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Electric Cars Hold Their Value Better

Zabir Rahman | October 21, 2021

Used electric cars are holding their residual value better than their fossil fuel counterparts.

Electric Cars Hold Their Value Better

A Tesla offers several driving modes. A city mode, for instance, gives you higher driving range but more gentle acceleration. Then there is sport mode, that you could turn on, when you felt you had a heavy right foot.

But, if you wanted borderline insane performance, there was the ‘ludicrous’ mode. In this mode, you could hit 0-100 kmph in less than six seconds. Not only would the furious acceleration throw you against your seat, you would also be left with one of two expressions. You either had a smile plastered across your face or you wore a look of pure horror, depending on which way the adrenaline rush worked for you.

I am sure you get the drift. From electric cars being associated with dull and boring climate conservation activists, the Tesla immediately put electric vehicles in the dream car segment — the kinds that older generations will have pinned posters of in their ‘teen age’ bedrooms.

On a more serious note, Tesla is now the world’s most valuable company. Its market cap is a staggering USD750 billion. And it is not even 20 years old. The next three biggest auto companies, by market cap, have a combined worth that is still less than Tesla’s. One of them is Ford Motor Company that started operations over 100 years ago. Despite it enormous head start, it was dethroned with ease.

In large part, it was Tesla that led to both a revolution, and ushered in disruption, into a sector that was settling into complacency.

State of the electric car market in India

India has been a tad slow to the electric vehicle party. Their uptake has been comparatively less swift in an economy that desperately needs zero emissions vehicles. The country holds the dubious distinction of being host to nine of the ten most polluted cities in the world.

However, the still luke-warm response could be due to the limited options available. Affordable options are even rarer. In fact, the entry level Tata Tigor EV’s price range starts at INR 12,00,000. There is also a Mahindra offering called the eVerito and yet another product from the Tata stable called the Nexon EV. This one’s priced at about INR17,00,000. The bulk of cars sold in India are, however, are usually in INR7-8 lakh price bracket.

Across the segments and body styles, there are about 10 electric car models on sale in the country — going all the way up to INR2 crore. But if you look closely at used car platforms, and the prices that are quoted for a fossil fuel powered one versus an electric one, you will notice a common thread. Used electric cars are holding their residual value better than their fossil fuel counterparts.

Why do electric cars have higher residual values?

On average, a new vehicle retains 40 percent of its new value once it is three years old, or it has been driven for about 60,000 kms. In simple terms, by the time 50 percent of EMIs are complete on a car, its value has already depreciated by a higher factor!

Electric cars, however, have been seen to buck this trend; they were found to retain 48.9 percent of their new value in this same three years, 60,000 kms time frame.  Government incentives, congestion charging, low-emissions zones and changing attitudes to emissions are all part of why EVs are holding their value well at the moment.

Several states also offer subsidies on electric vehicle purchases although New Delhi, surprisingly, chose to discontinue the subsidy. India’s capital city possibly needed electric vehicle adoption ‘yesterday’.

An interesting highlight is Tesla Model 3’s remarkably low depreciation levels. According to one study, it depreciates only 10.2 percent after three years. This was primarily on account of regular over-the-air updates that Teslas receive. A user may be driving an older car but it is loaded with the latest software upgrades.

In addition, since EVs have limited ranges, they will usually have fewer kilometres clocked in a similar time frame when compared against a fossil fuel powered vehicle. Fewer kilometres run automatically implies a higher resale value.

In the years ahead, as more advanced battery packs in EVs allow longer driving ranges, higher residual values can be expected. The key reasons, for EVs’ more gradual depreciation, is exactly why General Motors had axed their EV1 project.

An electric vehicle must be considered

Several governments worldwide have laid out timelines for complete electric vehicle adoption. The UK, for example, plans to go fully electric by as early as 2035. Japan’s plans to allow only hybrid or electric cars to be sold by 2030. A boost to the overall electric vehicle industry was also offered by COVID-19 recovery packages in economies like China, Germany, France and Canada.

In India, there are ambitious plans afoot under the purview of the Faster Adoption and Manufacturing of Electric Vehicles scheme, or FAME. A positive development is the fact that there has been significant electric vehicle uptake in the two and three-wheeler segments. In fact, these segments make up 97.5 percent of all electric vehicles sold in the country.

If you are contemplating on a used vehicle purchase, a sincere suggestion is to also consider an electric vehicle. Not only will you be gifting yourself an enjoyable driving experience, coupled with low maintenance costs, you will also be making a sizeable contribution to conserving the environment.

Zabir Rahman

Zabir drives research writing at Stonebench, Singapore. His core interest was automobiles, although with time, he thinks he is growing more fond of writing and teaching. Zabir is now keenly interested in the technology space and is part of the Elbyte editorial team.

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