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A Tesla electric car at a charging station in San Diego, Calif., on July 21, 2021.ROGER KISBY/The New York Times News Service

How well electric vehicles hold their value over the long-term is largely a guessing game for now and one with serious implications for the auto industry and drivers.

“The long-term future residuals for [EVs] is a huge question in the industry,” said Andrew King, managing partner of DesRosiers Automotive Consultants in Richmond Hill, Ont.

For consumers, residual value – an estimate of what a vehicle is worth at the end of a specific term – matters because it helps determine lease rates. All else being equal, the better a car holds its value, the lower the monthly payments. For the automotive industry, EV residuals – which are determined by several factors, including EV supply and demand, expected and real-world battery life and the regulatory environment – are a key financial issue.

As a report from consulting firm Ernst & Young (EY) noted last November, “A single change in regulation could change the valuation of EVs overnight. … Companies that misvalue their assets could be left with a huge set of liabilities on their books.”

Among the biggest unknowns in the EV residual value equation is the life of the electric battery. It is the single most valuable part of an EV and typically comes with a warranty of about eight years.

One recent estimate put EV battery replacement costs at anywhere from $4,000 to more than $20,000, depending on the make and model.

Even the best EV batteries degrade with age and use, slowly losing range; they have a certain effective lifespan, similar to internal combustion engines or automatic transmissions. (Unlike gas-fuelled engines, however, EV batteries can still be usable even when heavily degraded, and could therefore still have value for second-life applications such as stationary energy storage).

But if a $15,000 battery pack on an old EV needs to be replaced outside of the warranty period, the replacement could be worth more than the car. In that case, many owners would likely choose to scrap the vehicle.

And what about the future of used EVs? Would any used-car shopper want to take a risk on an old EV with an out-of-warranty battery? Will EV values drop off a cliff once those warranties expire? I asked industry analysts and experts to make their best guesses.

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No cliff in sight

DesRosiers’s King said it’s too early to answer these questions definitively. “The market will decide where [EV] values head – though ‘falling off a cliff,’ to use your term, appears unlikely,” he wrote in an e-mail.

King and other experts said that, based on the limited data available, EV batteries are meeting or exceeding original estimates for their longevity, which bodes well for long-term values.

But even if the range of an EV drops to 65 or 60 per cent of what it was originally, the vehicle doesn’t suddenly become worthless, King said.

Today, 400 or 500 kilometres of driving range is standard on many EVs. Two-thirds of that could still be plenty for certain types of drivers – students or retirees, maybe – who don’t drive much but need an affordable used car.

New tools build consumer confidence

“After 10 years, [EV batteries] still, in most cases, have 90 per cent or more of their original capacity,” said Sam Abuelsamid, principal analyst for e-mobility at U.S.-based consulting firm Guidehouse Insights. He said he doesn’t think EV values will collapse when they hit the eight-year mark.

In fact, as people gain more experience with older EVs, he expects EVs might depreciate more slowly than gas-powered vehicles. “Electric motors aren’t going to be wearing out,” he said. “When an internal combustion engine gets to [250,000 or 400,000 kilometres] it’s going to be in need of an overhaul or replacement. That’s not the case with an electric motor; electric motors will last a long time.”

To help build confidence in the long-term reliability of batteries, companies are coming up with methods of testing battery health. If buyers and sellers can see, for example, that a particular used EV has 95 per cent of its original battery capacity remaining, it can be priced more accurately, Abuelsamid said. Buyers won’t have to guess at the condition of the most important part of a vehicle.

Manheim, one of the largest wholesale used car auction houses in North America, last year began offering battery health reports on EVs sold by the company. That move led to an increase in bidding on used EVs at its auctions, a Manheim representative told Wards Auto.

Smooth depreciation

Recurrent Motors Inc., a Seattle-based provider of EV battery health reports, gathered on-board data from 15,000 EVs of various makes and models in the United States and found that, among EVs driven more than 160,000 kilometres, most still have at least 90 per cent of their original range left.

“Warranties are just expiring on 2015 models this year and that represents a very small percentage of cars on the road,” said Liz Najman, a researcher and marketing manager at Recurrent. “Looking at the average price per model year, there is not a discontinuity in terms of pre-2015 and post-2015 prices.”

Used car prices from online marketplace CarGurus paint a similar picture, with a caveat: Used-car prices are still recovering from a spike in 2022, so it’s not entirely clear yet where they’ll settle. Still, as Najman said, there doesn’t appear to be a major price difference between out-of-warranty 2015 models and 2016 or 2017 models.

Failures should be rare

It helps that used EVs are proving to be reliable. A used EV more than eight years old is generally going to cost less to charge and maintain than a comparable gas-powered vehicle, said Chris Harto, senior policy analyst for transportation and energy at Consumer Reports.

“There’s a world in which EVs with known, reliable batteries are worth a lot more than comparable gas vehicles because used buyers are more sensitive to these other ownership costs,” he wrote in an e-mail.

Any expensive repair on an old vehicle – whether it’s a $15,000 EV battery or a $5,000 conventional transmission – could ultimately lead to the vehicle being scrapped, he said.

“We know automakers are designing [batteries] to last the life of the vehicle, and the amount of real world data we have so far indicates that failures should be rare, but they’re never going to be zero,” Harto said. “Until we have more real-world data, I think people may be a little bit cautious in terms of what they’re willing to pay.”

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