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EV Depreciation Rate

Back in the beginning of the year, we brought a little piece on how the depreciation rate of a vehicle affects the new car you just bought and showed you how a brand new car is worth 20 percent less of its original value as soon as you turn the key in your new ignition right in the dealer's parking lot. Back then, however, we didn't cover one type of vehicle which, like it or not, will become a common sight on public roads in the next ten to twenty years: electric vehicles. Despite the soon-to-be launched world's first electric vehicle for the masses, the Nissan Leaf, it's gonna be quite some time before the different branded, competing EV will allow for proper a second hand (or used) EV market to develop. This means, in turn, that what you are about to read here might not be so accurate three or five years from now. That is exactly the time the urge to sell your Leaf might overcome you. Why, then, write about the depreciation rate in an EV? Well, in general, the tendencies set today are what will guide the seller-buyer behavior in the future. Just as the Leaf opens the roads for other EVs to follow, the expectations of today when it comes to Leaf's used value will pretty much guide the trends in the future. But let's take them one step at a time. WHAT IS AN EV?
An electric vehicle (or EV) is just what the name says: a vehicle which uses electricity to run, not fossil fuels. This means an electric vehicle needs no engine, no transmission (not in the sense we know a transmission to be), no clutch and so on. An EV, however, needs batteries, not like the ones you see in regular cars, but larger, higher capacity ones. An EV also needs electric motors to drive the wheels.

Although much simpler than the everyday car, the EV will initially be more expensive. This is due largely to the manufacturing costs of the batteries, the elements which are perhaps the biggest enemies of the day for the mass adoption of the EVs.

DEPRECIATION

It is exactly the aforementioned battery which also stands in the way of a smaller depreciation rate for electric vehicles. According to the limited data available at the moment, owning an electric vehicle right now might be a great idea, but will turn into a horrible one as soon as you will try to resell the vehicle.

The first group to ring the bells on the EV depreciation rate are British Glass' Guide. Their findings are in line with what EV manufacturers already knew: leasing an electric vehicle is much more profitable for the owner than buying it. This is because, within five years since purchase, the EV will lose up to 90 percent of its value. In the battery's case, depending on how hard the owner pushes the car, the remaining capacity after a 5 year usage cycle will be at around 70 or 80 percent.

“If cars and batteries are sold rather than leased, and no special warranty cover is in place, the typical EV will retain only 10 per cent of its value after five years,” Andy Carroll, Glass’ managing director says about EVs.

Case study: the Nissan Leaf is priced in Europe at around EUR30,000 ($36,860), before applying the tax incentives that are in place in countries across the continent (for a better understanding of the depreciation rate, we'll use EUR30,000 as a base for calculus).

Most of that price represent the battery. The average price for manufacturing a kilowatt hour-worth of battery is EUR700-EUR800 ($860-$1,000). With Nissan Leaf's 24 kilowatt hour battery, this means EUR16,800-EUR19,200 ($20,000-$23,500), more than half of the full price for the car.

According to Glass', the lifespan of a battery is about eight years. On the other hand, Boston Consulting Group estimates substantial reductions in battery cost will not be made until 2020, when we can expect to see a battery to be produced for EUR200-EUR400/kWh ($250-$500), meaning a price of EUR4,800-9,600 ($5,900-$11,800) for Leaf's battery pack.

So, should someone try to buy a Leaf in, say 2018, they will have two choices: either buy a new one for around EUR18,000 ($22,000) before tax credit, or buy a used one, for... how much, exactly?

Here's the tricky part. There's no telling how much the owner will lose when trying to resell the Leaf. But we can tell you how much they will lose in terms of percentage.

First of all, tax credits will most likely not apply to used EVs. This means, from the get-go, the seller will have to shave about 18-20 percent of the selling price (the average percentage represented by the tax credits for the first gen Leaf).

Secondly, they will have to shave off the 20-30 percent in battery usage over the first five years (the battery will be worth exactly zero after the warranty expires). An extra 40-60 percent will also be lost due to the decreasing price of battery production.

So, where does that bring the price of a used Leaf? Not sure, really. Glass' says that if you sell the Leaf in 2015, you will do so for only EUR3,000 ($3,686). Yet, if you add the above percentages, you'll see the worse case scenario translates into a depreciation rate of over 100 percent. Where does that leave us?

The first generation EVs will, most likely, not create a used market of their own. Once you buy a 2010-2011 Nissan Leaf, you'll be stuck with it for life. The main reason a used EV market is unlikely to be born is the fact that the manufacturing price for the battery packs needs to stabilize. For as long as there is room for that price to go down, there's no way someone could sell an used EV and be happy with the money they've made.

"With some battery replacement costs mooted to approach the £10,000 mark it currently seems unlikely that a high mileage commercial vehicle in particular approaching the end of its warranty period will have any residual value at all,"
says British vehicle valuation data company CAP.

Of course, that's not necessarily a bad thing, as the savings you get from the fuel you don't use will definitely worth your while.
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About the author: Daniel Patrascu
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Daniel loves writing (or so he claims), and he uses this skill to offer readers a "behind the scenes" look at the automotive industry. He also enjoys talking about space exploration and robots, because in his view the only way forward for humanity is away from this planet, in metal bodies.
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