Used EVs Sell for Bargain Prices Now, Putting Owners and Dealers in a Bind
Sharp drop in the value of preowned electric vehicles stands in contrast to the broader used-car market
Electric cars have gone from pricey purchases to some of the biggest bargains on the used-car lot, as resale values for the vehicles have tumbled.
Two years ago, some used electric-car models were selling for as much or more than new ones, because of a supply-chain crisis that resulted in a broader car shortage.
Now, the dynamic has flipped. Dealer lots are full of unsold EVs, and car companies—largely led by Tesla—have slashed prices on new models in an effort to sell them.
The discounts on new EVs have helped prop up flagging sales. Financing deals elevated Tesla’s global deliveries in the third quarter, reversing declines earlier in the year.
But the flood of discounts has caused prices for previously owned electric vehicles to plunge, adding to the challenges confronting the auto industry as its big bet on battery technology continues to sputter.
In September, the average selling price of a three-year-old electric vehicle was about $28,400, less than that of a gas-engine vehicle of the same age and a 25% drop from the start of 2023, according to car-shopping website Edmunds. The sharp fall in the price of preowned EVs stands in contrast to the broader used-car market, where values have stayed steady during the same period, according to the firm’s data.
The sharp decline in prices of used EVs could potentially broaden their appeal to budget-conscious buyers, analysts say. At the same time, many current owners who paid a premium for their cars are now upside down on their loans, owing more than the car is worth.
Among the hardest hit are some Tesla owners.
The world’s top seller of EVs last year cut prices by as much as one-third on some new models in the U.S., leading other automakers to respond with their own markdowns. On top of that, rental-car company Hertz in January dumped a large chunk of its Tesla fleet into the used-car market, further depressing values, analysts and dealers say.
Within the past year, the average list price for a used Model 3 and Model Y—Tesla’s most popular models—dropped about 25%, according to data from car-listing website CarGurus.
“They kept reducing the price of the cars, which killed the used-EV market,” said Christian Lange, the owner of a 2018 Tesla Model 3, which he had purchased brand new. In early 2023, the vehicle was valued at around $35,000, roughly equivalent to what he owed on his loan.
Normally, buyers gradually build equity in their vehicles as they make payments. But the reverse happened to Lange, because sharp price reductions on new Teslas made his vehicle worth less as well. At the start of this year, the value of Lange’s Tesla had dropped so much it was worth $10,000 less than what he owed on his loan.
Frustrated with Tesla, Lange said he traded his Model 3 for a Kia EV9. Tesla didn’t return a request for comment.
As buyer interest in EVs has continued to subside this year, automakers have become more aggressive with their sales promotions for new models, offering cheap leases and low-interest-rate financing deals that are sapping demand from the used-car lot.
Some brands are lowering payments on new EVs by applying a $7,500 tax credit available for such purchases directly to the lease deal.
As a result, the average monthly payment on an electric-car lease has fallen from $950 at the start of last year to $582 in August, according to Edmunds. That figure would be roughly comparable to what one would pay each month on a loan for a $28,000 used EV, said Ivan Drury, the firm’s director of insights.
“The biggest competition for one- or two-year-old used vehicles is across the lot. It is the brand-new version,” Drury said, referring to previously owned EVs.
Leasing has quickly become the most popular method of buying a new EV. At the start of last year, 16% of electric-vehicle sales at dealerships were leases, according to Edmunds. Today, the figure is nearly 80%.
Auto executives admit they misjudged the market, and that miscalculation is taking a toll on the used-EV prices. To limit supplies, car companies are pulling back on their ambitions, including reducing production and delaying expansion plans. Some are also taking precautions with their EV leases to preserve resale values.
“We don’t want to end up in a situation where we’re just producing to a target, and the demand isn’t there,” said General Motors Chief Financial Officer Paul Jacobson on a call with analysts in July. “You’ve got residual value implications which stay with you for a long, long time.”
Prices in the preowned market have also been hurt by a new federal tax credit for used-EV purchases. The $4,000 credit, introduced early last year, only applies to electric cars selling for under $25,000, a requirement that has led some dealers to cut the price to get under that amount, analysts say.
Dave Katarski, operations chief for Feldman Automotive Group, a large dealer group in Michigan, said his stores have been selling more than 200 used electric cars a month, a significant increase from a year ago.
The used-EV tax credit has helped stimulate interest among consumers, along with an influx of cheap Teslas previously owned by Hertz, he added. “We’re seeing a ton of people flock to them when they can afford them,” Katarski said.
There are also some troubling signs. An Edmunds study of EV trade-in values showed that in August, owners on average owed about $10,000 more than the car was worth—up from about $8,000 at the start of 2023.
The abrupt rise in electric-car leasing could also have longer-term implications, said Kevin Roberts, head of industry insights at CarGurus.
While helping to alleviate inventory buildups now, it is likely to result in a flood of gently used EVs returning to the market in two to three years. This potential wave could put more downward pressure on prices, Roberts said. Automakers and lenders, who own the leased vehicles, would be on the hook for any losses incurred by steeper-than-expected drops in resale values.
“There’s no positive way to put this,” said Edmunds’s Drury, adding that 77% of EVs from dealerships were leased. “The problem is those are coming back.”