers the overall cost of ownership.
Furthermore, the depreciation rate reduces the price tag of an older vehicle. Older EVs lose more value, so they cost less when resold. As long as you research what to expect out of an old EV and inspect it for flaws, you can get plenty of mileage and value out of it.
Any information provided on this Website is for informational purposes only and is not intended to replace consultation with a professional mechanic. The accuracy and timeliness of the information may change from the time of publication.