Electric vehicles are emerging as an increasingly interesting segment of both the new and used vehicle markets.
With the total cost of ownership continues to decrease, EVs are becoming an increasingly common sight on American roadways. This is being driven by changing consumer attitudes as EV technology improves to support wider operating areas, curbing the range anxiety objections that served as a barrier to purchases in the past. As a result, this segment of the market is posting double-digit growth in adoption. As we closed the first quarter of 2019, J.D. Power reports that year-to-date EV sales crossed the 61,000 unit mark, representing 10.6 percent uptick over the same period a year ago.
Tesla Still King of the EV Hill
Given all the headlines about the challenges experienced by Tesla — and its founder — it would be easy to lose sight of the fact that the Tesla Model 3 is the top-selling EV this year. Demand increased with the 50% cost reduction introduced by the Model 3 (with a sticker price $35,000, compared to the $67,000 and $72,000 tag for the Model S and Model X respectively).
The timing for the launch of the Model 3 came just in time to make Tesla’s fading federal tax credit — also down by 50% to $3,750 per unit — a proportional benefit for buyers of the lower cost EV.
EVs Inching up the Share Charts in New and Used Market
In the grand scheme of things, EVs still remain a footnote in the U.S. automotive market. EVs have achieved a 1.8% share of the market through the first quarter of 2019 — compared to 1.6% during the same three-month period in 2018. What is most interesting is that “all-electric-vehicles” are now responsible for roughly 70% of this share compared to HYBRID ELECTRIC VEHICLES. If EV growth continues to grow at its current pace, within the next two decades we can expect, sales of these vehicles to outpace internal combustion engine vehicles. This, of course, assumes that we do not experience some kind of event — or dramatic consumer spending shift — that creates a hockey stick effect on the demand line.
We are finally beginning to see some interesting action take place in the aftermarket. As EV buyers over the past few years trade in their vehicles for new purchases, we are seeing a growing inventory of EVs appear in the used market. Through March of this year, J.D. Power has tracked a 25% increase in the value of used-EV auction sales compared to the same period in 2018. That is a huge number.
This is occurring despite significantly higher levels of used supply — which usually suppresses vehicle values. This is one of the clearest indications of how EV value retention metrics are strengthening.
Take the Nissan Leaf as an example. During the February/March period of 2019, a three-year-old model had a wholesale value of 32% of its new purchase price. This is a significant improvement over 2017, when a three-year-old Leaf had a wholesale value of only 24% of its original price.
The same goes for the Chevrolet Volt. It currently has a wholesale retained value of roughly 40%. Two years ago, it was 36%.
These are clear indicators that EVs are becoming more desirable as used vehicles and represents a trend that we expect will only continue to accelerate in the years to come.
OEMs Are Locked and Loaded for EV Growth
As environmental regulations become more stringent around the world, the major automakers seem to be in a race to see who can announce a greater commitment to their global electrification strategies. OEMs around the world are aggressively pursuing plans to increase their line of electric vehicles with a slew of new EV models expected to be launched between 2022 and 2025. Not surprisingly, some of the most high-profile initiatives are coming out of Europe, where regulatory pressures are rising at a more urgent pace:
VW Group is plowing full steam ahead and trying to release 30 or more EVs by 2025. So plans are in motion and running at full charge ahead.
Dealers Remain in Wait-and-See Mode
Meanwhile, dealerships currently remain focused on how they can harvest sales over the next several quarters. Since EVs still represent a very small percentage of vehicles sold in the United States, dealers have yet to fully commit to specific EV sales strategies at any level of scale. In the absence of any special initiative to develop sales training or tailored support for new or used EV vehicles, J.D. Power customer satisfaction surveys are noting a less than stellar buying experiences for shoppers. While this may not be a big deal today, dealerships may be encouraging EV shopping behaviors that they may come to regret when EV demand hits double-digit market share.
Consumer Demand Poised to Move Beyond Early Adopter Stage
For consumers, the EV is emerging as a new horn of plenty, with new options, price points, and potential tax benefits not available from their traditional internal combustion engine auto buying experience.
Consumers looking to purchase new EVs in the next 12 to 18 months should make sure they are aware of how federal tax benefits are affected by the choices they make. Tesla is a great example of how dynamic this condition can be. The refunds and credits — designed to encourage new EV innovation initiatives by OEMs — are tailored to the number of vehicles purchased by each manufacturer. As noted above, last year Tesla buyers received a $7500 federal tax credit. Because of its leadership position in the market, Tesla has crossed the “units-sold” threshold, cutting that benefit in half. Other manufacturers are still operating within the parameters of the full credit.
On the used EV side of the equation, a growing number of great options are now available to consumers. And as both the technology and charging infrastructure continues to improve, we expect to see demand surge.