The Hidden Opportunities Amid EVs’ Market Struggles
TLDR: New EV sales have recently slowed due to high costs and other factors. Used (not new) EVs are beginning to enter the car market at scale and are surprisingly inexpensive given that depreciation rates for EVs are far higher than those of gas-powered cars. This market dynamic creates opportunities for car buyers to take advantage of a screaming deal—they can buy an EV for a lower cost than a gas car and enjoy lower operating costs. PVG believes this trend will continue for the next few years and open up new opportunities for players in the car market.
EVs appear to be fighting an uphill battle. Many major car companies have announced that EV sales are missing targets. Surveys show that buyers have range and charging anxiety. EVs have become a focal point of political culture wars. And while new EV sales are not declining, the rate of sales growth has been decreasing. New EVs are still selling for nearly $10,000 more, on average, than internal combustion cars, so it’s not surprising that affordability remains a key concern for the average new car buyer, and new EVs have been missing their expectations.
What we find much more interesting is the low cost and growing sales of used EVs. EVs have recently been depreciating 6x faster than internal combustion engine (ICE) vehicles and 4x faster than hybrids. This creates an intriguing value proposition for mass-market consumers and attractive growth opportunities for lenders, charging network developers, and utilities.
What is driving this value erosion?
One reason is Tesla’s recent price cuts. Tesla held a dominant 55% of the US EV market in 2023. Since then, Tesla aggressively reduced average sales prices across its four models by ~30%. This not only depressed the value of used Teslas but forced competitors to cut their prices and caused the value of other used EV models to fall in tandem.
Consumers are also concerned about the lifespan of EV batteries. Emerging data shows that EV battery durability is highly unlikely to be a problem, but we believe more than a few years of data are needed to convince mass-market buyers that EV batteries are more reliable and less expensive to maintain than the familiar gas-powered engines. In the UK, for example, more than 25% of drivers said they would not buy a used EV because of concerns that the car’s battery won’t go the distance. Lastly, access to charging is still a problem. Mass-market consumers are more likely than wealthier EV early adopters to rely on public charging infrastructure, and their concern about its availability is reflected in their willingness to pay for used EVs.
While it’s hard to predict the future, PVG believes that new EVs are going to continue to depreciate faster than ICE vehicles in the US over the next few years. First, looking at OEMs’ EV roadmaps, better and significantly cheaper new EVs are on their way to showrooms. Innovation, such as Nissan’s all-solid-state battery, is coming not only from traditional car OEMs but also from new Chinese OEMs. Tesla may need to continue to cut prices in an effort to minimize its market share losses. EVs will also need a longer track record to convince the average consumer that batteries really will last.
Uncertainty about EV resale values may give customers pause when buying a new EV, but there is a silver lining – EVs are now a very compelling option for consumers considering a used car. In the used car market, an important “tipping point” has been reached – the average price of a used EV is now $3,000 below used ICE cars. Moreover, not only are used EVs often cheaper up front, they can be cheaper to operate than ICE vehicles. On top of that, tax credits and other incentives can also make the total cost of ownership of a used EV even cheaper.
The PVG team has been considering these trends as part of our client work. As larger volumes of EVs move into the used car market, we see a few growth opportunities in the EV ecosystem:
Lenders
Lenders, especially community lenders and credit unions, should develop tailored products to support lending for used EV purchases, bundling home charger install costs and possible tax credits into the offer. Enabling the financing of an EV will likely reduce the household’s total monthly costs, improve the long-run creditworthiness of borrowers, and strengthen long-term customer relationships for lenders. We already see evidence that EV adoption can also help raise consumer awareness about the benefits of electrification, leading to other home electrification investments like heat pumps and home energy storage that create additional financing opportunities.
Public Charging Networks
Used EV adoption supports the expansion of public charging networks. As EV ownership moves from high-income to middle-income consumers, the need for public charging infrastructure will increase given that fewer car buyers in this segment have easy access to charging in their garages. Unit economics for public charging are just now getting to profitability and should support network expansion.
Charging & Demand Response
Innovative charging and demand response programs, run either by new entrants or utilities, may find particularly valuable opportunities to expand their reach with used EV consumers. If used EV customers (on average) have lower incomes and are more value-seeking than new EV buyers, these customers may be more motivated to tap into savings opportunities enabled by demand response programs and time-of-use electricity tariffs that reward consumers for flexibility, similar to the innovation already scaling in markets like the UK.
What’s the takeaway? Well, there are two sides to every coin – the market headwinds that drive rapid EV depreciation are the same forces that now generate a fantastic value proposition for mass-market consumers and attractive opportunities for much-needed innovation in auto-financing and services.