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Will Electric Cars Lose Value Quickly? Some Say Yes, We Disagree

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2012 Chevrolet Volt

2012 Chevrolet Volt

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For over 80 years, the Kelley Blue Book has been valuing new and used cars for the benefit of the auto industry. Used by automakers, car dealers and consumers alike, it has become the ultimate go-to guide for realistic valuations on virtually any age or condition of car. 

But although the Kelley Blue Book is now providing valuations for all of the electric cars on the market today, it remains skeptical about just how much electric cars will be worth in a few year’s time. 

Are the Kelley Blue Book estimates correct? Or are they ultimately hurting electric car sales and consumers? 

2012 Chevrolet Volt considered best resale value electric car

Last week, the Kelley Blue Book crowned the 2012 Chevrolet Volt the Best Resale Value award in the electric car category, claiming that the Volt will depreciate the least of all electric cars on the market today and retain around 42 percent of its value in three years’ time. 

Put that into cold, hard cash, and according to the Kelley Blue Book an average base-level 2012 Chevrolet Volt will be worth just $16,797 in three year’s time.  It’s similar to the valuation given last year to the 2011 Chevrolet Volt.

Kelley Blue Book

Kelley Blue Book

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Gas guzzlers worth more, but cost more to run

Interestingly however, look at the Kelley Blue Book top ten best resale cars for 2012 and you notice one thing: The cars Kelley Blue Book expects to retain the most value are SUVs or Crossover SUVs. 

The winner -- the 2012 Jeep Wrangler -- is predicted to retain 68 percent of its sticker price in three years’ time, but with the worst fuel economy of its class, it is guaranteed to cost a lot to run. 

An unknown field gives ‘worst case’ valuations

While the Kelley Blue Book has over 80 years of valuation experience to pool when it comes to gasoline cars, trucks and motorcycles, it hasn’t got very much experience evaluating electric cars. 

And with no hard-and-fast evidence to pool on battery life for lithium-ion derived battery packs, Kelley Blue Book Valuators are erring on the side of caution when it comes to predicting residual value. 

That equates to an expectation that battery packs will not retain their initial capacity beyond the manufacturer's warranty period, even if automakers and electric car advocates disagree.

 

Lousy predicted values mean higher initial costs

Ultimately, the Kelley Blue Book valuations -- and similar valuations from other firms -- are driving up the cost of owning an electric car in order to protect the investment of firms leasing and producting electric cars.

For example, if you lease your car, the amount you pay on your monthly lease is directly influenced to the car’s predicted value at the end of the lease agreement.

Since the finance or lease company needs to know it will make a profit on every agreement, it needs to make sure that it can recover any expected depreciation during the lease agreement. In essence, the person leasing the car reduces the finance company’s investment risk.

In other words, the higher the expected depreciation, the more you’ll pay per month. 

Used car guy

Used car guy

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Why we disagree

So far, demand for electric cars is still high, due to early-adopting demand, but we think that demand will continue as electric cars become more mainstream and more and more consumers feel the pinch of the gas-pump. 

 One year after launch, cars like the 2011 Nissan Leaf and 2011 Chevrolet Volt are still performing as expected, with many early-adopting owners reporting no perceptible drop in battery capacity after months and many thousands of miles of use.  

What’s more, many owners of previous-generation electric cars -- like the 1998-2002 Toyota RAV4 EV, are still happily driving their cars with over 100,000 miles on the battery pack without major pack capacity loss. 

With states like California offering High Occupancy Vehicle (HOV) lane access to electric cars regardless of the number of occupants, expect white-HOV-lane sticker plug-in cars to become as sought after as the hybrids which preceded them. 

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Comments (19)
  1. The Volt has two swords hanging over its head : if the cost of batteries remains high, then knowledgeable buyers won't pay much for a car that'll need $10,000 worth of batteries in a few years.
    But if the cost plummets, which research from Kung at Northwestern, PolyPlus and others indicates will occur within 2 or 3 years, then the Volt doesn't make sense anymore. Remember, the Volt only makes economic sense in a world of extremely expensive batteries. The Volt was not designed to be an electric car and suffers enormously when compared to cars that were, such as the Tesla Model S. Regardless of where battery prices go, the Volt resale prices are going to suffer, for one reason or another.
     
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  2. I disagree because you are always a troll and a sucker for the Volt that claims is a failure. For me, the Volt is the most successful car around.
     
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  3. I guess the main reason for low residual value estimates is battery anxiety. There is no way of knowing how the battery will perform in 3-5 years from now (past NiMH performance in the RAV4 EV can't really answer for Li-ion) and worse, there is no way of knowing how high replacement cost will be, because Nissan for instance doesn't have a replacement program. For good reason I suppose, come replacement time the current battery chemistry will be replaced by a new and better one making it impractical to have a detailed replacement plan at this stage.

    So for now buying an EV is just going to be a leap of faith for consumers; the EV producers should be involved in leasing since they have the inside take on battery replacement cost.
     
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  4. There's a huge discrepency here. If you figure the average EV battery lasts for 5000 or more discharge cycles as nearly all EV manufacturers advertise, then they should all go well over 100,000 miles before replacement. However, most manufacturers will only warranty the battery to 100,000 miles. In the case of the Volt, at its minimum range per trip (25 miles) the warranty runs out after 4000 discharge cycles. If you figure roughly 700 discharge cycles per year (two per work day), the battery only lasts 5.8 years. That's the point at which the battery needs replacement.
    That's also the point at which the value of the car plummets to around $0, when the cost of battery replacement equals the value of the car. Less than six years.
     
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  5. Too bad in reality there isn't a single manufacturer out there making claims about 5000 cycles battery lives and still retaining 80% of capacity.

    If you do the math: a 24KWH battery like the Leaf's would last about 300K miles over 15 years (charging it ones a day) if it did. With numbers like that we wouldn't have this high depreciation forecast problem, EV's would be a more solid investment than gold in a financial armageddon...

    Mind you, the Honda Fit's lithium titanate battery comes pretty close at 4000 cycles. Too bad that one is lease only so no investment opportunities here....
     
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  6. To clarify, CPI, the battery pack maker for the Volt, claims 5000 cycles, and Chevy doesn't dispute it. 2500-3000 is more likely. I assumed 4000 cycles on the warranty, but that drops to 2500 warranty cycles if every trip is the Chevy-advertised maximum 50 miles of the Volt's range. That's also a dream; you only get 50 miles on a full charge at the perfect temperature, without air conditioning sucking up all of your power, etc. etc.
    The bottom line is: EVs will NOT hold their value, in my opinion. Assuming normal daily driving, if you won't drop another $8k - $10k at year 5-6 for new batteries, your car's value is zero at that point. And if you elect not to drive it every day just to save the batteries, what's the point in owning it?
     
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  7. Cycle life is really about residual capacity. If it drops too much the battery becomes useless. Warranties only cover defects, not capacity so the uncertainty remains.
    Interestingly the residual capacity problem should affect the Volt less than the Leaf since it will remain 100% functional, just less economical. The Leaf might need it's battery replaced before capacity drops even to 70% because of unacceptably low range. So maybe Nissan should have fitted the Leaf with a bigger battery("spare capacity") or room for extra modules for an economical capacity upgrade (why throw away a perfectly good battery with 70-80% life left in it?). OTOH maybe the Leaf's battery lasts long and better tech makes replacement affordable...uncertainty.
     
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  8. Oops, messed up my own arithmetic. It's 2000 warranty cycles of the battery at 50 miles per cycle.
     
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  9. yes, today's evs will lose a lot of value. but people dont buy cars as investments. they buy them for utility (at least the average joe).

    like anything else, a current buyer needs to ascertain whether his expenditure is worth it, for the time that it does its job.

    batteries will no doubt improve. but if the ev industry does it correctly, one should be able to place in a current battery when the original battery dies, without getting rid of the car. just like one puts in a new engine, transmission, etc.

    as the years go by, new gas cars will depreciate even faster, since no one will want to put big bucks into a dinosaur technology.
     
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  10. I'm actually not convinced at all that EV's will show extreme depreciation. If it turns out they retain most of their range over a long time and maintenance cost is extremely low as expected than that should make, along with very limited supply for some pretty impressive residual values.

    I think it's just the uncertainty about the batteries that causes these very conservative residual value estimates. Too bad because these gloomy forecasts are not going to help EV adoption at all obviously.
     
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  11. it is not just the batteries. and it is not just the uncertainty of how much will be left of the battery. 2 main reasons why evs will depreciate a lot

    1) today they are being sold at a premium, simply because they can be sold at a premium.

    2) batteries will improve a lot, just as with all new technology.

    but as i stated, if you buy with the intent of using it, and it lasts as long as it was supposed to, then you got your money's worth.

    resale value only means something IF YOU ARE GONNA SELL IT.
     
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  12. as i have said in the past, the best financial plan for most is to buy a used ice now, and wait for the ev technology to settle in.

    with a very limited supply, prices are high. and almost all the current buyers are somewhat well-to-do.

    in a few years, supply will dramatically rise, thus cutting the price a lot, and bringing in a whole new group of buyers.

    each of us in turn will join one such group, when our needs are better met by an ev, as opposed to an ice.

    each year that goes by will bring more people into the ev group, and less people into the ice group.

    the typical snowball rolling down the hill. or the example of doubling a dollar. after 5 years, you have 32 dollars. after 10 years, you have 1024 dollars.
     
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  13. after 15 years, you have 32,000 dollars. after 20 years, you have a million dollars. exponential growth. the ev industry will expand exponentially for quite a long time (not necessarily doubling every year, though).
     
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  14. As Chris O mentions a battery with 70-80% capacity isn't worthless. Even if you have to replace it to get the range you want you will get something back for the battery you are replacing. At 18-19kWh it still has value in non-automotive uses. Even if it didn't have value as a battery it would have some value for recycling.
     
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  15. The resale value of PHEV's and EV's will be directly proportional to the price of oil/gas. This occurs to the Prius when gas prices go up, it holds value extremely well.

    When considering the LEAF as a replacement for my Nalibu, I assumed the worst case scenario i.e. zero resale value at 100,000 miles. The car still makes financial sense even given this dire outcome. If gas skyrockets in price, then I will be rewarded with a much higher resale value than I had anticipated.

    See http://wp.me/p1sK3k-i for my detailed analysis.
     
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  16. You know, a dramatic drop in value isn't ALL bad. I would certainly purchase a 2011 Nissan Leaf with 36,000 miles for $14000.

    That's a great deal for those of us that like to purchase our cars used.
     
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  17. We agree that interest in EVs will increase along with increase in gas prices.
    Increasing gas prices in step with falling battery prices will decrease EV costs in the coming years. The air will be glad.
    Future estimates here: http://www.evsroll.com/Electric_Vehicle_Markets.html
    EVsRock!
     
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  18. with typical supply and demand, it would certainly drop, due to easing of demand.

    however, unlike most products, oil prices are controlled to a large degree.

    but fuel savings is not the only advantage that evs have.

    maintenance, smog checks, etc.

    evs are simply better in every way, from a quality standpoint.

    price and range are its only disadvantages, and those will continue to improve as the snowball rolls down the hill.

    i am the only person i have seen who from day one has stated that 10 years in the process, new ices will become almost extinct.

    that includes all the so-called "experts". they were predicting 2 and 3% - what a joke that is. anyone making that dumb of a guess must be owned by big oil.
     
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  19. I've been leasing cars for 20+ years and have always avoided leasing american cars -low residual values. My last car was a Honda CrossTour, lease for $390 per month / 36 month with a $1500 cap reduction. My Gas bills were running $300 a month.

    On October 8, 2012 I leased a new 2013 Volt with all the options My drive off was $1300 an month payment for 36 month is $375. The MSRP is $42,079. The residual value, after 36 months is $28,596...a whopping 68% residual.

    Obviously, GM anticipates a significant aftermarket when the lease terminates in 2016. The Volt is a great car, well engineered and great interior ...first GM car I've ever drive and I've been driving 48 years. All my driving for 2 weeks has been electric only...yep!
     
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