Electric vehicles (EVs) have been around for a while and were actually first produced in the late 1800s, give or take some years depending on who you ask. Despite this, suddenly they’re becoming increasingly popular in the US, with many states and cities even moving to adopt legislation that seeks to slowly phase out our most prominent alternative, gasoline-powered cars.
Maybe EVs are overhyped, maybe Teslas are overpriced, maybe it’s all Elon’s fault? The guy can crash both stock and crypto markets with just a tweet or two, so what’s the truth? Are electric vehicles a good investment?
As with all vehicles, depreciation is almost unavoidable. Calling a car an investment just because you can make use of it is like calling a beer a probiotic just because it has yeast in it. That’s just not really how it works. As with any car, electric vehicles will of course depreciate, but how much? Your average sedan will depreciate about 39% over its first three years of life, trucks (except Tacomas, as you know) come in at 34%, and electric vehicles...about 52%.
Tesla is an exception in most cases, sometimes losing as little as 10% of its value in the first 3 years. Why? Tesla is a specialist EV manufacturer, not just a Nissan Leaf. They’re also a bit of a pioneer despite not being the first EV on the road. When you think of electric vehicles, you think Tesla. All of this translates into a valuable brand and high demand.
Why do most EVs depreciate so much though? Well, it’s multifaceted. First consider the fact that EVs often bring very nice tax advantages with them, with the federal tax credit for 2020 reaching $7,500 for all models except Tesla and GM. This effectively lowers your cost-basis for the vehicle, turning what seems like a 50% drop from MSRP into a much more reasonable dip.
Aside from the cool tax benefits though, there are some harsh realities that play into the depreciation of EVs. Consumers are generally less knowledgeable and confident in the reliability and longevity of EVs, even despite the fact that they’re much simpler than gasoline-powered vehicles. Replacing batteries or cells in EVs is also an expensive repair, and not something that can just be done by any regular mechanic—that factors into lowering demand and increasing skepticism.
These things noted, whether an EV is a good investment for you or not, is a situational assessment. If you live in a location that doesn’t have the charging infrastructure or doesn’t have the requisite technical expertise necessary for maintenance, an EV is not a good investment for you. If you enjoy the idea of adopting new technology, can charge it yourself, and either “know someone” or is that "someone" who can maintain your EV, then pulling the trigger on the right model could be a good investment for you. At least now you know what factors to consider.
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