As electric vehicles differ from cars with an internal combustion engine (ICE) in many ways, buyers are considering how well these are safeguarded for the future. Initially electric cars depreciated at a much higher rate as there was much less interest and knowledge, so less people were looking to buy them used.
Now, electric cars are increasing in popularity, especially with the UK Government ban on petrol and diesel engines coming within the next decade. However many car buyers are concerned if electric cars are value for money and if they will retain any of that value in the coming years after such a rocky start in the used car market.
In short, depreciation is where any asset loses its value over time. So, depreciation of a car is the car losing value from it's original purchase price.
This starts as soon as the car leaves the showroom for the first time. From this point it is no longer classed as "brand new" as there has been a keeper registered to it, it's now adding mileage to the clock and it is subject to wear and tear.
In the UK, generally diesel and petrol cars lose around 60% of their original value in the first three years , which is a considerable amount if you plan to switch out your car every couple of years. It's understandable that people are then concerned about how this affects electric cars.
Two main factors contribute to a car depreciating; the age of the car and it's mileage. A car that has done 10,000 miles has generally had less opportunities for failures compared to a car that has done 80,000 miles in the same period of time.
As a car ages, it's not only the functionality and wear that have an effect. The features and technology within it are replaced with newer version or becomes completely obsolete (such as the CD player) as the world moves onto the next thing.
However, there are other factors which also impact the value of a car and its depreciation. The actions of the owner also contribute to the depreciation of a car. A car without maintenance record lose value as it has no proof that the car has ever been regularly checked by a garage or that any potential problems the car might have are identified and rectified.
Likewise, the condition that a car is kept in will affect how well it holds its value. A car with damaged alloys and paintwork, or kerbed wheels will hold much less of their value than one that's been meticulously cared for.
Current affairs will also dictate how well a car will hold its value. In the last few years we have seen a number of large global events, such as the coronavirus pandemic, affect the production of new cars. Because of this, the value of used cars has been seen to have held and even increased in some months, and this has included electric cars as there are far fewer of them available on the used market. The ones that are available, have been well sought after.
Cars depreciate the fastest in the first three years or 36,000 miles, which is why it's generally used as a benchmark when looking at depreciation.
In the UK, it's thought that generally petrol and diesel cars lose around 60% of their original value in the first three years or 36,000 miles. For example, you could expect a car purchased for £20,000 would be estimated to be worth around £8000 three years or 36,000 miles later.
An average electric car is actually estimated to lose less of their value in the same length of time, at 51.1%. Using the same example, a car purchased at £20,000 would be estimated to be worth around £10,220 three years or 36,000 miles later.
Electric cars from premium brands appear to be holding their value better than average too, with reports that a Tesla model can lose as little as 40% of their value in three years.
As new petrol and diesel models will no longer be sold in the UK in 2030, electric models are the future of driving. Manufacturers are including more electric and hybrid options in their line up, which means that they are more readily available as both new and used options. Their popularity paired with buyer's awareness and growing environment concerns makes them a stable option in the used car market.
The build of electric cars supports their residual value. With less components making up the inner workings of an electric car in comparison to internal combustion cars, means there are less components that can break. Electric car batteries are also covered under an extended warranty, often up to 8 years, whilst an ICE car has no comparative cover included for their engine.
There is good news for buyers looking for an electric car. Whilst electric cars depreciate like traditional ICE cars, they currently hold their value a little better in the same period of time. Much of this is down to their more secure position in the future than petrol and diesel models, the change in popularity from their initial launch, and the difference that they have in their build and parts.
Any type of car is going to depreciate in value the second it leaves the showroom but electric cars are currently keeping more of their original value than other vehicles on the market, another reason that electric cars are a great option for your new car.