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Why Do Electric Cars Lose So Much Value So Fast?

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author photo by Doug DeMuro May 2017

Good news, readers of Oversteer: It's time for a new installment of Ask Doug, which involves you asking Doug a question and Doug skipping over your question to get to a better question from someone with more sense.

If you'd like to participate in Ask Doug, you surely can. Just email me at OversteerDoug@gmail.com, and I will happily read your question with serious concern, or at least scoff at it when I see it appear on my screen.

This week's question comes to us from a reader I've named Dieter, who writes:

Doug,

Why do you think electric cars depreciate so violently? BMW i3's that sold new for 40-60K a couple years ago can be found for 14-20, while Nissan Leafs can be found for under *six*.

The cheap answer would be to say that people don't have faith in the batteries, but at the opposite of the depreciation spectrum is the Tesla S and X, which have Wrangler like abilities to hold on to their value, despite being A) Electric and B) Luxury Sedans (which also depreciate like a used bed sheet).

 Thoughts?

Dieter

Dieter's question is about something most car enthusiasts have noticed, assuming you've paid attention to the used-vehicle market for more than 47 minutes over the last decade. Namely, used electric cars are really cheap. Insanely cheap. So why is that?

First, let's get some numbers. The average price of a used 2012 Nissan Leaf on Autotrader right now is $8,600. Eighty-six hundred bucks. For a 5-year-old car that started at something like $35,000 back then! For comparison purposes, the average price of a used 2012 Nissan Altima is $13,500 -- and while some Altima models are more expensive than some Leaf models, most aren't.

Dieter also mentioned the BMW i3. I had no idea they've gotten so cheap, but he's right -- they have. The average asking price for a 2014 BMW i3 is just $22,500, which is a far cry from the original starting price of $42,500 -- before options. That means the average i3 has lost around half its value in just three years. For comparison purposes, the average 2014 328i is listed for $24,200 -- with a starting price of just $38,300.

So why are these things losing value so quickly? It's all about the subsidies.

Here's the deal. The current MSRP of the Nissan Leaf is $31,700, including shipping. But that's before a federal government tax rebate of $7,500, which effectively lowers that figure to $24,200. Then there are other incentives in addition to the federal tax rebate. Many states are offering tax rebates, for instance, and Nissan itself is offering some huge incentives on the Leaf -- including 0 percent interest for up to 72 months, or up to $4,000 cash back. Those figures bring the prices down even further.

In fact, they bring the prices down so far that I would suggest this: Electric vehicles don't actually depreciate all that much. Here's my thinking: The Leaf's starting price is around $30,000, sure, but all the incentives mean you actually buy the thing for closer to $20,000 -- and suddenly it's not so crazy that it's available for $8,600 five years later. It's the same story with the i3, the Volt and every other fast-depreciating electric vehicle.

I think Tesla's higher residuals, interestingly, are proof of what I'm saying. Yes, it's true that Tesla models qualify for the $7,500 federal income tax rebate, like all electric vehicles. But unlike most other electric vehicles, Tesla doesn't have major incentives on its cars to get them to sell. Instead, it's quite the opposite: They have waiting lists. Therefore, Tesla transaction prices (as a percentage of MSRP) are higher -- and, thus, their resale values are a lot higher, too. If we had some sort of chart that showed actual transaction prices rather than MSRP, I think my theory would be proven right.

Of course, as Dieter mentions, there's a little more at play here -- namely, the fact that EVs were always going to depreciate a little faster than regular cars because they feature "unproven" technology that'll be a little more worrisome to a second or third owner, out of warranty, than to an eager new-car-buyer early adopter. But I don't think that's the primary reason EVs depreciate so fast. Instead, I think it's because they just don't sell for as much money as automakers wish they did.

Doug DeMuro is an automotive journalist who has written for many online and magazine publications. He once owned a Nissan Cube and a Ferrari 360 Modena. At the same time.

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This image is a stock photo and is not an exact representation of any vehicle offered for sale. Advertised vehicles of this model may have styling, trim levels, colors and optional equipment that differ from the stock photo.
Why Do Electric Cars Lose So Much Value So Fast? - Autotrader