Why the Chevrolet Volt has low resale value (and it’s not battery replacement)
Last week I drove the 2016 Chevrolet Volt for the first time.
It’s nice. Really nice.
With ~40% more electric range, a more efficient hybrid-mode, and a center console that no longer feels like a capacitive touch experiment gone wrong, the redesign is a true upgrade on every front. What drivers will enjoy most is the significant bump in peppiness.
The future for the Volt looks good. The future for current Volt owners doesn’t.
I own a 2012 Volt. It cost me just over $55k before incentives to pick up one of the first units. Nearly four years later the resale value is $16k. Which means it depreciated at 27% per year, or 24% if I used the after-incentive number (which I contend is the correct way to consider it). Average depreciation for cars is 14-15%.
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Fortunately for me, I don’t care. I will be driving my Volt into the ground – how quickly the value drops to scrap metal prices is irrelevant for me. But many other Volt owners do care.
The low resale values of plug-in vehicles is covered nicely in a few articles. And a few smart dealerships and individuals are scooping up some great values.
Are resale values so low because of battery replacement concerns?
Many people are pointing to the risk about battery life and the cost to replace the battery. I don’t buy that as the main driver, for three reasons:
Reason 1: many of these vehicle have substantial warranties left, so a purchaser isn’t absorbing much risk. The standard warranty for most of North America is 8-year/100,000 mile. Many lucky Volt owners in California actually have a better warranty of 10-year/150,000 mile. Most of the units I’m seeing have around 40,000 miles, so you have another 60,000-110,000 miles of battery warranty.
Reason 2: battery degradation simply doesn’t matter as much for a Volt. As we’re going to show in a different post, the Volt does some interesting things with degradation, so most owners don’t experience any degradation for quite a while (more on this later – subscribe to be flagged when we publish those results). Regardless, even when you do start to see degradation, it doesn’t matter as much as it does on a BEV. If my 40 mile (64km) real-world range became 35 miles, I would simply use a bit more gas. Meh.
Reason 3: The Model S disagrees. Unlike many other plug-ins, the Model S has impressively high resale value. If you used the post-incentive price as your starting point, the Model S depreciation rate is between 13-14% – slightly better than conventional cars and much better than most plug-ins. So if plug-in buyers are so concerned about battery replacement costs, then why are they very ok with buying a used Tesla with a much higher battery replacement cost?
So what is the main factor causing the low resale factor?
Consider yourself on the market for a new flat screen TV. Consider two scenarios:
Your neighbor just got a job in Japan and posted on facebook their 1 year old TV – great shape, 1080P, the right size for you, gen1 smart-TV integration.
You do some quick browsing and find that the new version of that model is still 1080P, same MSRP, same smart-TV features.
How much are you willing to pay for the used TV, which has basically all the same features as a new one?
Same neighbor and used TV, but the new model is 4K, bigger screen for the same MSRP, and gen2 smart-TV integration. Heck it even feeds your cats and tutors your kids.
How much are you willing to pay for the used TV?
For most of my life, the introduction of new vehicle models has been closer to Scenario 1. New models are prettier, maybe a couple more horsepower, maybe more airbags, or a better catalytic converter. The biggest additions were Bluetooth and a USB port.
For the first time in my life, Scenario 2 is becoming more common for vehicles. Each new model is a dramatic increase in what you get. And in cases like the Volt, you get a lot more for a lower MSRP. This results in a downward pressure on resale value of previous generation Volts.
The Catch-22 for Electric Vehicles.
Each new plug-in model is becoming dramatically better than the last.
That is the good news. And the bad news.
The articles about low resale values are just starting to trickle in. Brace yourself because the wave is coming. So what will that mean?
Lower resale values will make it slightly harder for fleets to make a Total-Cost-of-Ownership argument for purchasing EVs. This impact will be modest though. After 6 years of doing EV Suitability Assessments for fleets I can assure you most fleets already assume a near-zero salvage value for all their vehicles.
The most significant impact will likely be felt by people who wish to lease. Leasing companies will have to assume a lower end-of-lease value which will drive up monthly lease rates. That may move some families that are considering leasing an EV to a non-EV option. That will be the unfortunate cost of progress.
Why does the Tesla buck the trend?
Three things make the Tesla unique compared to the rest: luxury category, higher range, and OTAs.
I am going to, with limited reasoning, assume the luxury category is irrelevant. Depreciation for the luxury segment is equal to or higher in conventional vehicles. I can’t see why it would be different in EVs.
When the range of a Volt goes from 35 miles to 53 miles in the new model – that matters. A Model S increasing its range from 250+ miles to 270+ doesn’t feel all that impactful. Diminishing returns on increased range could be at play.
Most notably, Tesla does an Over-The-Air update of its vehicles. Many Tesla owners consider OTA days better than Christmas. New features are updated and some owners have remarked that they feel like they just got a new vehicle with the seat already formed to their body – best of both worlds. The result is a smaller difference between the new vehicles and the used vehicles. Whether deliberate or not, I believe this is a genius move by Tesla to increase the retained value of their vehicles.
This is causing an interesting dynamic. The major improvements in the new Volt are causing significant downward pressure on used Volt pricing. The new generation Prius was just unveiled in Las Vegas, and while it has a rumoured 18% bump in fuel efficiency, most have characterized it as an evolutionary improvement and not nearly as significant an upgrade as the Volt. Since the new generation doesn’t have as many improvements, it will likely have less downward pressure on the used model pricing. Looking at a popular used car website below is the first result I got:
Nearly identical miles. That is the conventional Prius, not the plug-in. And I deliberately took the screenshot with the Volt picture that shows it has HOV access. Option 1: pay $4k+ more, sit in traffic, have no electric range. Option 2: save $4k+, save time, save on fuel and emissions.
Bluntly, there are fantastic deals to be had. Many in our office are on the hunt for used Volts, LEAFs, Spark EVs, and Smart EVs. The impact of the shiny-new-thing effect is there are some massively under-priced used plug-ins.
And for those that are truly concerned about battery health and replacement… well… stay tuned, we have something in the queue.
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