How Electric Vehicle Value Declines Shadow Electric Vehicle Future

As Ferrari launches its first electrified cars, it offers customers a full battery replacement. The battery warranty is designed to maintain not only the car’s performance but also its resale value.

The Italian automaker’s warranty is the latest sign that electric vehicles are facing a growing challenge — and it’s not just concerns about cost and range compared to their gas-powered counterparts. The residual value of electric vehicles is declining compared to their gas-powered counterparts, hurting resale value for owners who would otherwise enjoy lower ownership costs due to the low maintenance and refueling costs of electric vehicles.

Experts say the reasons for the declining value of electric vehicles range from the flood of new models on the market to the degradation of batteries after years of charging. A recent study by iSeeCars.com found that residual values of electric vehicles fell 31.8% from a year ago (a loss of $14,418 in value) compared with 3.6% for gasoline-powered vehicles. Still, while the declining value of electric vehicles is bad news for owners, the lower values of electric vehicles — combined with higher government incentives — could open up the opportunity for a wider group of buyers to try electric vehicles as manufacturers try to meet government sales requirements.

“Depreciation in the first few years of ownership is the most expensive part of owning a new car,” said Karl Brauer, executive analyst at iSeeCars.com. “The more EV buyers realize this, the less likely they will be to own one.”

Concerned about the backlash from owners, some luxury carmakers are taking action. To protect the residual values that are key to a brand’s reputation, Ferrari—which has been making hybrid-electric supercars like the SF90 Stradale and 296 GTB/GTS since 2019, with its first all-electric vehicle due in late 2025—has introduced a $7,530 extended battery replacement warranty so owners can replace the batteries in its plug-in hybrid models without facing a hefty repair bill.

Ferrari says the so-called extended warranty programs for Hybrid and Power Hybrid cars cover battery replacement in the eighth and 16th years of the vehicle’s life (a five-year warranty is already offered) and are intended to “preserve the performance and excellence” of hybrid cars.

“In the event of future improvements in battery technology, the replacement (battery) will be a new, state-of-the-art component that will provide the same performance as the original,” Ferrari said.

Brauer says value retention is especially important for the Ferrari brand, where owners expect their $350,000-$500,000 purchases to appreciate in value over time. But the iSeeCars analyst says the depreciation factor is also an issue in the mainstream market.

“There are a number of factors driving the devaluation of electric vehicles,” he continued. “There are too many new electric vehicles coming to market and too few buyers; many electric vehicles are entering the used market after three-year leases; and Hertz has brought thousands of electric vehicles into the used market because customers weren’t leasing them.”

According to the iSeeCars study, used EV values in June 2023 were 25% (over $8,000) higher than the average price of a used gasoline car. Moving on to June 2024, they were over 8% ($2,657) lower than the average price of a used gasoline car.

Electric vehicles are relatively new to the U.S. market (the best-selling Tesla Model Y, for example, has only been on sale for five years) compared to their combustion-engine counterparts. But as batteries age, they will continue to degrade, threatening to depreciate them even more.

As laptop and smartphone owners know, battery life degrades over time. But while laptop users can replace their batteries for $50 to $200, car owners face a lot more — estimated bills range from $15,000 to $22,000, depending on the model.

This depreciation was famously illustrated by Finn Tuomas Katainen, who had a 2013 Tesla Model S with a dead battery. CNN reported that the cost of replacing the battery was $22,500, which was prohibitive — so Katainen attached 66 pounds of dynamite to his 2021 car and blew it up in a YouTube video that went viral.

Katainen’s dramatic display underscores U.S. government regulatory requirements that manufacturers provide at least an 8-year/100,000-mile battery warranty. Tesla says its batteries will retain at least 70 percent of their charge for eight years, but a report by battery data firm Recurrent, which studies real-world driving range, found that Tesla’s batteries degraded to an average of 64 percent of their EPA-defined capacity over three years.

Seeking Alpha automotive analyst Anton Wahlman notes that the average age of U.S. vehicles in 2024 was 12.6 years. Most of them are powered by gasoline engines, which cost anywhere from $4,000 to more than $10,000 to replace.

“There are a lot of cars that are on the road for more than eight years. What happens when your EV outlives its eight-year warranty?” Wahlman said. “Replacing a battery can cost $15,000 or more. It’s a ticking time bomb and a major concern for all demographics of buyers.”

In a three-year cost-of-ownership analysis examining comparable Ford and Hyundai EV/ICE vehicles in today’s market, Car and Driver looked at maintenance, fueling, and depreciation costs based on 15,000 miles of annual driving. The study found that the Hyundai Kona and Ford F-150 EV outperformed their ICE counterparts in fuel and maintenance costs, but depreciation was the Achilles heel of EVs.

“It is clear that electric vehicles depreciate faster than their gas counterparts,” the study authors concluded, noting that the Kona ICE lost $9,795 in value compared to $15,305 for the Kona Electric. The Ford F-150 lost $13,981 in value, while the F-150 Lightning EV lost $15,738.

Given the challenges of electric vehicle pricing and depreciation, Wahlman says there’s “no end in sight” to the $7,500 government subsidies that are meant to level the playing field for electric vehicle buyers.

If EV residual values continue to decline, iSeeCars analyst Brauer says a broader group of buyers will likely look at EVs — especially in the used-car market. For example, a search on Edmunds.com reveals numerous 2021 Model Y Long Range models ($50K when new) with 70,000-80,000 miles on the clock for the same $25,000 as a new 2024 Chevrolet Trailblazer.

“Prices are coming down because the market is becoming saturated with luxury, first-time car buyers who are drawn to electric vehicles,” Brauer said. “The price delta to attract the average buyer is much lower, so prices are coming down. But the lifestyle of the driver is also very different, because the average buyer needs an electric vehicle for local and long-distance travel.”

Henry Payne is the car critic for The Detroit News. Find him at [email protected] or @HenryEPayne.