'Stone age' EV tech depresses used values

ICE models are now becoming more valuable second-hand than electric equivalents

The car market is moving into a scenario where the remaining combustion-engined models are becoming much more valuable second-hand than their electric equivalents.

However, as EV values slide for the 21st consecutive month, a two-tier narrative is emerging in which newer, higher-tech electric cars are hanging on to their value better than earlier models.

“The differential between electric residuals and ICE residuals is quite significant,” said Andrew Miller, CEO of the vehicle provider Motability Operations. 

The gap between ICE and EV is going to widen as legislation forces car makers to sell fewer combustion-engined models, Miller predicts. “It’s going to be fascinating to watch,” he said.

As the UK’s biggest seller of used cars, Motability is watching closely the impact on its profits as its EV fleet grows, now currently around 50,000 vehicles.

“On the EV side, we've got to carefully navigate [residual risk] but we see a clear difference between values between first-gen, second-gen EVs and the new-generation ones coming through,” said Miller.

The 21-month decline in used EV prices, as tracked by price experts CAP, has made both buyers and car makers jittery. The car makers are especially worried because weak residuals make their task to increase EV sales to 22% of their overall total this year much harder. 

This is because depressed used values increase monthly finance payments that are already swelled by higher interest rates, making already expensive cars even more expensive. The alternative is the one being followed by many car makers: take a hit on profits by increasing discounting.

The UK has been hit much harder on EV residuals than other countries in Europe, where the tail-off in used EV prices has been less prolonged or steep. 

That's partly due to a correction from a much more pronounced surge in used EV pricing back in July/August 2022, something not experienced to the same degree in France or Germany, according to figures from banking firm Jefferies. It’s also because car makers and big fleets can’t shunt used stock to countries with higher EV demand due to the difference in steering wheel position.

However, it’s also partly in reaction to the reduced desirability of older models as the fast pace of technology brings advances in range, charging speed and overall appeal.

“Nobody wants a car with technology from the stone age,” Ingo Stein, director of automotive and mobility at consultants Bain, told Autocar. “The residual value of old-fashioned slow-charging cars like the Nissan Leaf or the Volkswagen e-Up is basically zero.”

That’s being played out in the CAP figures. The EVs whose value fell the fastest last month included the Leaf (down 7%), the Volkswagen ID 3 (down 6%) and the Audi E-tron Sportback (down 6%). The values of just one EV increased last month: the Mini Cooper EV (up 2%). Overall, 89% of all EVs lost value, according to CAP’s figures, with 10% staying level.

New models might fare better, though. Ford, for example, said pricing experts such as CAP have ascribed high residual values to its new Explorer compact EV, which is rated to travel 374 miles on a charge in the model with the biggest battery (77kWh usable size). 

At the moment, however, electric car values are worse than their combustion-engined counterparts. “BEVs are clearly not performing well in the used car markets,” Tim Albertsen, CEO of Ayvens – the leasing giant created last year through the merger of Leaseplan and ALD – told investors in early May. “We do not necessarily anticipate a lot of improvement in 2024.”

Ayvens is one of Europe’s biggest purchasers of new cars and had 3.39 million vehicles on its fleet at the end of the first quarter this year. In the three months to the end of March, it sold a whopping 152,000 used cars.

The company took a hit on used sales in the last quarter of 2023 but returned to the black in the first quarter thanks to high demand for combustion vehicles.  “BEVs are outweighed by the very strong performance of ICE cars in almost all markets,” said Albertsen.

However, fleet users remain big consumers of EV not just in the UK but throughout Europe. Of Ayvens’ new lease contracts inked in the first quarter, 22% were for EVs, up from 18% in the same quarter last year. So far this year, fleet or company car buyers accounted for three-quarters of electric cars sold in the UK, according to figures from the SMMT.

The wild swing from optimism to pessimism in the wider discourse surrounding EVs in the UK has certainly contributed to the huge, 33% drop in values since the August 2022 peak. Negative sentiment surrounding EV ownership, including the availability of charging, rising insurance prices, parts shortages and high sticker pricing – fuelled partly by sections of the media keen to paint EVs as the enemy - has all helped to depress pricing. 

This is emerging at the worst time, as the first wave of mainstream electric car sales starts to hit used car channels. “Unfortunately, we have lots of used BEVs on the market at a time when the overall sentiment is dipping more negatively,” said Stein.

But more positive factors are about to come into play. Falling battery costs, due to lower raw material costs as well as the rise of the cheaper lithium-iron-phosphate (LFP) battery, are reducing vehicle prices without impacting range. This could have “significant implications for lifetime affordability, potentially accelerating EV adoption”, according to Jefferies in its latest EV report, published in late May.

We are getting closer to the day when new EVs become the cheap mainstream option while combustion-engined cars move into premium territories affordable to only the more wealthy ICE holdouts. That’s already happening as car makers focus on making fewer but higher-margin ICE models to offset their CO2 penalty. “They're just making so much money there they are taking out the smaller models,” Stein said. “They can afford to have a higher consumption.” 

Without equivalent combustion-engined models to attract used car customers in the mainstream, EV values will begin to normalise.