Electric car residual values

Shopping for an electric car but concerned it will lose its value rapidly? Here's how to use electric car residual values to your advantage

BuyaCar team
Oct 8, 2021

Electric car sales are on the up, but, as the technology is still rather new, there’s still a certain amount of uncertainty amongst some drivers over how long used electric cars will last. As a result, the question of ‘what will it be worth in 10 years’ time?’ is a tough one to answer.

However, this uncertainty means that residual values for electric cars are typically lower than established petrol and diesel equivalents, as buyers tend to be cautious when it comes to purchasing new types of cars - especially second-hand - as they may think things are more likely to go wrong with a used car.

Consequently, car companies are similarly cautious when calculating PCP finance deals, since monthly payments are determined by the difference between the initial price and how much the car is expected to be worth at the end of the contract.

By taking this approach, lenders assume a worst case scenario that electric cars will be worth very little. This is so the finance company doesn’t lose money if the car is indeed worth very little at the end of the contract. This approach is starting to change with ever more desirable and advanced electric cars arriving, but many brand new electric cars are still expensive to finance, thanks to high cash prices and uncertain used values.

New electric cars can prove pricey on PCP finance

Because of the new technology involved in new electric cars, cash prices tend to be much higher than petrol and diesel alternatives. As a result, PCP finance can also have comparatively higher monthly payments.

Furthermore, as the residual values are lower than normal, the gap between the high initial cost and the low predicted value at the end of a PCP finance contract is particularly large. That’s in comparison with established conventional models that typically have lower initial prices plus stronger residual values, with drivers being more confident buying them second-hand.

As the technology in electric cars continues to improve and become more mainstream, this gap is slowly starting to close. So for now, while it’s bad news for those financing a new car, it is good news for used car buyers - whether they’re paying with cash or finance.

Used electric cars: surprisingly affordable with PCP

Due to the initial loss of value, there are a number of used electric cars that are now surprisingly affordable. However, the overshadowing question of how long the electronic components - particularly the battery packs - will last.

That said, many electric car manufacturers offer warranties which far exceed those on traditional engines - Tesla offers an eight-year/100,000-mile warranty for the battery pack in its Model 3 Standard Range, for instance. So this shouldn’t be a huge problem in most cases.

The technology is still new enough for no one to really know exactly how long the latest batteries will last. If we use rechargeable batteries used in other tech as an example (think smartphones) then the usual outcome is that the capacity can go downhill fairly quickly after being used day-in, day-out for a couple of years. However, some older, high mileage electric cars, such as the earlier Tesla Model S and Nissan Leaf, could give some indication that electric car batteries are somewhat harder wearing than their smaller counterparts.

Time will tell whether electric car batteries will last better, but in the meantime, electric car residual values are still low compared with other cars - making them very good value as used purchases.

Should I finance a used electric car?

Choose a model that’s up to three years old and you should still have a manufacturer warranty on the battery. In many cases, this warranty could actually be longer than you’d get on the engine with a new petrol or diesel car. Plus, you’ll have benefitted from a low cash price to begin with.

Even if the finance company expects the value of the car to continue to drop fairly quickly, there should still be a substantial monthly payment saving over a new model. Better still, if the batteries do deteriorate below a certain point, most manufacturers will replace them if you’re within the warranty period.

This means you shouldn’t have to worry about ending up with a car that can only now cover far less than its original maximum range. Furthermore, with PCP finance, even if the value of the car does plummet faster than expected, you can still hand it back at the end of the contract without losing any money yourself.

If electric car popularity goes the other way instead and starts to rocket, meaning the car is worth more than expected, you’ll still be able to make the optional final payment to buy it outright for a pre-agreed figure or put any equity - that's value in the car above the remaining amount owed - towards your next finance deal.

Battery leases: guaranteed electric car range should boost residual values

Not all electric cars include the battery in the purchase price of the car. In some cases you finance - or buy - the car but pay a monthly rental fee for the battery. Even if the car is sold on, the next owner still has to pay this rental fee.

That means that all the while you’re renting this battery, it’s the car manufacturers’ responsibility to make sure that the battery continues to hold a certain amount of charge. If it drops below that level, meaning the distance you can travel per charge is notably reduced, the company should replace it for you at its expense.

Separating the battery cost from the rest of the car means that the initial cost of the car is lower and the residual values should be higher - as the element used car buyers are concerned about is paid for separately.

As a result, those buying newer electric cars should get a more affordable car finance deal with a battery-free offer, but you have to add the rental cost of the battery on top of this to see if it’s good value overall compared with alternatives that cover the car and battery.

Only a handful of electric cars are available with this battery rental format, so it’s worth double checking whether there is any battery rental charge with the exact car you’re looking at.

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