OEMs May Raise Incentives on EVs, Experts Say

San Diego — Manufacturers may be forced to highly incentivize electric vehicles to comply with state laws, despite the cars’ continued low residual values, experts said during a panel discussion at the Auto Finance Risk and Compliance Summit last week. 

Electric vehicles on the market today have not retained their value, which makes it more difficult for lenders to underwrite, the panelists said. For example Nissan Motor Company’s electric car offering the Leaf, is only holding 18% of its value after three years on the market, said Laurence Dixon, director of market intelligence at JD Power.

“Nissan Leaf and Nissan Versa are comparable vehicles — one is electric and one is gas — where Nissan Leaf is about $33,000 MSRP and Versa is about $16,000,” Anil Goyal, senior vice president of automotive valuation and analytics at Black Book, said during the panel discussion. Despite that price gap, “Both are fetching $7,000 at auction today, for 2014 model years.”

Consumers “refuse to grade EVs on a curve,” said Alain Nana-Sinkam, senior director of industry solutions at ALG. Hybrids and all-electric vehicles combined only make up 3% of the market, and they will have to compete on price and range with their gas-powered counterparts, he added.

Despite the market being slow to adopt these vehicles in a more mainstream way, manufacturers are going to be pushing them with incentives, in states with zero emissions requirements, said Eric Ibara, director of residual value at Kelley Blue Book. These state requirements are more strict than the EPA’s goal of getting to an average industry fleetwide level of 54.5 miles per gallon, because zero emission mandates exclude hybrids.

“I think this starts to have teeth next year,” he said. “If manufacturers don’t hit these targets there are severe penalties. We’re going to see very cheap new electric vehicles because that’s’ the only way manufacturers are going to be able to hit their targets.”

These incentives may come at a time when “cash on the hood” is already approaching record highs and threatens to further deteriorate used-car prices.