The electric vehicle (EV) market is hitting a rough patch. Recent data reveals that EV owners are grappling with rapid depreciation and negative equity, raising concerns about the long-term value of these vehicles.
Let’s look at the numbers. A Tesla Model 3, one of the most popular EVs, loses 45% of its value after just three years. Compare that to a gas-powered Toyota RAV4, which only depreciates by 22% in the same period. Even more shocking, after just one year of ownership, a Tesla Model 3 is worth only 64.38% of its purchase price.
Zach Shefska, CEO of CarEdge, puts it bluntly: “Depreciation of Teslas are sometimes double that of gas-powered vehicles.” This trend isn’t limited to the Model 3. Other Tesla models, including the Y, S, and X, are expected to lose 57% of their value over five years.
Why is this happening? Aaron Turpen, an automotive journalist, suggests market saturation might be partly to blame. “You hit a certain point where there’s so many on the road that people just don’t want them anymore, because they see them all the time,” he explains.
But it’s not just about looks. EVs are facing practical challenges too. A McKinsey & Company survey found that 3 out of 10 EV owners globally are likely to switch back to gas-powered vehicles for their next purchase. The main reason? Inadequate public charging infrastructure.
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This dissatisfaction is hitting wallets hard. When EV owners try to trade in their vehicles, they’re often finding themselves underwater on their loans. Edmunds reports that for EV owners with upside-down loans, the average negative equity hit $10,326 in the second quarter of 2024. That’s nearly double the $5,469 seen in the same quarter of 2022.
Jessica Caldwell, Edmunds’ head of insights, explains: “Over the last few years, inflated vehicle trade-in values kept consumers somewhat shielded from falling underwater on their car loans. As the market continues to correct and trade-in values normalize, this protection is falling away, with some vehicle types more affected than others.”
Even major companies are feeling the pinch. Rental giant Hertz announced in January that it was selling off 20,000 of the 100,000 Teslas it had purchased, with prices as low as $25,000. The company took a $588 million hit due to vehicle depreciation in the first quarter of this year compared to the last quarter of 2023.
So, what can EV owners do? Shefska advises checking if you’re in a negative equity situation. If so, consider getting Guaranteed Asset Protection (GAP) insurance. This can cover the difference between what your car is worth and what you owe if it’s stolen or totaled.
Edmunds analysts also suggest avoiding trading in vehicles too soon or buying used vehicles to offset some of the depreciation.
The EV market is still evolving, yet the current situation paints a clear picture: the convenience and infrastructure for electric cars are not yet meeting consumer expectations.
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As more EV owners consider switching back to gas-powered vehicles, it’s evident that the electric revolution still has some significant hurdles to overcome.
