Why ICE Models Are Outpacing Electric Cars in Used Car Value

The car market is experiencing a shift where traditional combustion-engined models are gaining more value in the second-hand market compared to their electric counterparts. This trend is evident as electric vehicle (EV) values have been on a downward trend for the past 21 months. However, a distinction is emerging between older and newer electric cars, with newer, high-tech models holding their value better.

CEO of Motability Operations, Andrew Miller, highlights the significant difference in residuals between ICE and EV models. As legislation pushes car manufacturers to reduce combustion engine sales, the gap between ICE and EV values is expected to widen further.

Motability, the UK’s largest seller of used cars, is closely monitoring the impact of declining EV values on its profits as its EV fleet grows. Miller notes the varying values between first-gen, second-gen, and newer EVs in the market.

The decline in used EV prices has made both buyers and car makers uneasy. Weak residuals make it challenging for car manufacturers to achieve their goal of increasing EV sales to 22% of their total this year. Depressed values also lead to higher monthly finance payments, making EVs more expensive for consumers. Many car makers are resorting to increased discounting to mitigate the impact on profits.

The UK has seen a sharper decline in EV residuals compared to other European countries due to factors like a correction from a surge in used EV pricing in 2022. Additionally, advancements in technology have made older EV models less desirable, leading to decreased values.

Newer EV models like Ford’s Explorer compact EV are expected to fare better in terms of residual values due to factors like increased range. However, overall, electric car values continue to lag behind their combustion engine counterparts in the used car market.

Despite challenges, fleet users remain significant consumers of EVs in Europe. While negative sentiment surrounding EV ownership persists, factors like falling battery costs and the rise of cheaper battery options are expected to drive EV adoption.

As the automotive industry shifts towards producing fewer but higher-margin ICE models, the gap in value between ICE and EV models is likely to normalize. This transition signals a future where new EVs become the more affordable mainstream option while combustion-engined cars move into premium territories.