With the residual price of electric vehicles softening recently, due to supply constraints improving for new EV production as well as ongoing concerns about the state of health of on-board batteries, industry leaders and policymakers may need to intervene to reassure motorists that used EVs are worth buying. Without this, the pace of the transition to EVs could start to slow, undermining progress to net zero.
The price disparity that exists between battery electric vehicles (BEVs) and their fossil fuel-powered counterparts means that the former are likely to depreciate more quickly, simply because they are more expensive to start with. As the battery unit can account for as much as half of the overall cost of a new BEV, any degradation it may have suffered at the hands of a previous owner is likely to have a significant impact on its residual value.
Waiting lists for new BEVs have dwindled as factories catch up with the rapid increase in demand, and buyers now have a wider selection of new models to choose from. For the used EV market, this has placed further downward pressure on residual values as supply and demand even out. According to the Society of Motor Manufacturers & Traders, used BEV transactions in the first quarter of 2023 rose by 56.5 per cent to 26,257 units, representing 1.4 per cent of the market, but conventional powertrains remain dominant.
Tesla's recent decision to cut the price of its new Model 3 and Model X cars in response to global competition also softened used car values for a time, although according to media reports, prices are now rising again. With more second-hand Tesla cars coming onto the market, the price correction that has taken place means they are competitively priced compared to other premium models.
As the used EV market starts to mature, battery health is becoming an important factor in buying decisions. A report by the Green Finance Institute reveals that 17 million motorists in the UK would consider switching if concerns including a lack of confidence about battery health, affordability issues and a lack of infrastructure were addressed.
As well as considering the vehicle's service history, second-hand car buyers want to know more about the life of the battery to determine its state of health. Unlike buying a used ICE vehicle, the mileage is not the major indication of an EV's battery health and therefore its life expectancy. The significant cost involved in buying a replacement battery means prospective buyers need reassurance that the existing one is still fit for purpose. One solution might be to provide a battery health report based on onboard telematics and battery management system data, revealing more about past usage behaviour. For example, a careful owner may have been trickle charging the vehicle up to only 80 per cent of capacity in order to conserve battery life, whereas a salesperson covering long distances might have been supercharging the battery multiple times per week, probably leading to greater battery degradation.
It should be possible in the future to adapt onboard BMS data outputs to predict a battery's life expectancy and provide a report of its charging history. These systems would be refined over time to optimise battery power, while limiting degradation and helping to extend the life of the battery. Vehicles with such systems could become a differentiator and hold their value better than those that don't. Today the BMS parameters are overly cautious and will remain so until more is known about battery degradation patterns. Through the use of telematics, real-time monitoring of battery performance and health could feed information directly to the motorist and influence their driving and charging behaviour.
Recognising the importance of the EV switchover to the achievement of Britain's net-zero goals, the UK government's Office for Zero Emission Vehicles has recently announced plans to make onboard state-of-health battery monitors compulsory. However, it remains to be seen what these monitors will be capable of and, assuming they are used on new BEVs, the latency effect means they won't start to appear in the used car market until two or three years down the line. In the meantime, the lack of confidence and understanding about battery health will remain.
In addition to providing motorists with more information, manufacturers and dealers will need to do more to educate the market about battery health and charging best practice. For example, dealers should consider introducing financial incentives beyond simply cutting sticker prices, such as extended warranties for BEVs on the basis that they should be easier to maintain and potentially more reliable.
With the right onboard technologies in place, smart data analytics and targeted education and support for the used car market, even more motorists could be encouraged to switch to an electric vehicle. This push may well be needed to offset the current lack of confidence in used EVs and accelerate the way to the green motoring future.
Dominic Tribe is a partner and automotive sector specialist at management consultancy Vendigital.
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