UK BEV residual value set to rebound

Residual value (RV) of EVs in the UK has declined below their pre-pandemic levels, with second-hand EVs selling for over 30pc less of their January 2020 price in the UK, according to a new report from Kroll Bond Rating Agency (KBRA).

The report analyses the resale prices of three-year-old vehicles of all fuel types and finds that BEVs are the only vehicle segment declining in residual value. In the UK, for comparison, diesel and petrol vehicles are worth 27pc more at resale than they were in early 2020.

“HEVs and BEVs have not performed as well as others in the second-hand car market. HEV values are up [by] 11.3pc as of August 2023 compared to pre-pandemic levels, but BEVs have declined [by] 30.7pc,” the report says.

In the intervening period, residual value for UK diesel peaked in January 2022 at 39pc above pre-pandemic prices, at a time when all fuel types reached their highest RV in the period, KBRA says.

Although the report’s writers did not respond to requests for clarification, it appears that the KBRA report indexes the current price of a three-year old EV to the price of a three-year-old EV in January 2020. This means that prices of EV registered in in late 2020, which are now three years old, are 30.7pc cheaper than EVs first registered in early 2017 were at the start of 2020.

It should therefore not be altogether surprising that RV is lower now than on cars first registered in 2017, since the price of new EVs has been declining steadily towards ICE vehicle RRP continuously for years. A more salient metric is resale price as a proportion of first-hand sale price, or RRP, argues Nick King, insight director at UK automotive online marketplace Autotrader.

“A new EV registered on 1 October will be worth 52.2pc of its new car value (RRP) after 3 years or 30,000 miles”, King says. When not indexed to January 2020, prices of three-year-old EVs are approaching parity with the price of three-year-old ICE vehicles in the UK, King says.

“Price parity with ICE vehicles is appearing now. In September 2022, a 3-year-old Renault Zoe was £7,000 more than a 3-year-old Renault Clio. Today they are the same price,” says King.

And despite the 31pc decrease against January 2020 which KBRA finds, “residual values on EVs are beginning to rise after a big drop earlier in the year”, according to King.

Supply and demand

According to KBRA, supply for second-hand BEVs is outpacing demand, leading to a fall in RV of BEVs.  “The surge in secondary market supply is coming from the previous increase in new sales several years ago, as well as the liquidation of several leased portfolios in the UK which have been placed into the market. With an underdeveloped second-hand car market for BEVs, the increase in supply has put downwards pressure on pricing,” the report says.

And this could be set to continue under current UK legislation which incentivises fleets to buy BEVs but does not do so for private buyers. The resulting widening gap between fleet and privately-owned BEVs may lead to an oversupply of second-hand BEVs which outstrips private buyers’ interest in them once these fleets are sold by operators.

This leads Philip Guest, founder of Oxford Strategy, to see the current market as a pain point for fleet operators.  “This is potentially painful for the fleets who may suffer the residual value losses, and bad for business leasing rates for BEVs which may have to rise to compensate,” he says.

“While innovation promises to improve performance, the flip side is the obsolescence risk to the current fleet of EVs, and the knock-on effect it could have on their residual values,” Guest continues. “The moral of the story is that if you want a BEV, lease it, do not buy it.”

But not everyone is convinced by the hypothesis. In Autotrader’s analysis, “supply of used EVs has been falling throughout 2023 — volumes are down [by] 24pc versus peak”.

Nascent market

As a relatively nascent technology, second-hand BEVs also suffer from quicker depreciation, as innovation occurs more quickly in a younger market than in an older one like ICE vehicles. For example, BEV range has improved so quickly that the market for even relatively young second-hand BEVs will include some vehicles with markedly worse range capabilities.

“If you register a new £50,000 petrol and a new £50,000 electric car today, after three years, or 30,000 miles, the petrol car would depreciate by £17,000, the electric car by £24,000, that’s £7,000 higher depreciation,” King admits.

Since January 2020, the timeframe analysed by the KBRA report, 804,676 new BEVs have been registered in the UK, according to the European Automobile Manufacturers Association (Acea), meaning that the majority of BEVs in the UK are less than three years old. Most of the EV parc, therefore, has not reached the age at which they would qualify for KBRA’s analysis.

“Despite strong growth in new vehicle sales over recent years, BEVs and HEVs remain a small part of the overall second-hand market. Transaction volumes for second-hand BEVs and HEVs represent 3.8pc and 12.2pc of EU market sales, respectively, and 3.7pc and 13.3pc of UK market sales,” KBRA says.

But, despite the lowest market share of second-hand sales, Autotrader’s King points out that “used EVs are now the fastest selling fuel type, turning every 23 days on average and 5 days faster than petrol cars”. And both Autotrader’s King and KBRA reach the conclusion that EV residual value is set to rise.

KBRA finds that BEV residual value will increase once the parc reaches an age at which the lifetime, efficiencies, and total cost of ownership benefits become clear to consumers. “Second-hand vehicles should retain greater value over time as the efficiency of BEVs begins to reach a peak, improvements available from newer vehicles diminish, and ‘range fear’ subsides,” the report says.