Key Highlights:
- The average price of an electric car has fallen by 31.8% in the past year, compared to just 3.6% for combustion engine vehicles
- High depreciation may discourage choosing electric cars over traditional combustion engine vehicles
- The EV market’s price war may keep used EV prices low
- In Bangladesh, approximately 2 million electric two- and three-wheelers are currently on the roads, predominantly serving rural communication needs
The age-old adage that a car loses value the moment it leaves the parking lot holds true for all vehicles. However, the depreciation saga takes an amplified turn with electric vehicles (EVs), posing a significant barrier to their widespread adoption, according to industry and investment experts.
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A recent study conducted by iSeeCars.com revealed that the average price of a one- to five-year-old used electric car in the US has declined by 31.8% over the past 12 months. In contrast, combustion engine vehicles of similar age experienced a comparatively modest decline of only 3.6%.
Karl Brauer, executive analyst at iSeeCars, noted that while the decreased prices of used EVs might make them more appealing to certain buyers, they could simultaneously diminish the demand for new electric vehicles. Brauer emphasized that the initial depreciation of a new car is often the most costly aspect of ownership, suggesting that as prospective buyers become more aware of the substantial decline in EV values; their interest in purchasing new ones may wane.
“The value a new car loses in its first few years is the most expensive aspect of owning a new car andas more new car buyers become aware of the dramatic decline in EV values, they will be less interested, when buying one,”
– Karl Brauer
Investor Dismay
Expressing similar sentiments, David Kuo, stock analyst and co-founder of Smart Investor, conveyed his reluctance to invest in the electric car sector due to its inability to retain value. Kuo drew parallels between EVs and other consumer electronics like laptops and mobile phones, arguing that they quickly lose value and relevance after purchase. He predicted that EVs would undergo a similar depreciation process, where despite the high initial cost, their value would plummet significantly faster than cars with internal combustion engines.
“The same [depreciation] is going to happen to electric vehicles; it’ll probably cost you $20,000, $30,000 to buy one, but in a year’s time it will depreciate much faster than an internal combustion engine car,” he said.
Moreover, industry insiders have highlighted issues surrounding the resale of electric cars. Representatives from VW and Toyota, speaking to Bloomberg late last year, underscored how depreciation negatively impacts the value proposition of their battery-powered vehicles. Kuo further raised concerns about the potential obsolescence of software and computing capabilities in used electric cars, suggesting that buyers may realize they overpaid once these features become outdated or incompatible with updates.
Unfavorable Market Conditions
The electric vehicle (EV) market faces a conundrum as depreciation woes persist, but the roots of this issue may lie deeper in market dynamics rather than technological shortcomings. Analysis from iSeeCars sheds light on the significant drops in used electric vehicle values in the United States, primarily attributed to Tesla’s aggressive price cuts amidst a broader EV market price war.
Tesla’s Influence
Tesla’s dominant position as the leading EV seller in the US amplifies its impact on market dynamics. Lower prices for new Tesla EVs have reshaped buyer perceptions, leading to reluctance in considering similar price levels for used alternatives.
Expert Perspectives
Karl Brauer from iSeeCars warns about the long-lasting effects of continuous price reductions by Tesla, indicating their potential to drag down the entire market. However, Elon Musk defends these tactics, highlighting the importance of affordability in encouraging consumer adoption during financial calls. Tesla’s commitment to reducing costs is emphasized by Chief Financial Officer Vaibhav Taneja, signaling ongoing endeavors in this direction throughout the year 2024. The relentless price competition between Tesla and its Chinese rivals continues to fuel market instability.
Moreover, the surplus in EV production relative to demand exacerbates the situation, dampening the prospects of price recovery for both new and pre-owned EVs, as highlighted by Brauer. In the midst of these challenges, hybrids emerge as an attractive alternative. With their lower depreciation rates compared to EVs, hybrids represent a feasible transition choice between traditional gasoline vehicles and fully electric models.
Electric Vehicles in Bangladesh
Electric Vehicles (EVs) are gaining traction in Bangladesh, offering a promising solution to both environmental concerns and energy efficiency. Electric bikes, e-rickshaws, and hybrid vehicles constitute the primary segments of the electric vehicle market. Approximately 2 million electric two- and three-wheelers are currently on the roads, predominantly serving rural communication needs.
The first locally manufactured electric three-wheeler was introduced back in 2004 by a local company, marking an early step toward sustainable transportation.
Electric Four-Wheelers
Currently, the four-wheeler EV market in Bangladesh is virtually non-existent. There are fewer than 10 passenger EVs, all concentrated in the capital city.
However, the market is poised for growth as the country anticipates substantial investments in the sector. Notably, Nitol-Niloy’s ‘Suvare’ was set to be the first locally assembled four-wheeler EV before pandemic-related interruptions.
Challenges
While the prospect of cleaner and greener personal transport is promising, several challenges remain. These include infrastructure development, affordability, and public awareness.
As the global push toward sustainable transportation gains momentum, Bangladesh is gradually steering toward an electric vehicle future. The adoption of EVs can contribute to proper utilization of power while reducing pressure on fossil fuel demand.
Conclusion
The significant depreciation of electric vehicles presents a considerable challenge for the EV market, affecting consumer behavior, investor confidence, and industry dynamics. While efforts to address pricing issues continue, the future of EVs hinges on overcoming these depreciation hurdles and adapting to evolving market conditions.
