Electric Vehicle Depreciation – The Hidden Cost of EV Ownership
The future of the automobile is almost inevitably in electricity, we’re all aware of that. Much of the population will be switching to fully-electric cars over the next two decades.
Like the Internal Combustion Engine (ICE) cars they will replace, Electric Cars (EV) come with their own potential cons. The limited range immediately springs to mind, as do the long charging times.
The range and charging times have improved immensely over the past few years and will certainly improve further over time with technological advances. However, there are certain aspects of electric cars we overlook and rarely address. One of the biggest is depreciation.
Do Electric Vehicles Depreciate Faster than ICE Vehicles?
A 2017 publication from the AAA federation of motor clubs took a look at the difference in depreciation between ICE vehicles, hybrids, and electric vehicles, averaging the amount of depreciation over the first five years if one drives 75,000 miles:
Electric cars depreciate over two times faster than their internal combustion engine counterparts, a serious black mark when it comes to tallying up your actual yearly cost to run your vehicle!
Why Do Electric Vehicles Depreciate Faster?
Initial High Price
New electric vehicles are still expensive. Tesla’s latest Model 3 comes in at $30,000 for the base version. That’s not a lot of money if you compare it to the $100,000 Model S, but it’s still a considerable amount considering that for the same price you can get a fully decked-out 2018 Ford Focus, an Accord, or even something like a V6 Camaro.
The higher you are, the more it’s going to hurt when you fall. That holds true for cars as well. The more expensive the car is new, the more it’s going to depreciate after just a couple of months or years. All high-end luxury or sports cars suffer from the same thing, except for a few exotics and classics.
No Tax Incentives on a Used Electric Vehicle Purchase
To offset the initial high cost and incentivize the purchase of environmentally-friendly vehicles, various federal and state tax credits sweeten the deal. Markedly, there’s the Internal Revenue Service tax credit of up to $7,500 for the purchase of a new electric vehicle.
This incentive may end up being phased out sooner rather than later in the U.S. as some senators continue to push for its removal.
However, there is no tax incentive for the purchase of a used electric vehicle, so the used electric car buyer needs to factor that into the price he or she is willing to pay. This means the dollar value of the tax incentive is absorbed by the first owner over the course of his or her ownership in the form of depreciation.
Fear of the Unknown
Electric Vehicles bring with them a different set of mechanical problems and issues which could potentially appear when the car reaches a certain age.
A normal car requires constant maintenance – oil changes, filter changes, etc. An electric car doesn’t have to deal with the same issues so may require less maintenance but electric vehicles haven’t been on the roads for long enough for us to truly have a good sample size.
Once the battery is dead, for example, you have to replace it, and there’s no alternative. When you find out that a new battery can cost several thousands of dollars, that $100 oil change you have to do once a year on a standard car may seem cheap.
As an electric vehicle reaches the end of its battery life cycle, its value will drop substantially because the new owner is aware he’ll have to replace it relatively soon. A study conducted by Plug-In America found that after 100,000 miles batteries can only hold around 80% of their original capacity. This means that you can expect the range to diminish by 20%, something which will never happen in an ICE car with a fuel tank.
Electric vehicles usually have robust 10-year warranties for their batteries, but there’s at least a fear that buying a used electric vehicle could mean buying something that will be quickly obsolete. This turns off buyers and contributes to a lower resale value and therefore helps drive depreciation.
Do the Pros outweigh the cons?
We all want to be cognizant of the impact our habits have on the environment. Choosing an electric vehicle is a great choice if you want to cut your oil use and still have an exceptional driving experience. You should factor in the high cost of depreciation when considering how much an electric vehicle will save you in yearly running costs, but for some, the pros may outweigh the cons.
Would you drive an electric car? Let us know!