Anyone considering buying an EV will be wondering if EVs depreciate faster than traditional petrol or diesel cars? Recent data from the used car market, combined with insights from industry experts, suggest that EVs are potentially losing value at a significantly faster rate than traditional cars.
The Accelerated Depreciation of EVs
According to the British Vehicle Rental & Leasing Association (BVRLA), EVs are currently experiencing what it calls “exceptional depreciation.” Over the past two years, the residual value of electric cars (how much a car is worth after three years) has dropped sharply. While a typical new EV might retain 60% of its value after three years in 2022, that figure has since plunged to just 35%. In other words, a £50,000 electric car is now likely to be worth only £17,500 after three years, instead of £30,000.
This trend is particularly concerning for fleet operators and leasing companies that rely on predictable depreciation rates to calculate lease payments. As residual values fall more rapidly than expected, these businesses are facing large, unexpected losses when they try to sell EVs into the used market.
Why Are EVs Depreciating Faster?
Several factors contribute to the accelerated depreciation of EVs:
- Weak Consumer Demand
One of the primary reasons behind falling used EV prices is a slump in consumer demand. Despite growing interest in electric cars, high upfront costs continue to deter many potential buyers, even for second-hand models. As demand weakens, it drives down the value of used EVs. - Manufacturer Discounts on New EVs
With slower-than-expected sales of new electric vehicles, manufacturers have begun offering more aggressive discounts to attract buyers. While this is good news for those in the market for a new EV, it further devalues used EVs. When new models are available at discounted prices, the appeal of purchasing a second-hand vehicle diminishes, pushing used prices even lower. - Technology Advancement
The rapid pace of innovation in EV technology also plays a role. As newer models with better range, faster charging, and more advanced features hit the market, older EVs quickly lose their appeal. The perceived obsolescence of older models can lead to faster depreciation compared to petrol or diesel cars, which tend to see slower technological advances. - Government Incentives and Policy Uncertainty
Government incentives, such as UK salary sacrifice schemes, tax breaks or grants for EV buyers, have boosted new EV sales. However, uncertainty around future policies, including changes in subsidies or tax rates, adds to the volatility in both the new and used EV markets. Some potential buyers are hesitant to commit to purchasing a used EV, fearing that they may miss out on future incentives.
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What Does This Mean for Buyers and Sellers?
For fleet operators and leasing companies, the faster depreciation of EVs has become a major financial issue. Leasing companies base their monthly payments on predicted depreciation, but the recent drop in residual values has led to larger-than-expected losses when selling vehicles at the end of the lease term. As a result, leasing firms are being forced to raise prices for consumers, which could further reduce demand for new and used EVs alike.
For individual buyers, the current state of the market presents both risks and opportunities. Those looking to purchase a second-hand electric vehicle may find some good deals due to the falling prices. However, buyers should also be cautious about further depreciation, especially if they plan to sell the vehicle in a few years. The rapid pace of innovation in the EV market could mean that today’s models will lose value even faster as more advanced vehicles become available.
Which Electric Cars Hold Their Value in the UK?
Here are some of the EVs that have proven to hold their value better than others in the UK market.
1. Tesla Model 3
Tesla remains one of the top performers when it comes to EV resale value, with the Model 3 being a standout. Thanks to Tesla’s strong brand reputation, continued software updates, and the widespread Supercharger network, the Model 3 retains its value exceptionally well.
2. Porsche Taycan
At the luxury end of the market, the Porsche Taycan has proven to be a strong performer when it comes to retaining value. Its premium brand appeal, coupled with its powerful performance and high-end features, ensures it remains desirable even as a used car.
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3. Jaguar I-PACE
The Jaguar I-PACE, one of the earliest luxury electric SUVs, has earned its place as one of the best in its class for retaining value. Despite being on the market for several years, the I-PACE remains a popular choice for buyers looking for a stylish, spacious, and premium electric SUV.
4. Nissan Leaf
Among more affordable electric cars, the Nissan Leaf has been a consistent performer. As one of the world’s best-selling EVs, the Leaf benefits from a strong reputation for reliability and practicality.
5. BMW i3
Though production of the BMW i3 has ended, this compact, quirky EV has shown excellent value retention. Its unique design and high build quality have ensured that the i3 remains sought after in the UK’s second-hand market.
Can the Depreciation Trend Be Reversed?
Industry experts, including Gerry Keaney, the chief executive of the BVRLA, argue that intervention is needed to stabilize the market. Without targeted incentives to boost demand for used EVs, the current cycle of weak consumer interest, falling prices, and faster depreciation could continue.
The BVRLA has suggested possible solutions, including government measures such as VAT cuts or grants for buyers of second-hand electric vehicles. By making used EVs more attractive to consumers, these incentives could help balance the market, supporting residual values and making EV ownership more financially viable in the long term.
EVs Do Depreciate Faster But the Market Is Evolving
The evidence is clear: electric vehicles are depreciating faster than new petrol and diesel cars. Weak demand, rapid technological advancement, and aggressive discounting on new EVs have all contributed to this accelerated depreciation. But we think that as the EV market continues to evolve, there is potential for this trend to slow down, especially if governments introduce more incentives to stimulate demand in the used market.
John is the Editor and Spokesperson for Electric Car Guide.
With over 20 years of writing experience, he has written for titles such as City AM, FE News and NerdWallet.com, covering various automotive and personal finance topics.
John’s market commentary has been covered by the likes of The Express, The Independent, Yahoo Finance and The Evening Standard.
