While the overall new car market and used ICE vehicle market have both seen cost jumps due to inventory issues, the used EV market has seen the opposite. Rather than see prices continuously rise, the prices for used EVs have fallen by nearly 20 percent since its peak last year. We take a look at what’s driving these trends for both to answer why one is doing better than the other.
On the face of it, the answer seems really simple for the rising costs of used ICE vehicles: there simply isn’t the inventory there once was. According to a story from Autoblog, it’s more than just people keeping their cars for longer because they can’t afford a new one. Even leasing costs have risen and, just like not being able to finance a vehicle, less people are going that route to get into a new vehicle. According to Cox Automotive, the average lease payment hit $661 in December, which is 33 percent higher than it was in March of 2020. In that correlation, what once made up 31 percent of auto sales back in January of 2020 has now dwindled to just 17 percent in July of 2022, according to TransUnion, and now consumers are opting to finance a new vehicle purchase.
Additionally, of the 3.8 million consumers who were leasing a vehicle between July 2021 and June 2022, only 25 percent leased again and that is a decline of 40 percent when compared to January 2020. Though, oddly, that choice of financing a purchase meant that their monthly payments typically increased rather than decreased or stayed the same if they decided to buy rather than lease. That reduction of leasing consumers has also impacted the amount of cars being returned. Considering that most leases are one to three years, that is a lot of used vehicle inventory that has disappeared from dealer lots. This, in turn, increases the price of used ICE vehicles as the inventory is hit by consumers holding on to their vehicles longer and dwindling lease returns.
EVs Buck the Trend in the Used Market
Where this trend stops is with the used EV market. According to Recurrent’s Q1 2023 Used Electric Car Buying Report, the prices of resold electric vehicles fell by 17 percent when compared to July 2022, which they credit to the falling prices of used Chevrolet Bolts and Tesla Model 3s. “A price correction is underway in the used electric vehicle market,” Recurrent said in its report, “After a steep rise in 2021 and a multi-month plateau in 2022, prices have steadily declined since August 2022, bringing them back in line with where they were in 2021. Rather than mistaking this drop for a market decline, understand that this is a return to Earth from the stratospheric used electric vehicle values seen in 2021 and the first two thirds of 2022.” The report also notes that used EV prices are still seven percent higher than they were in March of 2021, when Recurrent began tracking used electric vehicles and it also added, “The higher price today is not just driven by price increases or inflation, though. It is largely due to the influx of higher priced and newer models on the used EV market.”
Another potential driver of declining prices is that the used EV market has nearly tripled in size in the past 18 months. Back in April of 2021, used dealer inventory was as low as 10,000 EVs but reached a high of 25,141 vehicles by February of 2022. This dramatically dropped in March to under 17,000 vehicles and June of 2022 with just above 16,000 used EVs on the market. By August of 2022, that inventory sharply rose to 24,058 vehicles and the used dealer market now sitting at 37,515 EVs according to Recurrent’s research. There is more good news for used EV buyers in that 20 to 30 percent of the electrics that are coming into the used market are eligible for a tax credit of up to $4,000.
Wait, Used EVs Get Tax Credits, Too?
Yeah, hard to believe, but used EVs do get a tax credit just like new EVs do. It’s not as high as new electrics get, but a $4,000 tax credit is nothing to sneeze at. While the IRS won’t directly help you figure out if your future used EV is eligible, it’s not impossible to figure out. Not only does the IRS have a list of criteria but it also has a list of “qualified manufacturers” of previously owned clean vehicles. It’s similar to the new EV tax credit rules (for now) but doesn’t have the qualifier that an EV must have its final assembly in the US. Yes, this tax credit also extends to used fuel cell vehicles (FCV) and plug-in hybrids (PHEV), provided the battery capacity is seven kWh at a minimum. Though, there are some important differences that must be pointed out. According to the IRS, the vehicle must purchased for $25,000 or less, must be at least two model years older than the year you’re buying it (ie: a used EV needs to be a 2021 model or older if buying in 2023), and not already transferred to you after August 16 of 2022 (in other words, you can’t double dip). Oh, and you can only get the used EV credit if you buy from a dealer, no private party sales will be eligible for the tax credit.
While most new EVs are still commanding a premium and used ones are still seven percent higher than March of 2021, the amount of used electrics under $25,000 is up. Back in October, Recurrent noted that listings at the time only showed that 12 percent of used EVs would have qualified for the tax credit, current analytics of used dealer prices shows that has climbed to 20 percent as of this month. Much like Tesla dropping its prices to meet the criteria of the new EV tax credits, it seems that used car dealers are joining in on that trend. Recurrent’s report says to expect sub-$30,000 pricing in the used EV market to surge and that, by 2024, the “sector should be filled with EVs offering 250 (or more) miles of range, especially if the Bolt EV and entry-level Tesla prices fall as a result of restored EV tax credit eligibility for those two models.”
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