Buying or Leasing An Electric Car: Why Residual Value Matters

By Nikki Gordon-Bloomfield

Nikki Gordon-Bloomfield

Contributing Writer BIO

Nikki Gordon-Bloomfield is a self-confessed petrol head. She grew up in a carless family but was able at a very early age to name cars passing her on... More

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2011 Chevrolet Volt

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You’ve read up on the latest electric cars, gone for test drives and are ready to make a purchase. However, there’s one more thing you should consider before singing the contract: how much will your car be worth in a few years’ time? 

The answer depends on who you ask and could influence your choice to buy or lease.  

If the Kelley Blue Book is to be believed, a 2011 Chevrolet Volt kept in average condition will be worth just $17,000 in three years’ time, representing a depreciation of 58% over three years. 

In calculating residual value, Kelley Blue Book and other appraisers would normally look at cars of comparable size, specification and performance,  examining real market data to predict how a new model would fare. 

But just it was hard to find cars to compare against the  early Toyota Prius, there are no comparables for cars like the 2011 Nissan Leaf or 2011 Chevrolet Volt because they are the first mass-produced plug-in vehicles to reach the market.

2011 Nissan Leaf

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In short, there’s no yard-stick yet, something appraisers don’t like, pushing them to be cautious about any plug-in car.

This leads to a pessimistic prediction of future values, erring on the side of caution to give leasing firms and car buyers a worst-case scenario on which to evaluate their investment. 

Why? 

Because there’s nothing a business or investor hates more than finding out their investment is worth less than they thought.  It is much better for car salesmen and lease companies to estimate a low residual value as it lowers the risk for them, but increases the risk for you, the buyer or leasee.

Part of the reason behind such low residual value predictions comes from the great unknown which is battery technology. Although many electric cars will ship with 8 year, 100,000 warranty, firms like Kelley Blue Book are nervous about predicting the retail value of a car with a partly used battery pack. 

In reality though, this is no different to factoring in the effects of high-mileage on an engine. The only difference is that engines are well known by the auto industry, while battery technologies are not.

There is hope, however, because cars like the 2011 Chevrolet Volt and 2011 Nissan Leaf are eligible for perks in certain states that help elevate their values. 

Take California for example. Back in June 2009 we discovered that hybrids which bore HOV-Lane Stickers - allowing hybrid car drivers the pleasure of driving alone in the high-occupancy lanes on the freeway - were worth between $1,200 and $1,500 more than non-sticker wearing hybrids.

Prius_Snow

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While California now only allows pure electric cars in its HOV-Lane Sticker program, owners of cars like the 2011 Nissan Leaf and 2012 Ford Focus should expect their car’s residual value to be higher in California than they would be in rural Iowa, for example. 

Other factors also come into play. Higher specification cars are generally better at holding value than lower-specification cars, so it is often worth paying the extra money for the higher specification when buying to ensure residual values stay as high as possible.

At the moment leasing or buying a plug-in car can still be financially risky, but we’re confident that as more cars reach the market appraisers will start to be more positive about car’s residual values. 

To ensure your electric car keeps a high value, look after it well, make sure you get regular dealer servicing, and consider shipping it to a higher value marketplace if you live in an area where demand for electric vehicles is still low when you need to sell it. 

Finally, keep an eye on those all-important residuals, and expect them to rise as appraisers become happier with the technology and reliability of electric cars.