Is this the most overlooked reason that private buyers are turning away from electric cars?
There are a number of reasons new EVs are falling out of favour with private car buyers, but one factor is often overlooked
The reports of cooling demand for electric cars are greatly exaggerated; sales of new EVs actually increased 21 per cent in January, compared with the same month in 2023.
But there is a kernel of truth because sales to private buyers last month fell by 25.1 per cent year-on-year. It was only because companies are snapping them up for their fleets (up 41.7 per cent) that there was a net gain. Companies get generous tax breaks to buy battery electric vehicles, and employees look at the ultra-low benefit-in-kind costs and realise it’s by far the cheapest way to get behind the wheel.
The Society of Motor Manufacturers and Traders (SMMT) is concerned about this, which it has identified as an “ongoing trend that will undermine Britain’s ability to deliver net zero”. In other words, unless it’s addressed the UK will find it harder to meet our environmental commitments.
One cause of the issue the organisation and other experts have identified is high energy prices, which we’ve all felt since Russia invaded Ukraine. Adding to the problem, the SMMT says, is the fact that if you plug an electric car into a public charging point the government adds 20 per cent to the cost as VAT. Do the same at home and VAT is only charged at five per cent.
This means rapid charging on motorways has become ridiculously expensive. One of my top-ups last year, on a trip to Scotland, cost me £51.12 (64.71kWh at 79p/kWh), of which £8.52 was VAT. I was driving a BMW i4 M50, which was averaging around 3.5 miles per kWh. That means that £51.12 added 226 miles of range. I can imagine diesel (and indeed petrol) car drivers choking on their coffee at this point, as an equivalent internal combustion engine (Ice) car would have got me across the border without having to stop, and for around the same cost. Cutting VAT would help… but only a little.
It’s still true to say that charging at home makes EVs much cheaper than Ice cars per mile but if you have to use motorway chargers regularly, the cost of charging is a genuine concern. I have a friend who says he’s going to swap his pure-electric Genesis GV60, which he loves, to a hybrid for this very reason; because he spends a lot of time on motorways, the economics for him don’t add up.
Other reasons cited for private buyers choosing not to buy new EVs include the removal of subsidies such as the plug-in car grant, which cut the retail price of new electric vehicles. There’s also the current high interest rates resulting in PCP finance deals that are now much more expensive than they were before Liz Truss’s “disastrous mini budget” (as it shall forevermore be remembered).
Commentators also point out that by moving the cut-off date for sales of new petrol and diesel cars from 2030 to 2035, current Prime Minister Rishi Sunak was effectively telling motorists they can put off their EV purchase.
But one often overlooked issue might be having an even bigger impact on private sales of new EVs: what’s going on in the used car market.
SMMT figures released today show that, again, electric vehicle sales are growing. In fact used EV sales are up 90.9 per cent year-on-year. However, they still only represent 1.6 per cent of the total market.
Buying a used car makes much more sense to me than buying new because of depreciation: the fall in value of a car over time. Most cars lose 50-60 per cent of their value over their first three years, and I just can’t stomach — or afford — that sort of money-torching. I’ve bought cars on PCP, yes, but only cars more than three years old.
The problem for electric cars might be becoming even more exaggerated. In the recent past, EV residuals have been extremely strong because they were in high demand and short supply. But that’s changing as the surge of new electric cars that have entered the market in the last few years begin to enter the secondhand market..
“As stock levels have increased into the used car market, prices have gradually been pushed downwards,” said Richard Peberdy, UK head of automotive at consultancy firm KPMG.
At the end of January, vehicle valuation experts Cap HPI put a value on that: as reported in Fleet News, “Battery electric vehicles (BEVs) and plug-in hybrids fell by 1.8 per cent at the three-year age point, equivalent to over £425, with BEVs dropping by 1.9 per cent (£720) at one-year-old.” That compared with a 0.1 per cent drop for petrol, diesel and hybrid cars.
Peberdy identified that as good news for used car buyers but a problem for dealers.
“While still higher than pre-pandemic, a lowering of prices is of course good news for many people looking for a vehicle. But the depreciation rates have been hard to take for some sellers, particularly those who bought certain EVs from new.”
It’s also clearly going to be a problem for new car buyers. Why would you buy a new electric car when its value is likely to plummet even faster than a petrol equivalent? And there’s also the fear that, as with the latest laptop, TV or other tech item, it’ll be obsolete within a couple of years as more advanced versions are rolled out in rapid succession.
Elon Musk isn’t helping things. His car company Tesla, which sells by far the most popular EV of 2023, the Model Y, has cut its new car prices without warning on several occasions to compete with a flood of new rivals from China. This has meant that some people who bought a Tesla last year woke up the following morning to find it was worth several thousand pounds less than they thought. That makes buying new an even bigger risk.
The used EV market also still seems to be unpredictable. Despite the general drop in values in January, certain cars bucked the trend; the Mercedes-Benz EQC, BMW i3 and Mini Convertible Electric all increased in value during the first month of 2024, according to Cap HPI.
“The used EV market is still establishing price norms,” said Peberdy. “A huge lowering of some prices between new and used has presented upsides for consumers looking at the used EV market as a way to make the transition from a petrol or diesel vehicle. This is reflected in the growing market share of EVs as a proportion of the used car market.
“But the scale of price depreciation seen for some EVs is presenting both manufacturers and dealers with a significant challenge when it comes to reassuring consumers about the onward value of new EVs.”
Will Dron is editor of Driving.co.uk and the former managing editor of an electric car news and reviews website.
Related articles
- If you are interested in Will Dron’s opinion piece on one reason for a slump in electric vehicle sales to private buyers, you might also like to read our article ‘Will electric car prices go down in 2024?’
- Thinking of getting behind the wheel of a new vehicle this year, as a private or company car driver? Check out 11 of the most exciting new models arriving in 2024
- Did you know there are now nearly 350,000 privately owned electric cars now on UK roads
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