McLEAN, Va. -

In a story that ran in Tuesday’s edition of Used Car Manager Weekly, we looked at NADA Used Car Guide’s projections that plug-in vehicle value retention would improve slightly in coming years but still trail the overall industry.

Today, we dive further into NADA’s explanation on why plug-ins haven’t held their values as well and why this will likely continue.

While it's only one part of the story, a good place to start is tax credits.

As explained in the “Plug-in Electric Vehicles: Market Analysis and Used Price Forecast” white paper from NADA Used Car Guide, a consumer can receive between $2,500 and $7,500 in tax credit from the federal government for buying a new plug-in vehicle (PEV) or plug-in hybrid electric vehicle (PHEV), provided he or she is the first registered owner.

While this might be great for pushing new-car sales, the impact to resale values can be detrimental, NADA suggested.

Why? NADA says it essentially comes down to one thing: “few consumers are willing to purchase a credit-ineligible, used plug-in EV for more than they would pay for a new one, less the federal tax credit.”

It added: “Therefore, at a minimum, late-model used plug-in prices must logically max out below their new MSRP minus the credit. This is one of the primary reasons used plug-in EV value retention significantly lags other fuel types.”

And there are other factors, as well. The white paper suggests that these very challenges impacting plug-in demand on the new-car side will have a real role on the used-car side, too. What NADA has found pivotal to driving PEV and PHEV new-car demand is for the industry to tackle the challenges involving operable range and reduce new-car prices on these cars.

However, the paper states, “the only way to extend full-electric range is to use larger, more expensive lithium-ion batteries. Theoretically, as the technology continues to develop and economies of scale improve, costs associated with the batteries will decline.

“But by many accounts, numerous technological and production advances must fall into place before we see any meaningful price reductions,” NADA continued.

Also on this “long list” of challenges for plug-ins is the fact that there aren’t many public charging stations, residential fast-charging equipment is pricey and some consumers are simply apprehensive about new technology, the paper noted.

“In addition, it’s expected that engineering advances in ICE (internal combustion engine) powertrains will continue to generate significant improvements in fuel economy, which will do little to help plug-in appeal,” NADA noted.  

“While significant progress in terms of range, price and infrastructure shortcomings seems very unlikely within the next two years, one factor stands a better chance of substantively improving near-term plug-in EV fortunes: higher gasoline prices. But after four years of progressive growth, it appears fuel prices are set to level off for a time.”

NADA went on to note that these elements trickle down to the used-car market, too. Furthermore, it also counts concerns with long-term durability and maintenance as being factors driving depreciation rates.

“These concerns have been evident on HEVs over the years as, over time, a HEV (hybrid-electric) premium relative to a comparable ICE model swiftly erodes — even to the point where used prices actually become inverted in certain cases,” NADA said.

For more on this, see Part I of our story or check out NADA Used Car Guide's white paper.
 

Joe Overby can be reached at joverby@autoremarketing.com. Continue the conversation with Auto Remarketing on both LinkedIn and Twitter.