Under the Hood: EV adoption threatens residual values

Electric vehicle incentives are on the rise, but a hastened rate of EV adoption might upend vehicle values in the coming years. Auto manufacturers have been stepping up EV production across the board. By 2026, all of Bentley Motors ’ cars are expected to be plug-in hybrids or all-electric, and by 2030 the brand aims to be end-to-end carbon neutral. [caption id="attachment_57333026" align="alignnone" width="2560"] © Can Stock Photo / welcomia [/caption] While Bentley’s agenda is aggressive, many other brands have plans to stop selling gas and diesel vehicles in the next decade or so. For General Motors , the target date is 2035. Honda ’s plan is to transition 40% of its North American vehicle sales to either battery electric or hydrogen by 2030, and its gas-powered cars will be phased out by 2040. But even sooner — starting in 2025 — all new Mercedes vehicle platforms will be EV-only , every Stellantis Jeep will have an EV option, and Toyota will have 70 electrified models. With automakers seeking more buyers for their EVs, the U.S. government has stepped up incentives for non-gas-powered vehicles. The Inflation Reduction Act of 2022, which was signed into law this summer, extended the $7,500 tax credit on new EVs through 2032, potentially spurring millions more consumers to buy zero-emission vehicles. Plus, for the first time, used EVs will be eligible for federal tax credits as high as $4,000 or 30% of the sales price, whichever is lower, on vehicles less than $25,000 and at least two years old. Additionally, starting in 2024, consumers who buy new or used clean vehicles at registered dealers would be allowed to receive discounts at the point of sale equal to the value of their credits. The previous federal tax credit for EVs was capped at 200,000 vehicles per automaker; it had already ended for GM and Tesla and would have soon ended for several other automakers. States offering rebates for EVs Beyond federal incentives, individual states are tacking on additional rebates on EV purchases. For instance, Massachusetts residents who buy or lease one of three types of EVs could qualify for a one-time rebate up to $3,500 — an increase from $2,500 — thanks to the state’s recent MOR-EV program. Massachusetts companies that use EVs could also apply for the rebates on their vehicle fleets, and starting next year, low-income EV purchasers could receive an extra $1,500 in tax credits and an additional $1,000 for turning in a gas-powered car with their EV purchase. Similarly, Illinois residents are eligible for a $4,000 tax rebate with the purchase of a qualifying EV, and California residents are eligible for credits ranging from $1,000 to $7,000. But the EV incentive program in the Golden State is part of a broader initiative established by the California Air Resources Board , which calls for a ban on the sale of all new gas-powered vehicles by 2035. Putting the brakes on gas California is not the only state with plans to require automakers to stop selling gas-powered vehicles. New York set a goal in September to ensure that all new passenger cars and trucks sold in the state are zero-emission by 2035, and in Colorado, 80% of all new cars and light trucks sold in the state must be EVs come 2032. These EV sales will need to happen at a relatively quick pace, considering that at current count, Colorado has only 12 EVs per 1,000 people, and New York has six EVs per 1,000 people, according to state data. This phase-out of non-EVs across the country, combined with the relatively high price of EVs and their faster-than-normal depreciation rates, will likely pummel vehicle values in the coming years. Even with stacked discounts, EVs are more expensive than their gas-powered counterparts. For instance, the average price of a new, gas-powered car is $48,281, compared with $64,249 for a new EV — nearly a $16,000 difference, according to data from Recurrent Motors . Meanwhile, the average price of a used EV is $37,597, which is about $10,000 above the average price of a used gas-powered car. Further, EV technology is changing at a rapid pace, which could wallop vehicle values. While a new sedan depreciates 39% after three years, EVs typically drop 52% within the same timeframe. And the greater the technology shift from year to year, the larger the potential decline in value for outdated models. Multiply that heightened depreciation rate by the tens of thousands more EVs on the road, and vehicle values are on track to crater. Auto Finance Summit East, Auto Finance News’ new spring event, kicks off May 10-12 at the JW Marrio t t Nashville. To learn more about the 2023 spring event and register, visit autofinance.live / afs -east .

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