You may already drive an electric vehicle (EV), or be in the process of buying one. You may even be considering a direct investment in the industry, or perhaps its evolving supply chains. Whatever your status, it pays to keep abreast of developments in this corner of the automotive market. Even those with holdings in index funds may inadvertently find themselves with a degree of exposure.
Yet if you follow the industry, you’re sometimes left with the impression that objective assessments are thin on the ground. Some proponents of the technology tend towards evangelism, whereas there are plenty opposed to the phasing out of new petrol and diesel sales for a variety of reasons. In other words, the debate can be rather polarised at times.
It’s important to keep this in mind simply because investors, potential or otherwise, need to make sense of seemingly contradictory perspectives on the industry. And barely a week goes by without comment.
The latest market update comes from the Society of Motor Manufacturers and Traders (SMMT). The industry advocacy body reports that used battery electric vehicle (BEVs) sales grew by 81.8 per cent year on year in the second quarter to 30,645 units. Double-digit growth was also maintained for plug-in hybrids (PHEVs) and hybrids (HEVs), up 11.4 per cent to 18,437 units and 29.5 per cent to 53,634 units, respectively.
At risk of sounding churlish, although those growth rates look impressive, the BEV sales account for 1.7 per cent of the total used car market. The SMMT notes that market share for conventionally powered cars fell “marginally” from last year even though volumes for petrol and diesel cars edged up through the period. Overall, the UK used car market grew by 4.1 per cent in Q2 2023, with more than 1.8mn vehicles changing hands.
The news on used BEV sales will cheer dealerships up and down the country, and it came as independent vehicle auction group Aston Barclay revealed that values of used EVs are beginning to stabilise, with Q2 prices down by 1.4 per cent to £22,100 at an average age and mileage of 30 months and 22,128 miles. It also emerged that some used EV prices are moving towards par with their internal combustion engine (ICE) equivalents, although leasing companies remain far from convinced about the viability of remarketing channels. Indeed, EV values collapsed in the early part of the year, with 12-month reductions in the range of 20-25 per cent.
The reality is that the health of the used EV market is critical to new sales in the segment, not least because the future value of used vehicles has a direct bearing on the cost of financing – a key consideration, especially for fleet managers. Any downward pressure on residual values is doubly significant because prices for new equivalents remain elevated by comparison to ICE vehicles.
There are also some practical issues that could have a major bearing on the viability of the used EV market. Lithium-ion batteries are fuelling the auto industry’s push towards adoption, but they’ve also been a catalyst in some transportation-related fires and questions are growing over their potential impact on residual EV values.
The trouble is that once the casing of lithium-ion batteries has been damaged, whether that be through an accident or faulty production, they can become unstable. This has negative implications, not only in safety terms, but also because of potential impacts for the repair and insurance sectors.
In a growing number of cases, insurers have been forced to write off EVs if their battery units have been damaged, even after relatively minor scrapes and on vehicles with low mileage. The battery unit is by far and away the costliest component of an EV, but its inherent vulnerability in the event of damage is feeding through to increased repair costs and insurance premiums. Consider that government guidelines recommend that damaged EVs must be stationed 15 metres apart from other cars in repair garages due to the risk of battery fires.
All this translates to increased remedial costs and therefore a potential major disincentive to transition, regardless of the 2030 regulatory imperative. And it certainly casts doubt on the cost benefits touted for electric motoring. The clamour by legacy automakers and newer manufacturers to get a slice of the market was highlighted by the recent $85bn (£66bn) debut on Nasdaq by Vietnamese EV manufacturer VinFast (US:VFS). But it could be that volumes of used EV sales could give a more meaningful steer on the likely trajectory of adoption.
