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GE Predicts EV Residuals will be High

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author photo by Autotrader April 2011

The minute a new car leaves a dealer’s lot to take up a home in a new owner’s driveway it starts losing value. How fast that car loses its value is a complex guessing game, but even so, the industry’s long relationship with conventional gas cars provides a solid history against which residual values can be estimated.

But when it comes to the new crop of fully electric and plug-in hybrid cars–such as the Nissan Leaf and Chevy Volt–a limited market history coupled with several future unknowns makes predicting residual values difficult.

One of the most important of these unknown factors is the price of fuel in the car’s future. Already the U.S. has seen fuel prices spike drastically twice since 2008. The most recent spike has come suddenly and based on events occurring around the world many analysts are saying we’ve now reached a new normal.

“We don’t know what the average cost of fuel will be,” said Mark Smith, General Manager of Strategic Consulting Services for GE Fleet Services, at a recent electric car event held by GE in Seattle, Wash., “but to most people, four dollars per gallon over the next four years is a very conservative assumption.”

GE Fleet Services manages about 1.5 million fleet vehicles around the world and last year committed to purchasing 25,000 electric cars for both its own fleets and its clients’ fleets. In making this commitment, GE conducted market analysis to determine what the residual value of electric cars will be in the future.

According to Smith, GE is confident that electric cars will have high residual values compared to their gasoline counterparts based on the assumptions that gas prices will remain elevated and maintenance costs for electric cars will be lower.

In general, Smith said GE’s stance is that electric cars, regardless of variations among brands, will retain high values, but that “there will be a benefit from a resale perspective if you’re buying an electric vehicle from one of the established manufacturers.” He also added that electric cars with battery heating and cooling systems will have higher resale value because those batteries are expected to last longer.

Not everyone agrees with GE’s assessment of electric cars, however. “I believe the high cost of that technology will keep their residual values from rising to the top of the segment,” said Eric Ibara, Director of Residual Value Consulting at Kelly Blue Book via email with AutoTrader. According to Ibara, even if gas is four dollars per gallon, in many cases it will take as much as eight years to pay off the purchase price difference between a comparable conventional vehicle and an electric car with the generous $7,500 federal tax credit.

“No doubt, if gas rises to five dollars a gallon, both EVs and hybrids will enjoy renewed interest from consumers,” said Ibara. “The corollary is also true, unfortunately, and if gas remains at or below four dollars a gallon, we forecast significantly less interest from the general public.”

Ibara does concede that EVs could have high residual values within the segment of the market that is willing to pay a premium for many of the features electric cars offer–features such as quietness, sporty acceleration, fueling at home, high technology and the reduced use of imported oil. “The bottom line is that EVs may enjoy moderate to strong residual values but for a reason different than the high price of fuel.”

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.
GE Predicts EV Residuals will be High - Autotrader