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The reduction in electric car prices in the US is attracting buyers with irresistible offers, but leaving dealers on alert, facing challenges to maintain profitability amid the new market reality.
Falling prices of electric cars: Electric car prices in the US have plummeted, creating an almost surreal scenario for those looking for affordable vehicles. The used electric car market in the US, previously marked by high prices, has now become a veritable bargain paradise. This drop in prices has impacted both buyers and dealers, leaving dealerships facing a complicated situation. Electric cars, which were once considered unaffordable for many, have become one of the best options for those looking for cheap electric cars at prices well below those practiced in recent years.
Falling electric car prices in the US and the impact on the used car market
Two years ago, the electric car market was booming, with used models often selling for the same or even higher prices than new ones, due to a supply chain crisis that resulted in vehicle shortages.
However, this situation has changed drastically. Dealership lots are full of cheap, stranded electric cars, with automakers — especially Tesla — leading aggressive price cuts on new models to encourage sales.
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This drop in electric car prices directly impacts the value of used electric cars, making them cheaper options for consumers but reducing dealer profits.
The model Tesla Model 3, for example, saw its list price reduced by 25%, making it a more affordable option for new buyers. However, this has had a dramatic impact on the used electric car market. As a result, prices for these vehicles have dropped significantly, creating a buying opportunity but also raising concerns about the future value of electric cars.
Discounts on new models increase demand, but put pressure on the used market
Discounts and promotions on new electric car sales were an effort by automakers to maintain sales and stimulate growth in the sector. This movement increased Tesla's global deliveries in the third quarter, reversing the declines recorded earlier in the year.
However, the flood of discounts in the new car market ended up pushing the prices of used electric cars even lower, creating challenges for the automotive industry, which was betting on a constant appreciation of battery technology.
In September, the average selling price of a three-year-old electric car was approximately US$28.400, which is lower than gasoline vehicles of the same age, according to data from the Edmunds website. This sharp drop in the prices of used electric cars contrasts with the stability observed in the market for used combustion cars, showing how the dynamics of electric cars are sensitive to price variations and demand.
The negative effect on electric car owners and debt
The drop in used electric car prices could boost the appeal of these vehicles to budget-conscious buyers. But it has also created problems for current owners who paid a premium for their electric cars years ago.
Many of these owners are struggling financially, with loans that exceed the market value of their vehicles. This scenario of default is exacerbated by Tesla models, such as the Model 3 and Model Y, whose prices have fallen dramatically in the last year.
Christian Lange’s case illustrates this scenario well. In 2018, he bought a new Tesla Model 3, but its value has plummeted in recent years. By early 2023, the car was valued at around $35.000, the equivalent of what he still owed on the loan.
However, after successive price reductions promoted by Tesla, the value of its car fell to the point of being $10.000 less than the amount he owed. Frustrated, Lange traded in his Model 3 for a Kia EV9, illustrating the growing dissatisfaction among early electric car buyers who are now facing financial hardship as their vehicles depreciate in value.
Tax incentives and the role of leasing in the popularization of electric cars
As consumer interest in electric cars has waned, automakers have become more aggressive in promoting new models, offering lease and advantageous financing conditions.
These incentives included applying a $7.500 tax credit directly to lease agreements, resulting in a significant drop in monthly payments for new electric vehicles. As a result, leasing has become the preferred way to purchase new electric vehicles, with approximately 80% of sales being made using this model.
This shift in the purchasing model has had a direct impact on the used electric car market. Today, the monthly payment on a lease for a new electric car is comparable to the cost of a loan for a used electric car, making new models more attractive to consumers. This factor is contributing to the decline in used electric car prices and putting dealers in a difficult position as they see used vehicles lose value quickly.
Automakers' strategies to reduce production and preserve the resale value of electric cars
With the sharp drop in prices for used electric cars, many automakers have been reassessing their production strategies. The excess supply relative to demand has led some companies to rethink their production targets and postpone expansion plans to avoid an oversupply in the market.
A General Motors, for example, highlighted that it does not want to produce electric cars just to meet targets, without considering the real market demand. With this, it seeks to preserve the resale value of electric cars and avoid long-term losses for the brand and consumers.
Additionally, the used electric car market has also been impacted by the introduction of a new $4.000 federal tax credit for used electric car purchases in the US.
That credit only applies to vehicles sold for less than $25.000, prompting some dealers to adjust their prices to take advantage of the tax break and attract buyers, further increasing the supply of affordable electric cars on the used market.
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