The Electric Car may be entering its "cell phone" period
I've been electric car shopping, but one thing has stood out as a big concern. Many electric cars are depreciating fast, and it may get even faster. I think part of this is due to the fact that electric cars are a bit more like electronics devices than they are cars. Electric cars will see major innovation in the next few years, as well as a decline in their price/performance of their batteries. This spells doom for their value. It's akin to cell phones -- your 2 year old cell phone still functions perfectly, but you dispose of it for a new one because of the pace of innovation. Electric cars are not at that pace, but they are skirting the phenomenon.
When it comes to Robocar, I remind people that the computer will be the most important part of the car, not the engine or other features. And the computer and software are on the Moore's Law curve, like your phone. The battery system is not like this, but digital features are becoming more and more important parts of every car.
The most obvious cause of the big depreciation is not related to the cars. There is a $7500 federal tax rebate on a new electric car, so the moment you drive it off the lot, its blue book value drops an additional $7500. In addition, different states offer credits from of up to $5,000, and unless you take the car out of state, that amount will also drop off the value. This is the primary culprit for the huge depreciation numbers, but there is more.
Perversely, people with higher incomes don't get California's $2,500 credit, so for them, buying used is a very wise idea, because somebody else got the credit, and it's reflected in the price of the car. Of course, if you are rich enough, you may tolerate paying $2,500 more than everybody else for the new car. In fact, if not for the sales tax, it would be a good strategy to get somebody else to buy a car for you and get the credit, then buy it from them. Or take over a lease (getting to that...)
There are rumours that vendors might even be trying to subsidize against this depreciation to avoid a collapse in the price of their cars. After all, such low used car value discourages confidence in the car (and steals away buyers of new cars.) Rumours suggest Nissan has been known to offer incentives to get people to keep their lease-returns rather than take them back, and there are stories of even Teslas getting low prices at auction, though in the retail market they have actually done pretty well.
The Leaf is the most popular electric car, and only it and the Tesla are real market cars from big players. The other cars are all "compliance" cars, made by companies who must meet quotas of green vehicles. The 2015 Leaf has a cited range around 80 miles, and users report a real range on the highway closer to 60 miles. For me, that means a car that can't take me to San Francisco and back. The Leaf would handle a large fraction of my trips around Silicon Valley, but not being able to go to SF is a major detriment in this town. So I decided not to get a 2015 Leaf.
Better cars keep getting pre-announced
That decision was magnified when Nissan announced the 2016 Leaf would be able to do 107 miles. Technically, that's enough for the San Francisco trip, though in reality it's just on the edge. Any charging would allow the trip, including a 5 minute ("gas pump" level) stop at a DC supercharger (if nobody else is using it.) So I was waiting for that car to come out when...
They announced the Chevy Bolt, a $30K car (after rebate) with a 200 mile range. Finally a reasonably priced car with enough range. And then rumours circulated of a similar range in the 2017 Leaf -- it needs to if it will compete, and so every other car needs to as well. Who will buy a 100 mile 2016 car when a 200 mile 2017 car for not much more is being promoted?
Of course, in a year, something even more appealing than the Bolt will be announced. While the Bolt's range is enough for 99% of my drives (leaving out only Lake Tahoe and road tripping) there is still much that can improve -- other parts of the car, the electronics, and of course the battery pack getting even cheaper at that range.
Every year, cars get a little bit better, but we're in for a period of about 5 years in electric cars where each new year is a lot better, and that's trouble for people trying to sell them if the customers figure that out. A cell phone is cheap enough to throw out after 2 years. A car is not. To top it off, in a few years the robocar features will start getting more serious (starting with the first no-supervision traffic jam assist) and so other parts of the car will also be on the Moore's Law curve.
The battery is probably not on that curve, but it's on a good one. The Bolt's 200 mile range is a result of an expected reduction of battery cost from $500/kwh a couple of years ago to $200/kwh by 2020, and that's without any breakthroughs or new chemistry. (It is speculated the Bolt's battery cost will already beat that $200 number.) Breakthroughs -- which sometimes come when enough money is pushing the process -- could easily do much more.
Robocar answer
Robocars have an answer to this rapid depreciation. If they are used as Taxis, they can survive. The typical New York Taxi drives 62,000 miles each year and wears out in 5 years. Personal cars take 19 years to wear out, and go around 200,000 miles. Robotaxis will wear out and be scrapped after just 5 years, which means it is less of a burden when they are 4 years old and obsolete from a technology standpoint. (We may also design these vehicles to make it easy to give them hardware upgrades so their electronics can keep pace.)
Personal robocars have it harder. Your 4 year old personal vehicle is going to look like crap compared to the new ones. It will get software updates to match them (which is vital) but without hardware updates it will, like an old iPhone, no longer even be able to handle the software updates. If you buy a personal robocar, get one where it's easy to swap out the hardware, and expect to pay the cost of this.
Wear and tear of electric cars
The battery is the lifeblood of the electric car. No matter how new the rest is, a reduced range is a deal-killer for most buyers. Indeed, some predictions say the rest of the power train should wear out more slowly than traditional cars, so the depreciation is unfair in some ways.
Battery swap is an option on some electric cars, but that's a big cost to pay over what you planned to pay. Older battery packs will still work, but deliver less range. Owners will salivate for new packs that are cheaper, lighter, fresher and possibly even higher capacity than what they have. That's all good, but if you buy an electric car with a pack only good for 4 years at today's prices, you've lost all the economies the electric car hopes to give you. Of course, robocars and especially robotaxis can manage their batteries for much longer life
It might make sense to buy a 2012 Leaf for $8,000 and pay $5K to add a battery pack to it that's brand-new, giving you a car close to matching a new one in certain ways.
With all this, why look at electric cars today? For me, my electricity bill would actually go down due to metering differences, and of course my gasoline bill would drop too. And they are zippy and fun to drive and quite green with California's (relatively) green energy grid. And because of this depreciation, used ones are a major bargain. The buyers of new cars (and the federal government) took the hit on a new electric, but you can pick up a 2012 Leaf for $8,000. That's because all those 2012 units are coming off their leases, and people want them a lot less with those fancier models out there. (In addition, it is known the 2012 had some battery life issues fixed in 2013.)
A lot of people are leasing electric cars. Leasing has one financial advantage (you pay sales tax only on the depreciation you take, rather than the whole car) and otherwise it's a bad idea unless you're sure the vendor has guessed badly on the residual value of the car after the lease. With electric cars, you take so much of the depreciation that the tax advantage is not so great. But many electric owners are leasing. The $2500 tax credit in California can often pay for the downpayment, making it easy to come up with the money, and owners are, with good reason, willing to let the vendor take the risk on battery decay and mega-depreciation. Vendors are not idiots, though, and so their residual values are low, but perhaps not low enough. Of course, if you know better cars are coming and are sure you only want the car for 2 years, leasing can ease your legwork.
On the other hand, you can sometimes take over the lease of another electric car owner, letting them suffer the "due at signing" downpayment (which often exceeds all the monthly payments on a short lease) and giving you a car for a very short time, which might be a wise choice with all the new vehicles coming down the pipe.
Comments
Ethergnat
Wed, 2016-01-20 15:28
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A few exceptions.
You make the claim:
"When it comes to Robocar, I remind people that the computer will be the most important part of the car"
Why then not just make the computer upgradeable?
Also:
"Your 4 year old personal vehicle is going to look like crap compared to the new ones."
The same would theoretically be true of today's taxis. Yet I've never once heard a person exclaim how much nicer a taxi is than their privately owned vehicle. I have, however, heard a number of complaints about "nasty" taxis, and that's with a driver in the vehicle to keep people in line and clean up any messes immediately.
brad
Wed, 2016-01-20 18:45
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Not for taxis
Taxis are highly regulated and this pushes uniformity. Services that compete (like black car services) do indeed have very nice vehicles, and they compete on quality, service and price. You would be quite surprised to book a quality black car service and get a vehicle with 300,000 miles and worn, stained seats. We just got used to that with taxis.
But what I meant is your 4 year old vehicle is going to look like crap, technologically, just like your iPhone 6+ makes your iPhone4 look like crap.
Carlos
Wed, 2016-01-20 17:39
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CA Pavley bill a problem....
Unfortunately electric cars would depreciate less if we could replace and upgrade their battery more easily.
Instead we have the Pavely bill that requires the battery to last 10 years.
That's bad for the manufacturer and the customer. It is impossible to prove a battery will last 10 years in to the future unless you started testing it 10 years in the past. That means our EV's are out-of-date the day they are manufactured.
And new battery choices get better each year.
A 10 year old battery is not very attractive. But a 7 year old car with a brand new battery is very attractive.
Given that batteries are very effectively recycled, and car batteries that are no longer quite good enough for cars are still really great for all kinds of other purposes such as house power back up, it is sad that we cannot buy a better battery and replace it when a better-still choice is available.
brad
Wed, 2016-01-20 18:48
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Interesting thought
You actually can test the life of batteries to some degree. Battery life is mostly a function of how hot they get and how much time they spend above 63% charge (their optimum spot.) Passing days play a role, but I bet they can test 10 years of human driving reasonably in 6 months to a year. More to the point, they can also watch things happen and extrapolate, not with perfection, but decently.
Simone Brunozzi
Thu, 2016-01-21 01:14
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Great and I agree, but why used Teslas are still very expensive?
Great thinking - I was making these exact points to an electric car company today.
However, why then used Teslas are still VERY expensive?
A 2012 Tesla (3 to 3.5 years old) can still be seen at >50k prices. Crazy.
Do you know why?
brad
Thu, 2016-01-21 02:25
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It is curious
One Tesla competitor tried to tell me that Tesla was artificially keeping the price up, but I find that hard to credit. The retained value of the Tesla baffles me a bit, since newer Teslas have the new hardware needed for autopilot and insane mode and more.
The Tesla has not dropped in price as batteries dropped, the way the Bolt suggests is happening in smaller electrics. It could be that the Tesla range is indeed enough, so the new cars don't have more range and thus the used ones are only missing the new features (while perhaps having less wear and tear.) But again, I think it should depreciate more. Perhaps supply is short.
Armando
Thu, 2016-01-21 23:33
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Supply is the key
The issue with Teslas is that demand is always higher than supply. Even now there are loads of people waiting for their Model S and Model X, some of them sometimes whining about it on Tesla forums, and Tesla can't produce them as fast as it wished, and it allows them to keep the premium price. They have created scarcity around these cars, even though 100 000 of them are already on the road. That's the main reason for Model X delay, they just can't ramp up production for them.
Simone Brunozzi
Fri, 2016-01-22 11:07
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Makes sense
Both Brad's and Armando's answer make sense.
I am wondering how artificial is the Tesla scarcity, vs just a typical manufacturing problem to solve.
Avutas
Wed, 2016-01-27 01:20
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Supply will soon grow
Let's not forget the gigafactory is build to deal with the huge demand of Model S/X and future Model 3. In my opinion Tesla is still not gaining anything by keeping scarcity artificial, because the volume of cars is more important than the price. At least at this moment. Maybe in the future when production will reach a certain level things will be different.
brad
Wed, 2016-01-27 09:06
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Artificial scarcity
I doubt any scarcity is artificial. The speculation was that companies might be trying to keep the price up on their used vehicles, taking a hit to keep the new vehicles more attractive. Big car companies (other than Nissan) are selling compliance cars. Tesla can spend investor's money to do this -- if they want to. Or perhaps something else explains why the Tesla is different from the others.
mark seiden
Thu, 2016-01-21 04:28
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lease versus buy
for the last 8 months i've leased a fiat 500e (one of those compliance cars - fiat = chrysler), with a range of 87 miles. first time i've leased anything, and it's because in 3 years, a range of 87 miles will be closer to 0 than to the probable range of a new vehicle. the lease buyout price of >$22k (as i recall) will be unattractively high in 2 years, and there will be a bloodbath of returned vehicles (if anyone even wants a car with an 80 mile range).
range anxiety is a fact of life. i've only run out of juice once, 500 feet from a charging station. (amusingly, the included towing coverage would only tow me home or to the nearest fiat dialer.) i blame that emergency on software which predicted, incorrectly, that i had 20 miles of range remaining when i only had 12 on a cold day).
it's a lot of fun to drive, and small enough to fit between the driveways in san francisco. fiat priced the 3 year 10k mile/year lease at around $100. with extra surcharged features (sunroof, pearly white color) my monthly rate is $134 including tax, less than many people's cable bill. (i got one of the rebates, fiat got the other.)
charging (and charging etiquette) has been a challenge. i now know where all the free and pay chargers are and where they intersect with usable wifi, shopping, and restaurants. charging time is an intolerable >20 hours on a level 1 charger (120v) and 4.5 hours on a level 2 charger (208v).
it should also be mentioned that they bundle $500 of rental car credit in per year (on a choice of companies) usable in the US. so if you want to go beyond range or (as i still have my gas burning backup car) need a car for that week in hawaii, its a nice perk. (pity is isn't usable with zipcar, in case you need to shlep something.)
i recently got a promotion from plugshare and sungevity, offering me a free level 2 charger if i installed photovoltaic panels on my house. so i'm in the middle of that now. the promo saves me about $4k in installation cost due to the long run between the service panel and the parking space and they are also including upgrading the service panel. i'm told i can pass along a money-saving referral to anyone who's similarly interested (email me at mseiden at gmail for that). when this is done, i am hoping that my home charging will be effectively no additional cost and, more importantly, no additional time.
brad
Fri, 2016-01-22 01:35
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$100 lease
The $134 lease is a good price of course -- what did you plunk down when you drove away? Of course, if you then removed the $2500 California rebate, that may have made the difference and made the car quite attractive, and a money loss for them when you return it. Because no car depreciates only $1,600 in its first years of life! The taxpayer may have taken the hit.
A 200 mile bolt (like the Tesla) will largely deal with the range anxiety unless you take the unwise step of trying to road trip in it. I've talked to many people who have tried road trips in electric cars -- mostly the Tesla. Their story tends to talk mostly about how they routed to find the next charge, not about the scenery. One never hears people tell the story of a gasoline road trip with tales of how they had to find gas stations, at least not in the last century.
steve
Thu, 2016-01-21 20:48
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yeah but...
I've never kept a cell phone for 8 years, but I still drive my 2008 Tesla Roadster.
jseliger
Fri, 2016-01-22 07:26
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Tesla's experience with battery decay:
The battery is the lifeblood of the electric car. No matter how new the rest is, a reduced range is a deal-killer for most buyers. Indeed, some predictions say the rest of the power train should wear out more slowly than traditional cars, so the depreciation is unfair in some ways.
So far, though, battery decay hasn't been a big issues with Teslas:
Using data from 126 Roadsters driven a total 3.2 million miles, the study concluded that the typical Roadster would still have 80-85 percent battery capacity after 100,000 miles.
The recent Model S numbers from The Netherlands are even more encouraging.
Maybe other brands' batteries won't last as long. But so far, the strong implication is that battery longevity is for most people, so far, not likely to be a big issue.
brad
Fri, 2016-01-22 11:37
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Differences
Leafs prior to 2013 have a reputation for battery issues.
Tesla is all about the battery, and cooling it well, which is indeed the most important thing. They know some things the others don't know as it is most of what they do.
But in time, yes, we should figure out how to get better battery life, or easier swap out and recycle, to resolve this problem.
The problem right now is that an 80% Tesla -- 160 usable miles vs 200 for example, can seem to have lost more than 20% of its utility to customers. People are strange about that. Of course it varies. For example, a car that can do San Francisco (like a 107 mile leaf) would be acceptable. A 20% degraded vehicle which could no longer do it would be a dealbreaker.
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