Innovative solutions needed to protect residual values from 'dramatic falls'

The new breed of electric vehicles (EVs) soon to be launched in the UK will have residual values well below those of rival petrol and diesel models, unless manufacturers properly address customer concerns regarding battery life and performance. The warning comes from Glass's, which has conducted a detailed analysis of the factors that will affect depreciation for EVs. The company has been working closely with three of the manufacturers who will produce cars featuring in the first wave of EV launches.

Glass's has developed a proprietary methodology that has enabled it to forecast EV residual values, taking account of specific battery ownership and warranty details, as well as factors such as supply and anticipated patterns of demand. This new methodology is being used by manufacturers to assist in their launch planning and business modelling across Europe

"After one year of ownership we would expect EV residual values to be above the segment average expressed in terms of pound values," explains Andy Carroll, Managing Director at Glass's. "But, if the battery is owned rather than leased, and without the appropriate warranty, the value of the typical EV will then fall dramatically until the vehicle is five years old, at which point the car will have a trade value little more than 10 per cent of the list price."

This alarming rate of depreciation is, says Carroll, a function of customer recognition that the typical EV battery will have a useful life of up to eight years and will cost some £8,000 to replace. "Potential used EV buyers fear this cost, but the key issue is that buyers will assume that their specific battery will need replacing in the near future regardless of the manufacturers' predictions of battery life. Our RV predictions are therefore based on this worst-case scenario - which is exactly how we believe that prospective customers would perceive the costs of owning an EV".


Manufacturers can however address this problem. Carroll cites the example of an EV in the lower-medium segment. "If the anticipated £8,000 cost of the battery in such a car were taken off the list price, and recovered instead through a long-term £100-per-month battery lease scheme, the retained value in monetary terms would make it one of the best performing used cars in its segment, rather than one of the worst."

Through such an arrangement, any anxiety surrounding battery life would be dispelled, argues Carroll, by ensuring that a guarantee of minimum battery performance is a feature of the lease agreement.

A battery lease strategy would, says Glass's, also bring significant benefits for car dealers. "The dealer network could play a key role in the management of battery upgrading and replacement on behalf of the lease providers. This would be welcome news for the trade, since the projected income from service and repair work for EVs is predicated to be low compared to that for vehicles with an internal combustion engine."

"Volume production of EVs will not get fully underway until 2012, and we anticipate that demand over the next few years will outstrip supply, especially in the used market. In 2015 we forecast sales of new EVs to outstrip the sales of used EVs by five to one, and this has also positively affected our forecasts of EV residual values. "

The EV package lease option
Carroll advocates that, while the EV market is in its infancy, manufacturers should also consider leasing the car and battery together as a single package. "For a limited period car makers should consider underwriting the capital cost of the vehicle, the battery lease, and servicing, as one package to bring on board early adopters and win over a sceptical buying public."

He adds, "This would have the benefit of ensuring that all EVs return to the franchised dealer network at the end of the contract period. This gives an opportunity to re-market the first EVs without the risk of models appearing in the open market, where resale values are harder to manage. When the cars reach the forecourt, extended warranties and battery upgrades could also provide dealers with a secondary profit stream."

Carroll says this kind of lease proposition should be in place until there is wider market experience and acceptance of EV products. "We have over a hundred years of experience of owning vehicles with internal combustion engines. Until the facts prove the manufacturers' claims regarding battery life and performance in real world conditions, they need to put their money where their mouth is, and take all risk and uncertainty away from the end consumer."

News Source: GlassGuide.co.uk