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Summary:

As we come within months of cars like the Nissan LEAF, Coda Sedan and others becoming available for sale and lease, will uncertainty about these models’ long-term value give cold feet to prospective buyers?

When it comes to roadblocks for the electric car market, “range anxiety” — or prospective buyers’ concern that they might get stuck with a low battery without a charge point in sight — often looms large. But as we come within mere months of cars like the Nissan LEAF, Coda Sedan and others becoming available for sale and lease, another question that could give cold feet to would-be electric car buyers is bubbling to the surface: How much will these next-gen vehicles be worth a few years down the road?

According to a report from the UK’s Glass Guide that Autocar picked up this week, a typical electric vehicle will retain only 10 percent of its value after five years of ownership, compared to gas and diesel-fueled counterparts retaining 25 percent of their value in that time period (h/t Autoguide).

Depreciation represents a relatively mundane factor when buyers consider conventional gas cars — buyers can consult guides like Kelly Blue Book and others for a sense of how the value of a given car in previous model years has held up over time. But depreciation involves a host of unknowns for electric models.

CAP Motor Research, one of the UK’s biggest providers of vehicle valuation data for leasing companies, insurance firms, vehicle retail groups and financial institutions, recently described the task of reliably forecasting the residual value of electric vehicles (how much a car will be worth at the end of its lease, which affects where monthly lease payments are set) as being simply impossible. With electric vehicles, the inherent uncertainty surrounding a new technology’s long-term value is exacerbated by the fact that the biggest question mark rests on the costliest piece of the car: the battery.

Glass, meanwhile, is basing its forecast on a “worst-case scenario,” explaining that consumers’ perception may matter more than whatever reality emerges for the technology in this case. Among consumers, Glass anticipates a widespread belief that electric car batteries “will need replacing in the near future regardless of the manufacturers’ predictions of battery life.”

After one year of ownership, Glass expects the residual values for electric vehicles to rank higher than “the segment average” in monetary terms. But if automakers sell the battery outright (rather than lease it) and fail to provide “appropriate warranty” (check out some ideas for new battery warranty schemes here), then an electric car’s value will “fall dramatically until the vehicle is five years old,” Andy Carroll, managing director for Glass Guide, said in a statement.

To improve residual values, he proposes that automakers look to new business models like leasing batteries separately from the vehicle (an idea that companies including Nissan have discussed, but ultimately rejected), removing the cost of the battery from the list price and allowing a guarantee for minimum battery performance as a feature of the lease agreement.

Alternatively, Carroll calls for manufacturers to offer all-in-one leasing packages, with automakers underwriting the capital cost of the vehicle, battery lease and servicing. Nissan, for one, has opted to take financing into its own hands for the upcoming LEAF, which is slated to have one of the lowest price tags of any electric car on the road in the next few years.

Photo courtesy of Flickr user jurvetson

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  1. I’ve never leased a vehicle in my life, but that would be the only way I’d own an EV. Reliability, technology advancement, and battery degradation are all unknowns. Who wants to get stuck on the short end of a new consumer toy?

  2. The author of this article and the report cited are noteworthy for not even talking to the large group of EV owners who continue to drive the production EVs of the California zero emission vehicle mandate years a good decade ago. The Ford Rangers, and especially the Toyota RAV4 EVs held their value well beyond that of any internal combustion vehicle.

    In the case of the RAVs, within the first 3-6 years of manufacture, the cars were still selling for upwards of $45K-$60K. For a car that sold new for $30K, that’s pretty good. Now that our cars are 7-8 years old and many having more than 100K miles, they are starting to depreciate to below the selling price. A lot of that has to do with the imminent sale of new EV such as the Nissan Leaf and the GM Volt. Both of those cars will sell as fast as GM and Nissan can make them.

    1. The vehicles you refer to were sold in very very limited numbers, so they are more collector items than valuable transportation. And replacing those battery packs are 20-25k, well above sensible value except to the very rich.

      Technology will probably render the 2011 Nissan Leaf and Chevy Volt fairly worthless in 5 years.
      Purchase is a fool’s errand; leasing is a nice extravagence.

      1. They may have been sold in limited numbers (because they were built in limited numbers) but I can attest to the fact that they were NOT purchased as collectibles. No, they are being used as actual transportation on a daily basis, because they (except for the Tesla) the only game in town. You can either convert you ICE to electric, or find a used production CARB electric.

        And the price to replace the battery pack (Lithium is the most popular option) is already half of what you quoted. Plus, those vehicles with NiMH batteries, after 10 years, they still don’t need replacing yet.

  3. What a very nice car. I never seen an electric car. I don’t have idea on how it is different with an ordinary car. But I think its more beautiful to use.

  4. Numbers pulled out of the air – if not some more private location.

    As Americans have learned to keep their cars longer and longer as they have lasted with lower maintenance costs – Brits have reversed their own dash into Yankee imitation, extending ownership after a bit of experimentation with planned obsolescence.

    Durability and economy are at the top of the list for car purchases in the UK. Even among the MTV generation and younger. Magazine road testers know what will be the priorities for their readers and answer lots of those questions.

  5. Brian Kariger Sunday, June 27, 2010

    Tough question but actuaries and warranty experts will figure it out. What if batteries improve in 5 years to the point where you can replace the old one that’s operating at 85% original capacity and double your range to 200 miles?

  6. You have to actually have some knowledge about technology to be able to access it and write about it.. Why do you think an ICE car is so worthless (only 25% it’s purchase value, according to Glass’s) after just 5 years?

    It’s not because it’s trendy, it’s simply down to the fact that the ICE that powers the car has a very short usable life before the heat stress that it operates under renders it scrap metal.

    Unless you are prepared to replace the motor,(used to be common practice) then the entire car becomes scrap. There’s little value in a car that doesn’t drive or is unreliable and in constant need of repair (especially with manufacturers extorting owners with replacement part prices in the $10,000 plus range)

    By comparison, the powertrain in an EV will literally outlive the driver. So the car only needs the battery pack replaced every decade… that’s a significantly cheaper proposition than replacing the entire car.

    For Glass’s to state publicly that they THINK they can predict battery replacement costs a decade down the road before the EV battery industry has even reached full volume capacity is …….simply RIDICULOUS.

    With Nissan and LG expecting battery costs to half within just 5 years… that simply kills Glass’s valuation equation, which at £8000 (USD$12,000) is 33% higher than prices TODAY.

    Read this for a full explanation.

    http://electric-vehicles-cars-bikes.blogspot.com/2010/06/evs-worthless-within-5-years.html

  7. Let us hope that history does not repeat itself:
    Nearly a decade ago electric cars were coming out of GM in droves to satisfy a California mandate to have a certain percentage of electric cars on the road by a certain time. GM would not sell the electric cars; they would only lease them. People loved the cars and many were on the roads running smoothly, efficiently and economically. The oil industry and GM worked to change the law in California. GM recalled all the leases and the company destroyed nearly every car in a crusher.

    http://just-me-in-t.blogspot.com/2010/06/quiet-clean-functional-carbonless.html

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