Why the pandemic has not been good for used EVs
Rather than slow down the process of electrification, the pandemic has speeded up the sale of EVs, both new and used. Why then are their residual values (RVs) underperforming?
This may be the year in which the global number of EVs on the road hits 10 million, a recent report by the International Energy Agency (IEA) predicts.
The report foresees that EV sales in 2020 will match the 2.1 million sold worldwide in 2019, outperforming the overall market, which is set to decline by 15%. That would bring EV sales to a record 3% of global new vehicle sales. EVs would then represent about 1% of global vehicle stock.
Talking about stock: and what about used EVs? How are they selling, and how are their residual values (RVs) holding up?
Sales-wise at least, used EVs are doing great. A year-on-year comparison across INDICATA’s 13 European markets shows used BEV sales up 102.4% in August, while PHEV sales are up 90%. Comparatively, petrol (+10.4%) and diesel (+6.2%) show a lot less progress.
“The fact that all fuel types are on the up, has to do with the release of pent-up demand,” says Andy Shields, Business Unit Director at INDICATA. “We’re still catching up from the lockdown and have been for some months now. The overall used-vehicle market across all our markets was up 13.2% in June, 12.5% in July and 10.3% in August.”
In fact, the used-car market could be doing even better if only there were enough supply. “Stock availability has dropped. Lease companies are delaying the defleeting of their cars, OEMs are doing less registrations, and so on. The result is a growing shortage of good-quality used cars at dealerships,” Mr Shields says.
As a result of that scarcity, the retail price of used cars, which normally would decline slightly over any given period, is creeping up instead: “In the UK, the average retail price is 5.5% higher than where I would expect it to be.”
One major exception: used EVs. “In percentage terms, the sales increases of EVs are huge. But the prices are lagging. Take for example Germany. Here, the Indicata Market Watch price index of used petrol cars in August was 97.6 - that’s well within the range of normal, slight decline. Used EVs, however, are down to index 90. In the UK, where supply is much scarcer, used petrol prices are at 103.5, while used EVs are priced at 99.6, a 4% lag.”
The same price lag repeats itself across all markets. Why? Because of the lower market attractiveness of EVs. That can best be explained by examining stock turn. “Imagine there are 100 used cars of a certain model on the market at any given time, and that 1,000 are sold each year. That would give that model a stock turn of 10. A normal stock turn is anywhere from 6 to 8.”
“At the moment, because of the scarcity on the market, used petrol and diesel cars have a stock turn of 10. Used EVs however only have a stock turn of 5.3. That may seem like a paradox if you think about sales doubling. But the fact is that the supply of used EVs has is far exceeding market demand.”
In layman’s terms: used EVs are flooding onto the market, but only trickling out. The differential between supply and demand is such that Mr Shields knows of dealers who have a stock turn of used EV models on their lots of no more than 1 or 2.
The reason for the oversupply is obvious, says Mr Shields: government stimuli and emissions regulations are incentivising OEMs to sell less new petrol and diesel cars, and more new EVs.
“If the sale of used EVs is growing, a key factor driving this is excess supply. That is putting pressure on sales prices. OEMs can’t continue to push out EVs into a market that is not demanding them yet, without impacting RVs. So, a correction will have to come, and indeed one is happening now.”
So, if you’re a fleet professional who has to keep an eye on the RV of the vehicles you buy, does that mean you should best stay away from EVs? Mr Shields advises caution – and not just for the electric segment.
“It’s important to get the economics of your choices right, and that includes RVs. Constant vigilance will be required, because the RVs of EVs will be under constant pressure. But you should also be aware that next year, for a variety of reasons, the short supply of used petrol and diesel cars will end, and we’re likely to see a major re-alignment in their RVs too.”
So given some time, perhaps the situation will reverse, and it’ll be the EVs with the stable RVs. Wolfgang Reinhold, president of the European Car Remarketing Association (CARA) thinks so: ““In the longer run, EVs will get better RVs. That’s because the standard range now – around 400 km – is more than enough for most trips. Even if range increases to around 800 km, for example, the improvement will be less critical than from 100 km three years ago to 400 km now. Also the used EV market will be more differentiated, with more sizes and segments served.”
But the used EV market needs more than just improvement on the product side. It needs to gain some procedural maturity, says Johan Verbois, Fleet Europe Remarketing Expert, Founder of 5S Consulting and CARA Board Member.
“Yes, battery development is going well. The price per kW has halved. That means that RVs will stabilise over time. The sales process could use some additional support. For example, it would help if there were an easy, reliably independent way to do a health check on the EV battery. Stats say that battery degradation stabilises after about a year into the vehicle’s life. Reassuring customers of this would go a long way to energise the used EV market. This is something the OEMs and the dealers are going to have to work on in the future.”