We recently released a report on plug in EVs entitled “Plug-in Electric Vehicles: Market Analysis and Used Price Forecast”, and in the report we discussed how PEVs such as the Chevrolet Volt and Nissan Leaf have fared in the areas of new vehicles sales and used value depreciation and retention.
Among other things, we explained how concerns over limited range and new technology and how the application of federal tax credits negatively affect used plug-in EV.
Regarding tax credits, we stated:
“Substantive tax credits can certainly help promote more new sales than would have been achieved otherwise. However, they’ll also have a negative impact on future resale value for one basic reason—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. 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.”
We supported the assertion on low retention for PEVs with a table that showed how Volt, Leaf, and Mitsubishi I used value retention was substantially lower than comparable non-PEV models (see below).
Some readers took issue with how we presented PEV retention, arguing that actual retained value was much higher because federal and state tax credits would substantially reduce the new transaction price paid by the consumer.
This is a valid argument.
Since our intent was to highlight the point that the exclusion of tax credits in a booked PEV loan carried risk implications for banks and finance companies, we did not cover the fact that retained value for consumers was considerably better:
“When purchasing a new plug-in EV, however, the federal tax credit—i.e., the incentive—isn’t reflected in the booked loan even though the credit has a lowering effect similar to cash incentives on used vehicle prices. This means that unless lenders have implemented unique loan-to-value requirements for plug-in vehicles, their equity stake and risk position in a new PEV or PHEV loan are greater than they would be with traditional incentives.”
From a consumer perspective, when the $7,500 federal tax credit is applied to MSRPs for the 2012 Volt and Leaf, retention for the two goes from 58 and 51 percent, to 70 and 63 percent, respectively, and as a result, the relative position of each within a competitive set is much improved (see modified table below).
When we perform the same exercise for 2011 model year editions we see that retention again improves, but PEV position relative to the other models has eroded some. For example, the 2012 Volt’s retention of 70% is slightly higher than the ’12 Toyota Corolla’s figure of 69%, but the Volt’s retention falls four points below the Corolla’s figure on the ’11 model.
Why? Because the ~30% annual rate in which PEVs depreciate is more than twice the overall market rate.
So while tax credits do put consumers in a more favorable equity position out of the blocks (or at least after they’ve filed their tax returns), this benefit is quickly absorbed by the negative factors affecting used PEV depreciation.