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Black Book Says Electric Vehicle Resale Values Hard to Predict Due to Rapidly Advancing Powertrain Technologies

July 3, 2012

Ricky Beggs, VP and Managing Editor of Black Book.
Ricky Beggs, VP and Managing Editor of Black Book.

TORRANCE, CA – Fleets are testing electric vehicles (EVs) to determine whether they have possible applications, but large-scale adoption has yet to occur. One reason fleets are holding back has to do with the unknowns regarding EV residual values.

As both electric vehicle technology and traditional gasoline powertrain technology changes, becoming more efficient every year, predicting the residual values of electric vehicles a few years from now is a challenge. In addition, Black Book’s Vice President and Managing Editor Ricky Beggs said consumer demand isn’t the core driver of EV design; regulation is, specifically meeting upcoming corporate average fuel economy (CAFE) standards.

“There is a lot of hype and talk about EVs,” Beggs said. “It’s all being driven by CAFE requirements and about corporate fuel economy that manufacturers have to meet. I think they get a certain number of credits for hybrid and EV units even if they don’t meet those units. If gas was sitting at $5 a gallon and staying there, we would have a different perspective, but that’s not where we’re at. The price of gas is holding interest back right now.”

Beggs cites range as a key challenge for most vehicle buyers, both fleet and consumer. He noted that the Volt stands out in terms of range, but that other models still induce “range anxiety” in drivers. Still, he did note the potential savings from reduced fuel costs that a moderate increase in fuel economy can provide.

“As a consumer, if you were driving a gasoline engine car, and you were at 20 mpg, and based on 20,000 miles driven per year at $3 per gallon, and you jump to a 25 mpg car, the same number of miles and price of gas, you’re only going to save $770 per year,” Beggs said. “If you’re a fleet with 500 cars, and you go from 20 mpg to 25 mpg, that’s $385,000 a year.”

Still, even with those cost savings, the inability to predict relatively accurate residual values is a major problem that affects electric vehicle residual values.

“There is really no historical data to look at,” Beggs said. “When we project our residuals here at Black Book, we look at how much technology will be out in 2 or 3 years. Will that new technology affect the value of the vehicle 2-3 years from now? If you can get 40 miles on a charge now, what if a new model of a vehicle comes out that costs less than the current model does today but gets 90 miles per charge?”

Unpredictable residual values means higher costs associated with leasing, which many commercial fleets use in order to keep costs down.

“If they want to do this as a closed end lease, the leasing company has to take the risk, so they will have to lower the residual,” Beggs said. “If they do it as an open end lease, they will have to take the risk themselves. There are all sorts of scenarios you have to look at.”

Beggs said the fuel economy of late-model mid-size cars is another issue that reduces the residual values of EVs and hybrids.

“Look at the fuel economy those vehicles are getting today,” Beggs said. “It’s not the subcompact getting 40 mpg, it’s the mid-size car. There are pretty nice cars getting the high 30s in mileage.”

Beggs said Black Book does see more types of electrified vehicles coming to market in the years to come, primarily for the reason he stated above: regulations.

“If you just look at the 2012 models, there are eight new hybrids from that year that weren't in 2011,” Beggs said. “Are they high volumes? No, they’re not high volumes. For example, with Toyota’s RAV4 Electric, there are only 1,100 coming out over the next three years. I see more and more hybrids coming into play, because it helps the automakers meet CAFE standards, though.”

Although there are a still a ton of unknowns regarding EVs, ultimately there won’t be that many EVs coming back onto the market as used vehicles in the next few years, according to Beggs, where he cited current sales figures for all three types of electrified vehicles.

“In this market, even with plug-ins, hybrids, and electrics, we’re still just barely touching 3% of sales,” Beggs said. “But based on that 3%, there aren’t that many vehicles you’re going to lose on when they come back to the market a few years from now.”

By Greg Basich

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