An EV tipping point

Tesla Model 3

When you calculate the overall cost of a car, you take the purchase price, add fuel and repair costs, and deduct the residual value (what you can sell it for) at the end of three or four or five years.  Now EVs (Electric Vehicles) cost much less to run than ICEVs (Internal combustion engine vehicles, i.e., vehicles running on petrol or diesel), because EVs are at least 4 times as efficient as ICEVs and are much cheaper to maintain because they have 1/10th the number of moving parts.  Their "sticker price" (or the up-front cost) is higher.   But what if that is offset by a better resale value at the end of the three or five years?  Initially, after the experience with early Nissan Leafs. it was feared that EV batteries would be short lived.  But it turns out that they will prolly outlive the car, especially Tesla's.  The result has been that resale value of EVs is now holding up better than they used to.  

In addition, in the luxury car segment, where Tesla competes with the likes of Mercedes-Benz and Audi,  the Model 3 has driven down resale values of these luxury marques.  This makes te economic case for EVs even more compelling. 

From Inverse

The electric car may be outpacing its internal combustion predecessor on a key metric, Elon Musk declared Sunday. The CEO of electric car firm Tesla claimed that gas cars are going to depreciate in value faster than the future-facing vehicles.  “Given how quickly the world is shifting to electric vehicles, a gas/diesel vehicle bought today will probably have low resale value,” Musk declared on Twitter.

Musk is not the first to suggest that electric vehicles are reaching this point. It’s perhaps a moment that’s more important than the actual sales figures: if the electric vehicle outpaces older cars on resale value, making the switch becomes an economic no-brainer. As the world marches to cut emissions and the grid gradually moves to renewables, it’s perhaps a shift that may have arrived at the ideal time.

Musk was responding to a CleanTechnica article shared Sunday. The article cites Capital One, a financial firm, which claims that “once-strong demand for European luxury brands like Mercedes, Audi, and BMW is evaporating as buyers that used to spring for premium luxury sedans now want a Tesla. Any Tesla.”

The firm found that the Tesla Model 3 in particular, the $35,000 entry-level sedan that hit roads in July 2017, has had a big effect on the market. The vehicle moved from no cars to 140,000 cars faster than any other luxury vehicle ever, the firm claimed. As a result, this led to buyers trading in their vehicles.

The high demand sparked a shift in trades. Around 22 percent of Tesla buyers traded in luxury European vehicles, compared to an industry average of 11 percent. Prices are now plummeting, the firm explained, because there’s too many used luxury cars compared to demand.

Take the 2018 BMW 320i as an example. Capital One showed that in the first six months of 2019, the car lost almost 20 percent of its value to reach $30,700, an abnormally high speed. A 2016 Mercedes B-Class, which would normally depreciate at a slower rate over that time as it’s older, actually depreciated faster to a rate of nearly 30 percent, reaching $13,250.

It’s a sentiment perhaps best summed up by Electrek editor Fred Lambert, who told Inverse in July that the market would likely reach a tipping point in 2025. At that moment, it’s going to be too hard to justify spending the money on an old gas-powered car.

"I think the resale value of gasoline cars is going to drop massively in the next five years, and predicted value is going to drop even more drastically. Buying a gasoline car right now is a bad choice. Buying a gasoline car within the next five years is going to be just a financial suicide for most people."

The shift to EVs has begun and will accelerate.  That is bad news for slow-moving legacy manufacturers.  Expect the propagation of FUD (fear, uncertainty and doubt) and tax shifts (the latest wheeze: charging EVs 10 times as much annually as ICEVs raise in petrol taxes for "fairness") to expand rapidly.