How much money will an electric car lose over the first three years of its life, and what are the best and worst electric cars for depreciation?
Electric cars are quite different to normal petrol or diesel cars in a lot of ways, so it’s natural to wonder about issues such as depreciation when it comes to this new type of vehicle.
The short answer to the question in the title of this article is yes – electric vehicles (EVs) depreciate. That’s not the whole story, though, so read on to find out all you need to know about the subject, starting with the most important bit – what exactly is depreciation?
What is depreciation?
Depreciation is a term used to refer to the drop in value that an asset like a car goes through as it goes from being a new product into a second-hand one.
While some assets, like houses, watches or even some rare or classic cars, go up in value over time due to rarity or other factors, most cars lose a percentage of their value over time.
In the car industry, it’s usually measured with a residual value, which is the percentage of its new price that is lost. For owners, a low residual value isn’t a good sign as their asset has quickly lost a lot of value.
For example, a car that loses 60% of its value in three years or 36,000 miles (this is the most common time and mileage you’ll see in relation to depreciation) then it will have a residual value or RV of 40%.
Be careful not to confuse the two percentages, as you’ll also see depreciation referred to as the percentage lost (see our top and bottom five, below). In that case, a lower percentage is better for the owner, who has a car with strong residual values.
Figures from industry data compilers suggest that on average, cars retain 40% of their new value after three years or 36,000 miles. That’s about 60% of the new price lost in that time.
If you buy a car for £30,000 in 2021 that follows this trend then it will be worth £12,000 in 2024, though a chunk of this depreciation happens as soon as your name appears on the logbook and the car becomes ‘used’.
Of course, there’s another side to depreciation, which is that it’s great for used buyers. If you buy a car that’s three years old, it’s usually shed a large percentage of its value and your asset will then lose money less quickly from then on.
How quickly do electric cars depreciate versus petrol, diesel and hybrid cars?
The industry is seeing strong residual values for electric cars at the moment because there is so much demand. Interest has been steadily growing as we get closer to the 2035 ban on new petrol and diesel car sales, but research suggests that the recent spike in fuel prices has accelerated EV demand.
On top of that, sales of new cars have been hit by the recent chip shortage that has affected production, pushing more buyers to the used market and driving up prices across all fuel types.
The latest figures show that electric cars retain about 49% of their value after three years or 36,000 miles, meaning they depreciate slower than the industry average.
Petrol and diesel cars depreciate more over the same time period, but the difference between the two is marginal. Although buyers are flocking away from new diesel car purchases, larger diesels remain in demand on the used market because of their impressive long-distance fuel economy.
What factors contribute to electric car depreciation?
The main factors to be aware of with regards to the depreciation of a car are its age and mileage. The older a car is, the less it tends to be worth (though once it becomes old enough to be a classic car, after decades, it may start to gain value with collectors).
There are other smaller factors to consider, such as keeping the interior clean and smoke-free, keeping the bodywork tidy with no scratches and no kerbed wheels. Regular servicing with proof kept in a file will help the car retain more value as well.
Electric cars are fairly new, and while early EVs were a very niche product so didn’t hold their value well, the current set are perhaps even more desirable than an equivalent petrol or diesel car – so residual values are strong due to the changing world around us as well as the quality of the cars.
Government incentives, congestion charging, clean air zones and changing attitudes to emissions are all helping EVs hold their value well at the moment.
When it comes to electric cars another aspect to consider is the condition of the battery. Studies have shown that EV battery degradation isn’t a big deal so shouldn’t have a big impact on range, but if a battery has lost a lot of its capacity it could negatively impact a used car’s price.
How long will an electric car battery last?
You might be wondering why the battery would lose capacity. You’ve probably noticed that over time, your smartphone battery charge doesn’t seem to last as long as it used to – and you end up having to charge up more often.
This is because the lithium-ion batteries degrade over time, and it’s the same with electric car batteries. However, this shouldn’t put you off at all, because the National Grid says most EV batteries will have a life of 15 to 20 years, often outliving the vehicle itself to be reused for other deployments such as solar energy storage.
This means electric cars will likely be able to outlast an equivalent petrol or diesel car, which is another part of why residual values are strong.
Most manufacturers offer separate battery warranties that are longer than the one that covers the rest of the car. For example, the Hyundai Kona Electric has an eight-year/125,000-mile battery warranty, which is representative across the industry as a whole.
These warranties cover any issues with the battery, with many promising a minimum capacity during the warranty period. This is typically about 70% of the original amount, and if the capacity drops below this threshold the manufacturer will repair or replace it.
In 2021 a new EV battery replacement cost about £87 per kWh. This would put the average electric car’s out of warranty battery replacement at just over £5,600, with long range models such as the Tesla Model S closer to £9,000.
If you own an EV, avoid regular rapid charging, don’t store the car at 100% charge for long periods, and run the battery right down occasionally to keep it in good health.
Does the brand of an electric car matter?
The manufacturer of a car is another factor that can affect depreciation, with certain companies seeing better residual values than others.
For example, manufacturers with a strong record for reliability will often see their cars lose less value than those that don’t, with a similar story for companies that tend to make cars with low running costs.
Desirability is key, too. Companies with strong badge appeal making in-demand cars will hold strong residual values, as will those that make popular body styles such as SUVs. As is the case with petrol and diesel cars.
Top five EVs that hold their value
If you’re looking to buy a new electric car, you probably want one that has very strong residual values. Below you’ll find the top five EVs that hold their value, with the percentage value lost after three years or 36,000 miles in brackets.
Porsche Taycan (37.10%)
The Porsche Taycan is currently the electric car with the slowest depreciation, as it’s predicted to lost just 37.1% of its value in three years. The Taycan is a sporty EV with a range of up to 270 miles in 4S Plus form and can go from 0-62mph in just four seconds – or 3.2 seconds in Turbo form.
Tesla Model 3 (40.40%)
Tesla cars hold their value very well and at the moment the Model 3 is the best in the brand’s range for depreciation. The Model 3 Long Range can drive for 285 miles on a single charge, and the Performance version goes from 0-62mph in just 3.3 seconds. The Model 3 is also the most affordable car on this top five.
Tesla Model X (41.30%)
The Tesla Model X is a large SUV that sits at the top of Tesla’s current range, and it’s another slow depreciator. The Long Range model has an all-electric range of 295 miles, and thanks to the seven-seater interior layout it’s a roomy family car. However, it’s also close to £100,000 when new.
Polestar 2 (41.80%)
Polestar is a brand closely linked to Volvo, but that only produces electric cars. The brand’s only stand-alone car at the moment is the Polestar 2, which is a smart-looking EV with a range of 245 miles, so it’s clear why it holds its value so well. It’s clear that upmarket electric cars like this are depreciating slowly.
Tesla Model S (43.00%)
The Model S was Tesla’s original success story so it’s pleasing to see it’s still depreciating slowly. With a range of 390 miles on a single charge it’s easy to see why it’s so popular. It’s a large saloon with lots of room inside, a big boot and plenty of performance thanks to the punchy electric motors.
Top five EVs that depreciate quickly
Now, let’s look at the electric cars that depreciate the quickest. Again, the figures in brackets are the percentage of the new value that’s lost after three years or 36,000 miles.
These models don’t make the best new purchase as a result, but quickly dropping values are great news for those looking to buy a used electric car.
Smart Fortwo Coupe (58.30%)
The Smart EQ Fortwo Coupe is a tiny city car with a range of just 60 miles. It only makes sense for those who live in a big city with access to charging points, which limits its wider appeal and leads to fast depreciation. It’s expensive new but makes a good used buy for a small number of buyers.
MG MG5 (59.10%)
The MG5 is the newest electric SUV in the Chinese-owned British brand’s range. It has a 175-mile range and a very affordable price tag given that it’s a large and practical car. Thanks to the heavy depreciation it makes more sense to buy one second-hand.
Nissan E-NV200 (60.20%)
The Nissan E-NV200 is an electric van first and foremost, but there is also a version with windows and seats, turning it into a large MPV. This version is called the E-NV200 Combi, and since it only has a 115-mile range it’s not all that useful for family trips, so its appeal is limited and depreciation is swift.
Fiat 500 (62.20%)
The new version of the Fiat 500 is now an electric car called the 500e. It has a range of 135 miles (or 90 miles in the lesser version), which isn’t bad considering it’s meant for local trips and that mileage should be fine for most people’s commute. As the electric version is so new it’s hard to tell what its residual values will be for now, so it’s possible the electric version won’t follow this prediction.
Smart Fortwo Cabrio (63.80%)
If the Smart Fortwo Coupe is niche, then the convertible version is well and truly in its own corner. It has the same 60-mile range as the hard-top version but of course comes with the soft-top roof and as it costs more to buy new, it also sheds more value after three years.
Change cars online with carwow
Whether you’re looking to buy a new or used car, you can find the latest deals from a network of trusted dealers on carwow.
You can spec a new model to your liking and wait for dealers to bring their best offers to you, or browse an extensive stock of used cars available for immediate delivery.
And if you need to sell your car first, you can do that through carwow too. Just upload a few photos, submit some details and wait for the offers to roll in.