What's really going on with EV depreciation?

Used electric vehicle prices continue to decline as the year progresses, shedding light on the underlying forces driving EV depreciation.

Driving the news: Used EVs have wiped out all price gains made throughout the pre-pandemic era.

• Prices have now declined roughly 42% since reaching their peak in July 2022 and are down 10% compared to January 2024.

• Used EV values are still moving down month-over-month as well. Prices were down 4.3% in October compared to September for pre-owned EVs, compared to a roughly $200 increase in average listing prices for the overall used car market.

One thought bubble: Depreciation values, typically calculated through average transaction prices (ATPs), usually don’t account for incentives, including the federal government’s EV tax credits. This, in addition to state incentives and other discounts, may mean that the real-world cost of buying an EV versus what is lost in depreciation may not be as severe as many think.

Behind the scenes: Whatever their extent, declines are being driven by a multitude of forces.

• For one, Tesla’s control over the new electric car segment continues to influence trends on the used side. Heavy discounts and incentives implemented by the brand to spur demand in 2023 and 2024 have contributed heavily to preowned price declines in the used EV market.

• The EV market is also disproportionately composed of premium vehicles compared to other segments, with few truly affordable models in sight. Premium prices are generally more volatile regardless of powertrain type and see more depreciation than the average car, further fueling used EV price declines.

• Perhaps the biggest factor of all is the $25,000 price limit for the federal government’s tax credits. Dealers are now targeting this price point to move inventory faster, forcing prices down toward the same level as gas cars.

Zooming out: Price declines are having both expected and unexpected impacts on used EV sales.

• Lower prices are luring in more lease customers. EV lease penetration is now back at pre-pandemic levels, according to Edmunds, with most brands offering major incentives for customers interested in a lease.

• However, while price declines are fueling growth in leases, actual used EV purchases have grown relatively slowly, even compared to new vehicles. While new EVs accounted for a record 9% of all car sales in September, used EVs only accounted for 1.7% of pre-owned sales and have yet to surpass a market share of 1.8%.

• But consumers in today’s market are looking for good deals above all else. Should pre-owned EV values continue to drop, this could lead to a surge in demand.

Looking ahead: Due to the $25,000 price limit, it’s likely that used EV prices will eventually hit a plateau, with dealers finding a sweet spot between incentivizing sales and retaining profitability. Black Book Vice President called the limit a “big line in the sand” for resellers, noting that “there’s high demand [from dealers] up to that price point, but almost none above it.”

Bottom line: For now, however, it seems that used EV depreciation has plenty of room to move before values see any kind of equilibrium. The average transaction price for a preowned EV in September was $37,260, well above the eligibility requirements for tax credits.

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