Cheap Gas Is Driving Down Electric Car Residual Values

2 years ago by Mark Kane 40

2016 Nissan LEAF

2016 Nissan LEAF

Chevy Volt

Chevy Volt

Not so good news is coming from analysts dealing with residual values of cars.

According to an Automotive News article, residual values of hybrid and electric cars will decrease even further.

“Kelley Blue Book projects the collective residual value of 2016 hybrid and electric vehicles sold in January and February to be 29.5 percent after 36 months. That is 4.1 percentage points lower than the 36-month residual projection it set for similar vehicles sold a year earlier.”

Well, we think EVs are even more affected by the value drop than ICE because the market is in the early stages, and new models are significantly better than previous ones – cutting the legs out of older models…such as the next generation of Chevy Volt and upgraded Nissan LEAF.  These kinds of step-changes just don’t apply in the mature ICE market.

Of course, there could be other reasons like battery capacity drop, promotion of free fast charging for new cars over used. Most of the articles don’t include federal tax credits, which we know affects the residual value tremendously.

Anyways, lower gas prices makes people less interested in new or used fuel-efficient models – small cars, hybrids and electric. That concerns both, new and used ones.

“Low gasoline prices played a big role in trimming those values, said Eric Ibara, director of residual values at Kelley Blue Book. In 2012 — when the average price of gasoline nationwide was $3.60 a gallon, according to AAA’s website — KBB projected that gasoline prices five years out would be in the range of $3.50-$4 a gallon, Ibara said.

KBB’s current prediction puts gasoline in the $2-$3 a gallon range in five years, he added.”

And the effect of lower gas prices has a dual nature, because there are a growing number of off-lease compact cars, bought when prices of gas were high. The more used fuel-efficient models on the market, the lower their price will be. Sounds like a great buying opportunity then.  Although we do have to note that the last 3 months of sales for plug-ins in the United States have each set new all-time records.

NADA forecasts about 521,000 off-lease compact cars in 2016, up from some 380,000 in 2015.

Nissan LEAF doesn’t shine with residual value:

“The NADA guide data show that in the fourth quarter of 2015, a 2012 Nissan Leaf retained just 16.7 percent of its “typically equipped” sticker price; a 2013 Leaf retained 25.1 percent, and a 2015 retained 29.8 percent.”

Chevrolet Volt residual value is falling, but the new 2016/17 version is expected to hold value better:

“Kelley predicts the 36-month residual value for 2016 Chevrolet Volts sold in January and February at 29.5 percent, down from 32.0 percent predicted for the 2015 Volt in the same period last year. But after tracking the actual transaction prices of the 2015 Volt, Ibara said, Kelley now forecasts that vehicle’s residual value at “under 30″ percent 24 months from now.”

“The 2016 Volt is redesigned and has a longer range so “we think the 2016 Volt will hold its value better than the 2015,” Ibara said. “Our forecast was too high last year.”

Source: Automotive News

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40 responses to "Cheap Gas Is Driving Down Electric Car Residual Values"

  1. Goodbyegascar says:

    The affordable electric car has arrived.

    1. jerryd says:

      Yes it has.
      But let’s be clear why EV’s prices are low, the $7500 tax credit plus state
      credits.
      Now if they take EV depreciation from the list price minus $7500 for the real price, EV’s look a lot better.
      But it does make EV’s available for anyone that can afford a car at $10k-$14k for nice Leaf’s, Volts with good batteries.

      1. SJC says:

        In the case of the LEAF, the range reduction over time is a factor. You can buy a 2011 with 30,000 miles for $7500, the range is 15% less than new.

  2. Pushmi-Pullyu says:

    @Mark Kane:

    Good analysis, thanks!

    Yes, it’s pretty myopic to blame low resale values of EVs on low gas prices. That’s certainly not the only factor affecting resale value, and quite possibly not even the most important of several factors.

    1. Lad says:

      Yes, and among those is the poor policy of not offering upgraded battery packs for their older model years, which limits interest in their used cars. Nissan still thinks they are selling gassers and is creating policy based on that assumption.

      The upside is you can buy a used car cheaply; the downside; performance of the car is tied to the battery’s limitations unless there is aftermarket availability.

      Tesla wisely promotes and controls their used car prices using a certification program.

    2. Thomas J. Thias says:

      Thomas J.Thias

      32 years in Retail Automotive Sales And Leasing-

      Quoting Mr. Kane:

      “Most of the articles don’t include federal tax credits, which we know affects the residual value tremendously.”

      That, my friend is an understatement!

      All Used Vehicle resale Value Guides key a metric known as Replacement Value, New.

      This means generally, a used car with a Replacement Value, New, of $30,000.00 will have a greater Retained Value 4 years out over a used car with a Replacement Value, New, of $16,500.00.

      Taking the MY 2012 Chevy Volt Extended Range Electric Vehicle as an example.

      With its then 16kWh Traction Battery, the first new retail buyer could qualify up to $7,500.00 of his own, due, tax money back, at filing time, as an incentive to adopt the new technology.

      While not a credit or price reduction at time of sale this tax credit was also awarded to Ally Bank, US Bank and GM Financial in leasing contracts and was passed on to the lessee as a greatly reduced debt obligation and subsequent reduced lease payment.

      The above mentioned GM leasing lenders, then, used a unique residual adjustment structure and the net result was a reduction of value at end to wholesale markets of $7,500.00 amortized over term.

      Wholesale and used resale markets and lending reports then reduced resale values near $5,000 at time of auction/street, resale.

      The next big valuation affecting wholesale and used Electric Car resale valuations is the real reductions of the M.S.R.P.’s, year on year, for a number of Electric Fueled Vehicles.

      The Ford Focus BEV dropped over $4,000.00 in actual M.S.R.P. reduction from the 2012 model year through 2015 model year.
      The Nissan LEAF, similar year on year reductions in M.S.R.P. from 2011 through 2015.

      Perhaps the most dynamic M.S.R.P. reduction occurred in Chevy Volt retailing as the MY2014 had a $5,000.00 drop in its new base price.

      These, friends, the Chevy Volt EREV and others mentioned above were not spot rebates or incentives but actual invoice based and sales tax reducing devaluations of the new vehicle M.S.R.P.’s!

      As GM’s then North American VP, Mark Reuss tweeted out at the time, August of 2014, to a Detroit News columnist disparaging this Chevy Volt EREV $5,000.00 MSRP pricing reduction as a result of slow adaptation, Mr Reuss Tweeted this:

      “When we cut the cost of our Volt through engineering and development , we will pass it on to our customers”

      Link Goes To Screen Shot Of Mr. Reuss Reply On Twitter-

      Read his Tweet again. A $5,000.00 actual drop in vahicle M.S.R.P.!

      Recognized in all 50 state’s of the USA as a $5,000.00 reduction is sales tax exposure as well.

      These above amounts, the Fed $7,500.00 tax credit coupeled with the $5,000.00 Chevy Volt EREV price reduction of 2014 equals a stunning $13,500.00 of on paper net resale valuation reduction, vs new, now.

      A big percentage of this $13,500.00 that must be factored in and impact’s used values on Volts out in the wild, now!

      Best for all is that now, most of the used medium and low priced new, Electric Fueled Vehicles: EV’s PHEV’s and EREV’s are now, most affordable.

      Add the savings, even at ‘Cheap Gas’ (Very Short Term, I Predict), the $100.00 – $140.00 in fuel cost set asides per month using .12 cent a kWh, National Average, Electric Fuel cost, thus savings are even greater to Drive Electric!


      “Most of the articles don’t include federal tax credits, which we know affects the residual value tremendously.” Kane

      Indeed!

      Best-

      Thomas J. Thias

      517-749-0532

      Publisher:

      https://twitter.com/AmazingChevVolt

      1. Mike says:

        “While not a credit or price reduction at time of sale this tax credit was also awarded to Ally Bank, US Bank and GM Financial in leasing contracts and was passed on to the lessee as a greatly reduced debt obligation and subsequent reduced lease payment.”

        US Bank did not do this, at least not in 2011. My residual was about 62% of MSRP. The tax credit did not show up anywhere. The lease “deal” was achieved with a $2000 GM rebate and a very low money factor.

        More recently, when I leased an e-golf, the 7500 reduced the cap cost directly.

    3. BraveLilToaster says:

      Like obsolescence.

  3. OCryan says:

    Such a perfect time for an increase in the gas tax, pity there is ZERO chance of it happening with the existing congress.

  4. Lindsay Patten says:

    I would think that the insideevs.com authors would have got in the habit of adding the percent of sticker price is misleading when the cost is often $10,000 or more lower due to incentives.

  5. jh says:

    I wouldn’t say gas price has much to do with it. Given that there is a quantum leap in performance just within months likely have more to do with it. The current machines out there will continue to drop like stones (apart from tesla).

  6. jelloslug says:

    OPEC just announced that they are starting to cut back on production.

    1. Alaa says:

      They will not cut.

      1. AlanSqB says:

        Agreed. This is just rhetoric to drive some movement in the futures. They won’t cut because the goal of the current glut is to break the back of domestic oil producers. As soon as our domestic production is quashed (or sold for pennies to opec partners) prices will go sky high again. Probably higher than ever.

    2. zzzzzzzzzz says:

      Nope, they didn’t. Are they crazy to give up their market share to non-OPEC producers? Russia and Saudi agreed not to increase production, but they were not increasing it anyway, so it means little. Meand Iran had stated very firm that they are going to take its market share back. No chances of meaningful oil price increase until the end of 2017, and even then it will not reach bubble level again anyway.

      1. AlanSqB says:

        OPEC is playing the long game here. They will sell as cheap as necessary to get their monopoly position back, so yes, cheap oil is here for a while. However, once/if they achieve that goal, we will be paying through the nose again.

        1. zzzzzzzzzz says:

          It is impossible in this world. Major OPEC members are close to war with each other and no way can trust each other to keep up with quotas without cheating. Most of oil in the world is produced outside OPEC and sometimes can’t even physically stop production. E.g. many wells in Russia would freeze dead is stopped in winter. Private North American producers will use any OPEC quotas to take over market and raise production back as soon as price will go up. And this would be possible in years only – this and next year we have all oil storage filled with surplus production.

    3. Pushmi-Pullyu says:

      jelloslug

      “OPEC just announced that they are starting to cut back on production.”

      Iran has already ordered an increase in their oil production (source 1). If OPEC scales back, my guess is that it will only match Iran’s ramp up. OPEC wants to continue the current glut on the market.

      OPEC’s aim is to drive most of the American fracking industry out of business, and I can’t see them letting up until they succeed at that. To a large extent, the Arab oil sheikhs are immune demands for annual profits on their oil business. They can live quite comfortably on their oversees investments, and so can afford to outlast American businesses. And it’s not like the oil-rich Arabs use much of the oil income to benefit their own people, so continuing the small amount of support they provide also won’t cause any noticeable sacrifice in their lifestyles.

      It is somewhat ironic to see the Arab oil sheikhs playing the same game, in the international petroleum market, that Standard Oil played in a previous era, in the gas station market… but with even deeper pockets than Standard Oil had!

      source 1:
      http://www.ibtimes.com/iran-orders-500000-barrel-day-increase-oil-production-brent-crude-drops-13-year-low-2269885

  7. Lou says:

    Wonder what a low mileage 2015 Gen 1.5 LEAF would go for in this market? Probably just too new to see a trend. My guess, though, is that in about a year, any who felt the Gen I was too limited due to 82 mile range might feel a 107 range model fills a need. If the price really does drop to less than 1/3 new, you could (conceivably, anyway)pick up a used 2015 107 mile model for $12,000. That could be an enticing deal.

  8. Ben Nelson says:

    I bought a used electric car around Thanksgiving time for under $7,000!
    Low resale prices aren’t good for people SELLING electric cars, but it’s a GREAT time to BUY one!

    1. Heisenberght says:

      +1

      I wish I could buy one too but stupid as hell I just bought a used diesel caravan.. At least I have a nice place to sleep now 😉

      It really sucks that we Germans are not allowed to buy a used twizy WITH battery. They just sell it when you also rent the battery. It would fit my needs perfectly.

  9. Mike says:

    Leaf/Volt prices have actually been stable in my area (NJ) for the past 6 months.

  10. ModernMarvelFan says:

    Used LEAF (3 year about 40K-50K miles) for under $9K has been widely available on Craigs List in SF Bay Area for about a year now…

    Similar aged Volt goes around about $11K to $13K.

  11. flmark says:

    Obviously, given this site’s name, commentary will fall on the EV side. However, I can readily comment on the hybrid side. My 2008 Tahoe Hybrid will soon be replaced by a Tesla Model X. This, along with other factors, had me check its kbb value last September, a few weeks ago, and yesterday. The value is falling off a cliff. It went from $27k to $23k to $20k. It’s lost thousands in just weeks. Gas is just too damn cheap- and all the talking heads tell us that is not changing any time soon. Frustrating.

    1. AlanSqB says:

      I agree. Cheap gas is here to break domestic oil production. Once that happens, people will be running to EV’s because of $4+ gas.

  12. Rebel44 says:

    Tesla seems to be an exception – their used prices are still pretty high.

    1. AlanSqB says:

      Because the smart consumers can see low gas is a bubble.

      1. zzzzzzzzzz says:

        EV fans are still in denial of reality. Just look at historic oil prices, it was temporary $100/barrel bubble that went away and not coming back.
        http://seekingalpha.com/article/3898816-crude-oil-buyers-beware
        Probably US should slap some big oil import tariff to protect its own producers or add significant gas tax like in other countries. But I don’t think it is possible politically.

        1. AlanSqB says:

          Quoting SA as a source of reality will be met with a chorus of groans around here, but fully agree with you on the tariff idea. That sounds like a great idea.

        2. Pushmi-Pullyu says:

          The phenomena of Seeking Alpha bloggers promoting their pay-per-click investor blogs posts here is getting really annoying. Here’s hoping InsideEVs moderators start banning those, and soon.

          And, zzzzzzzzzz, I don’t need to read an investor blog promoting whatever stocks you’re currently promoting (or short-selling) to know that peak oil is a reality, or to know that those denying that are the ones “still in denial of reality”. OPEC is pumping out oil like it’s going out of style? Well, the faster they pump, the faster it really will.

      2. John in AA says:

        Actually I think it’s because consumers can see it’s a superior car regardless of fuel. The same is true, perhaps to a lesser extent, for other EVs.

        I would not go back to a gas car if gas were free for life. No, really.

  13. Michael Will says:

    Gas prices don’t mean anything for EV car prices. What drives down current generation EV car prices is the next generation EV cars coming soon. And thats ok. The sooner all those gas pumps disappear the better. I will gladly trade in my eGolf with 86 mile range for a 200 mile range Bolt or Tesla Model 3 when after incentives those only cost $25k obviously the two year old eGolf that cost me $35k will only be worth say $12k.

  14. Bloggin says:

    With EVs, the problem with residuals is treating them like conventional cars, instead of technology on wheels.

    For example, a car that gets 30 mpg one year and the new model gets 32mpg won’t see a major residual impact on the previous year. But that is magnified with roughly 30 additional miles per tank/charge makes a big difference with an EV.

    Going from 30mpg to 34mpg offers a whopping 64 mile range boost for an EV. Which instantly devalues the current model, especially when the additional range often comes at a lower price due to natural battery/technology price drops due to higher volume over time.

    Hybrids, with their rather small incremental mpg increases year over year don’t really see a major residual hit. Because working with the combustion engine, there are no dramatic leaps in fuel efficiency to be gained from that technology.

    For example, the new Prius won’t really impact the residuals of the current Prius much.

    Which is why it’s important to LEASE the new evolving technology, and BUY used last gen technology only if you plan on keeping it throughout it’s useable lifespan. Because it’s value is in what it is able to save the consumer in fuel/maintenance cost, but will have little and diminishing residual/resale value.

    Because what’s required is a change in thought/perspective of the EV as technology, because when we take off the top hat, what’s left has little in common with a ‘car’ but the wheels.

  15. Nate says:

    Lower residuals means higher lease payments.

    Portland/Seattle area craigslist postings on used Leafs have not gone down as much as I thought they would the last half year.

  16. Joeski1 says:

    I love my Tesla S 90D !!
    And it simply might not make it into the aftermarket if it keeps making me smile like this.. my face hurts from grinning so much!! So it really might not make one sprig of difference what the aftermarket residual is..I already know exactly how much funding I would need if I had interest in buying it 34 months from now already..

  17. Nichen says:

    What happened to peak oil? What happened to sponsoring ISIS-terrorists thru paying for petrol? We are the generation who should try to ditch oil as much as we can. Yes the world needs oil, but do we have to burn it like it will last forever?

  18. SparkEV says:

    Looking at SparkEV pricing in my very imaginatively titled blog post “SparkEV pricing and depreciation”, it hasn’t gone down much after you factor in subsidy, though sample size is small. Leaf has gone down more, but still less than some gas cars like Camaro. As others have pointed out, it’s not entirely clear if recent drop is due to gas prices or anticipation for Bolt; I suspect it’s the latter.