Do electric cars depreciate?

Depreciation is defined as the difference between the price you pay for a car and the price you receive when you sell it. Unlike the housing market, where properties tend to creep up in value over time, vehicles usually lose their value as they age.

There are some exceptions to this, such as rare and collectable vehicles. Still, for the typical road-going car, depreciation starts from the moment you drive it off of the forecourt and only goes in a downward direction from there on.

But not all cars depreciate at the same rate — so do electric cars depreciate? Let’s look at some of the factors that determine this, and why electric car leasing is a good idea in the face of long-term depreciation.

How Fast Do Cars Depreciate In Value?

According to the AA, a typical brand-new car loses as much as 40% of its value in its first year. The resale price continues to fall by a further 20% over the next two years, so a three-year-old vehicle is worth 60% less than when it was new.

This is a percentage figure, so depreciation equates to bigger losses on higher-value vehicles:

• A £10,000 car might be worth £6,000 after one year and £4,000 after three years
• A £50,000 car might be worth £30,000 after one year and £20,000 after three years

That’s a £6,000 loss compared with a £30,000 loss, which is why depreciation is more of a concern if you prefer to drive brand-new luxury cars, compared with a typical hatchback at the bottom end of the market.

Do electric cars depreciate?

Returning to the question of electric car depreciation — yes, electric cars depreciate in value as soon as you start driving them. The miles you put on the clock represent wear and tear. Eventually, the vehicle will require maintenance.

At the same time, newer EVs are continually coming onto the market. There’s a constant balance between supply and demand, and what drivers are willing to pay for a new or used electric car.

Overall though, electric cars depreciate more slowly than internal combustion engine vehicles, allowing EVs to retain more of their initial value for longer. But why would this be the case?

Why Don’t Electric Cars Depreciate?

Specifically, why don’t electric cars depreciate as fast as petrol and diesel cars? There are several reasons:

High Demand

EVs are simply in greater demand now, which tips the balance of supply and demand. The technology is mature, but the used EV market is still in its infancy. As such, many drivers who want to buy an electric car must buy something quite new, which still has most of its original production value.

Better Economy

Depreciation is often influenced by factors like fuel economy, because drivers are willing to pay more for a car that will be economical to run. EVs offer excellent fuel efficiency and, because they’re charged from the mains, are not susceptible to spikes in oil prices, all of which help them to keep their value when they’re relatively new.

Less Wear And Tear

Electric cars usually need less maintenance over the long term. Developments in EV batteries mean the battery now usually outlives the rest of the car, and with a fully electric drivetrain system, there are fewer moving parts to go wrong and seize up.

All of the above factors combine to make EVs economical to run and unlikely to develop serious faults, and motorists are willing to pay a premium for that peace of mind.

How To Avoid EV Depreciation

Despite all of this, electric vehicles do still lose value over time, especially when they’re brand-new. The AA recommends electric car leasing as a good solution to this problem:

“By leasing an EV, you can pay less over a term, with monthly payments and a small initial payment helping to spread the cost. Because electric cars are in high demand, particularly on the used market, many models are holding their value exceptionally well.

Even so, with car leasing you don’t really have to worry about depreciation, and models can be offered at far more competitive rates.”

You can even get EV maintenance lease plans, where any covered maintenance costs are included in the upfront price, so you don’t have to pay out-of-pocket for repair work later.

What the future holds

Depreciation is all about the future, and the factors influencing EV depreciation at present will not be the case forever. The used EV market is constantly growing as more EVs are sold on by their first owners. With every used electric car sale, the balance tips back towards supply, rather than demand, which means faster depreciation.

As we move into the 2030s, government zero-carbon targets mean electric cars will become the dominant engine type. When that happens, the depreciation of electric cars will likely start to look a lot like the current depreciation rates for internal combustion engines.

However, EVs will still offer good economy and relatively low maintenance demands, so there’s a good chance that depreciation will not be quite as fast or as deep in those first few years, as it has been with petrol and diesel cars.

Avoid Electric Car Depreciation By Leasing

As suggested by the AA, leasing an electric car is a good way to get behind the wheel of a brand-new vehicle at the top end of the market, without facing first-year depreciation of potentially tens of thousands of pounds.

Instead, you know exactly how much you will pay under the terms of your lease, as well as any optional costs, such as paying upfront for repairs under an electric car maintenance lease.

And at the end of your lease, you can give the car back and upgrade to a newer model, putting you on the top rung of the EV ownership ladder, and protecting you from the vagaries of the used EV market and the costs of depreciation. This ensures you benefit from the very latest fuel economy and electric car performance on the market.