One word describes the task of reliably forecasting how much a used electric vehicle will be worth at the end of its lease (called residual value): impossible. That’s the latest finding from 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. The findings signal just how early the market is for electric vehicles (how much unknowns there are) as well as the fact that the introduction of the electric vehicle’s battery changes the entire metrics game for companies like CAP.
CAP’s commercial and financial customers are keenly interested in getting residual value estimates so that they can determine what types of vehicles to buy in the future. But at this point, determining that data when it comes to electric vehicles is just too difficult, because CAP says there’s just too much uncertainty surrounds charging systems, overall running costs and especially the battery, generally the most expensive chunk of upcoming electric vehicles.
CAP Communications Manager Mike Hind notes in the firm’s release that, by some estimates, electric vehicle owners may have to spend up to £10,000 to replace an old battery. That’s significantly more than consumers and fleets are accustomed to paying for most repairs and parts for today’s gas powered vehicles. And at that rate, says Hind, it seems unlikely that an electric vehicle with a lot of miles on it, “will have any residual value at all.” In other words, if you take the value of a used electric vehicle and subtract the cost of getting a new battery for it, you probably won’t have much left over.
But that scenario also implies an assumption that batteries will have little or no value in secondary markets after they degrade beyond their useful life in vehicles, and that may not be the case. For example, Nissan is forming a joint venture with Japan-based trading house Sumitomo to recycle lithium-ion batteries from electric cars to be used in energy storage devices for backup power, in an effort to help make plug-in models like the upcoming Nissan LEAF more affordable for the mass market.
Other vehicle technologies, when first introduced, have presented similar challenges for residual value forecasters. As Ward’s Auto has pointed out, when the Toyota Prius and some of the earliest in-vehicle GPS systems first rolled out, their long-term values were significantly underestimated. But the ratings rose after they had time to be proven on the road.
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 (electric vehicle infrastructure startup Better Place, whose plan involves buying hundreds of millions of dollars’ worth of batteries to “swap” into subscribers’ vehicles, has estimated that manufacturing costs for plug-in car batteries won’t drop below €8,000, or about $11,440, until after 2012). And it’s not only how the battery performs in the vehicle that matters, but also how it might be recycled or reused for other applications.
This isn’t totally unknown territory, however. Tesla expects that after seven years or approximately 100,000 miles, the battery pack in its Roadster model will drop down to about 60-65 percent of its “ability to hold its initial charge,” thereby reducing the car’s range, according to the company’s S-1 filing. Better Place has told us that for lithium-ion batteries produced in the next several years, it expects them to degrade down to about 80 percent of their original capacity (marking the end of their useful life in vehicles) after eight years on the road.
Another big unknown is that manufacturers are considering a variety of approaches and business models to sell electric vehicles, says Hind. For Nissan (s NSANY), which plans to roll out the electric LEAF sedan (pictured) later this year as part of its aggressive efforts to lead the EV market (along with partner Renault), an initial solution to these challenges is to take financing into its own hands. If Nissan is the one issuing the lease contract, the logic goes, then it gets to set the residual value. Factoring in more optimistic estimates of long-term vehicle value and secondary markets for lithium-ion batteries (such as grid storage), this could help the company offer lower monthly lease payments.
As Larry Dominique, vice president of product planning for Nissan North America, told Ward’s last fall, “We want to be able to control the residual value; we want to be able to control the end value, so at the end of a lease or loan we have the vehicles back and we can decide what to do with them.”
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