13 Dec 21

Used BEV prices remain under pressure – here’s how to deal with it

“Used EV sales continue to rise in Europe”, Fleet Europe recently wrote, based on figures from Indicata. While that is true, the current market position of used EVs is more complex, more precarious – and more interesting – than that headline suggests. So says Andy Shields, Indicata’s Global Business Unit Director.

The figures are correct: for every month of this year, the sale of used EVs have shot up across Europe, compared to the same periods previously. But remarketing professionals should not treat the increasing volumes of used EVs as a one-size-fits-all formula for sales success. The reality is much more complex, and in some cases counter-intuitive, Mr Shields explains. 

Increasing scarcity

“You would expect the price of used vehicles to decay gradually as vehicles progress in their life cycles. Instead, over the past year, we’ve seen an increase in used-vehicle prices across Europe. Of course, this is due to the supply issues in the new-car market, which has turned many onto the used-car market instead, increasing scarcity, hence prices. These price increases have been reflected in most fuel types. But if we isolate battery-electric vehicles (BEVs), we see that in most markets, prices have decayed over time, not increased. In other words: the price difference between used petrol cars and used BEVs is growing. To the advantage of the petrol and diesel cars.”

And yet, when we look at monthly sales figures per fuel type for this year, BEVs and PHEVs are outperforming petrols and diesels – at least, in terms of sales growth. So, what explains this growing delta? A vital concept here is Market Days Supply (MDS), says Mr Shields. “Because sales increases do not equal market demand. MDS is a much better measure of the supply/demand relationship.”

Fast-moving stock

In short: MDS is a figure that compares the current market supply (i.e. stock) of a specific vehicle to the average sales over the past 45 days. To put it another way: a higher MDS number is bad, a lower number is good. Anything with an MDS below 60 is fast-moving stock, 60 to 120 is average. “Anything with an MDS over 120: beware. It will be hard to sell”, says Mr Shields. 

Now, if we look at MDS for petrol vehicles versus BEVs, we see that the former is low and drops throughout the year (87 in January to 48 in October), while the latter remains consistently higher (120 in January, 68 in October). The reason is the same: supply. That is to say, there has been an undersupply of used petrol vehicles, and an oversupply of used BEVs. 

“So yes, used BEVs are selling in ever greater numbers. But the oversupply is structural, so the residual values (RVs) for BEVs have been under pressure for some time”, says Mr Shields. But why is that oversupply structural? Three main reasons:

Useful yardstick

  • “Firstly, OEMs have had incentives - CAFE regulations, etcetera - to push new BEVs onto the market.” 
  • "Secondly, OEMs are ramping up production of BEV’s, trying to catch up with early movers like Tesla.”
  • “And thirdly, new BEV sales will continue to benefit from various fiscal advantages in most European countries.”

This all adds up to a significant risk of used-BEV supply continuing to exceed demand. So all in all, a very precarious situation for the remarketing industry. Fortunately, MDS proves a useful yardstick for picking winners from losers, Mr Shields suggests. 

“Just recently, we’re seeing the BEV market becoming tighter (and MDS lowering), but with such a shortage of new and used ICE vehicles, coupled with the extreme pricing increases over the last year, this should not be surprising.”

“Despite this, there is significant variation between the MDS of brands, models and even trims.” Mr Shields cites the example of the Audi Q4 e-tron, which, all other factors being equal, and depending solely on equipment, shows a difference in MDS ranging from 23 to 93. 

Drill down to specifics

With used BEV oversupply being a mid-term issue at least, all stakeholders involved in remarketing must learn to drill down to model specifics if they want to achieve optimal RVs. And that includes not just vehicle resellers planning and pricing their stock , but also, for example, leasing companies assessing future RV trends by model. 

“Price benchmarking is not enough. Pricing strategies should consider the relation between supply and demand as well. MDS does this, and not just for BEVs – for petrol and diesel vehicles as well”, Mr Shields concludes.

Image: Shutterstock

Authored by: Frank Jacobs