Electric Cars have a depreciation problem, except for Tesla

iSeeCars is a company specialized in data collection on the new and used car markets. In its latest study, electric cars in general display much higher depreciation after three years than traditional cars — 52% versus 39.1% for sedans, 39.7% for SUVs and 34.3% for trucks. Tesla vehicles however outperform the industry. At the end of a 3 year contract, the Model S depreciates 36.3 percent while the Model X depreciates 33.9 percent for the same duration.

But the Tesla Model 3 is truly amazing. It depreciates just 10.2 percent after 3 years, according to the report. No car represents a good investment. Over time they are all lose value. Yet the study from iSeeCars indicates drivers opting for a Tesla would see less of their money evaporating as their cars age. Depreciation is a major slice of the pie when it comes to measuring the true cost of owning a car.

Early electric cars suffered from vicious depreciation as Car and Driver points out. A 2011 Nissan LEAF was worth just 11 percent of its initial sticker price 5 years later. Even the federal tax credit plays havoc with valuations of used vehicles. Nearly every electric car was registered for that special tax treatment three years ago and the used car market replied by wiping off the resale value of all of them immediately at $7,500. That made those cars very appealing to those who were looking for a low cost, emissions-free vehicle.

Why do Teslas keep its value better than other electric vehicles? One explanation is over the air updates. A 2015 Tesla Model S or Model X has been updated multiple times since it left the factory so in some respects, they are better cars today than they were when they were built. The prospect of owning a used car with all the latest software enhancements of newer cars is a compelling incentive.

Range is also a significant factor for the popularity of electric cars used. Except for Tesla, most electric cars which are 3 years old, have a useful range of less than 100 miles. This can fulfill some driving needs, but the thought of buying a vehicle that needs recharging after 70 miles or so is a non-starter for many people.

And what does the Model 3’s spectacular success account for? Supply and also desire. “The Tesla Model 3 is still very much in high demand since it started production in 2017,” a spokesperson for iSeeCars tells Car and Driver. “Even though it doesn’t present a bargain compared to its new car price, it offers consumers a more affordable option for owning a Tesla.”

According to Plug In America, the primary factor in the value of a used electric car is the battery quality, just as the primary factor in the value of a traditional used car is the engine quality and the transmission. “Since battery electric vehicles have 10 times fewer moving parts than gas cars, the only major concern in purchasing or leasing a used EV is the quality of the battery,” it says.

Cars such as Hondas and Toyotas, proven to last for 200,000 miles or more, have strong resale prices. Even vehicles considered to be less efficient do not. Nissan is still plagued by the shadow of battery failures in some early cars but as the years and miles go by, Tesla’s reputation for having the best batteries in the industry gives used EV shoppers faith that a Tesla won’t suffer from battery failure as soon as the check clears.

The business is in constant flux. Model 3 will see competition from Model Y. Model 3 will become the cheapest used car option within three years, while Model Y will be the next low depreciation champ. Then again, the new electric cars coming from Volkswagen, Ford and GM may tip off Tesla’s balance. To guess what any electric car used will be worth 3 years from now is full of uncertainties and what we now call known unknowns. Just one thing seems clear — if it says Tesla on the back, it will probably be worth more than any other electric car at trade in time.

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