Unless really necessary I wouldn’t buy a new gas-only car—one with an internal combustion engine, or ICE. I’d either purchase something with a plug or wait until there was a plug-in option for what I want. This isn’t a green decision, but a financial one based on operating costs and resale value.
A plug-in electric of any sort will likely cost at least $1,000 less per year to operate just in fuel savings. Let’s pretend we don’t know any of that though and buy a Subaru Forrester for $30,000. It’s had great reviews, gets good gas mileage, and historically has had good resale value.
Now let’s look four years down the road to 2020. We’ve enjoyed our Forrester but want something different so it’s time to sell it and get something new. Likely a battery electric vehicle, or BEV.
Ella is looking for a new used car. She’d like to spend about $15,000 or less but she also wants something fairly nice, so she’s thinking a used car about four years old should do it. She’s narrowed it down to our Forester and a Chevy Volt. Each cost $30,000 new in 2016, have been popular cars with good reviews, and have the features she wants. And each should be about $15,000 after four years of depreciation.
However, annual operating costs are a much bigger chunk of a $15,000 car than a $30,000 car. When the difference between cars was simply better gas mileage, this wasn’t too significant. Electric creates a much greater difference though, and thanks to articles on streets.mn and friends who’ve bought plug-in electric vehicles, or PEVs, she’s become more aware of this over the past couple of years. She’s also a lot more comfortable with the idea of an electric than she was in 2016.
Assuming she can drive the Volt on electricity for 80% of her miles then her operating costs look like this:
The Volt will cost her $2,517 less to operate over the next four years. If gas prices go up, even to just $3/gallon, then the Forester will cost $4,336 more to operate.
Does she like our Forester $4,000 more than the Volt? Not quite. She wants $3,000 off the Forester, valuing it at $12,000. Ouch, that hurts, but we swallow hard and agree.
“That poor guy trying to sell the Forester” she thinks. “Oh wait, what if that’s me in five years? Will anyone want to buy an old gas engine car in 2025? Will the Forester be worth anything?”
A mechanic friend says to stick with the Volt. It can be converted to all electric with 200 miles of range for not too much money but the Forester will always require gas which is getting harder to find and more expensive.
Ella really likes the Forester but it has to work financially. She offers us $9,000. We counter with $10,000, but she turns it down saying that buying an ICE is just too big of a risk these days.
How realistic is that? There will be a lot of people in 2020 who will look at it just like Ella did above. But there will also be some who won’t think about operating costs or future resale value. There will certainly be downward pressure on resale of gas only ICE cars, we just don’t know how much. How efficient are markets? How many people will fully realize the benefits of PEVs? How many won’t have figured it out by then?
The differences between gas and BEVs are even greater. Not just because of a greater difference in fuel costs but also because BEVs are simpler, will need no oil changes and possibly less maintenance. BEVs should also hold their resale value better.
The big question that’s hung over the BEV industry is how long the batteries will last and how much they will cost to replace. Indications after eight years of mainstream battery electric vehicle sales and over one million on the road is that they will likely last for the life of the car.
Who Gets It?
In the large luxury segment of the U.S. car market, the only segment with a truly competitive PEV, Tesla have gone from 6% of the market in 2013 to 17% in 2014 to 25% in 2015. What drove such unprecedented growth?
A good part of it came from people who want to be green, like fast cars, or want the latest and greatest. And, as Audi’s Stefan Niemand said, once they experienced an electric they didn’t go back to buy an ICE.
An increasing bit of the purchase decision though is financial—people including probable resale value in their decisions. How much will a 7-series BMW be worth in four years if the world is going electric? People don’t like feeling like a chump. More than a few new Tesla owners have said that they’d have preferred a more sedan-like vehicle such as a Mercedes S-Class but were concerned about resale in an electric future.
This year Tesla’s Model X will begin doing the same to the luxury SUV market. Tesla’s first quarter deliveries this year are up about 50% over Q1 2015 with 2,400 of those 14,820 vehicles being their new Model X. Competitors trying to sell ICE SUVs have already been stung with the next 14 months of Model X production, about 50,000 cars, already sold.
With so many used Tesla BEVs available in four years, what will the value of all of these used ICEs be?
Between Tesla with their Model 3 and other manufacturers trying to avoid the fate of those above we’ll likely see a bevy of competitive BEVs enter the market over the next few years in many industry segments. Pricing will also become much more competitive. The Chevy Bolt and Nissan Leaf have enjoyed a ‘BEV Premium’ but that won’t last against the Model 3 so expect prices on those and similar new entrants to be more affordable.
It’s gonna be a fun ride. I don’t think I’d want to be trying to sell an ICE in a few years though.