Electric vehicles present a fascinating paradox in the automotive market: they’re simultaneously the future of transportation and some of the fastest-depreciating vehicles on dealer lots. This contradiction has created what industry experts call the “EV resale value puzzle”—a complex web of factors that makes predicting electric vehicle depreciation unlike anything the automotive industry has experienced before.

The Stark Reality of EV Depreciation

The numbers tell a sobering story for electric vehicle owners. Recent data from iSeeCars.com shows that the average price of a 1- to 5-year-old used EV in the U.S. fell 31.8% over the past 12 months, equating to a value loss of $14,418, compared to just a 3.6% decline for comparable internal combustion engine vehicles.

This depreciation rate significantly exceeds traditional automotive norms. According to iSeeCars, the average five-year depreciation rate for electric cars is 49.1%, compared to the industry average of 38.8%. Some models fare even worse—studies comparing the Hyundai Kona Electric and Ford F-150 Lightning to their gasoline counterparts found that EVs depreciated by $15,305 and $15,738 respectively, while their ICE versions lost $9,795 and $13,981.

The depreciation crisis has become so pronounced that it’s affecting everything from lease residuals to manufacturer strategies. In Ireland, used EV prices dropped by 15% year-over-year in 2024 due to increased supply and aggressive new-car pricing strategies.

Why EVs Are Depreciating So Rapidly

The Technology Treadmill Effect

Unlike traditional vehicles where improvements are incremental, electric vehicles operate in a landscape of rapid technological advancement. EV technology is still in a stage of relative infancy, meaning that many electric models fall victim to rapidly developing technology and get left behind quicker when newer models offer longer ranges and faster charges.

This creates a “technology treadmill” where each new model year can make previous generations seem obsolete. A 2020 EV with 250 miles of range can quickly appear dated when 2024 models offer 400+ miles of range and faster charging speeds.

Market Oversupply and Pricing Wars

The EV market has experienced significant oversupply relative to demand, creating downward pressure on both new and used vehicle prices. According to iSeeCars analyst Karl Brauer, “overproduction of EVs relative to demand has created excessive supply, making it unlikely for new and used EV prices to rebound in the near term”.

Tesla’s aggressive pricing strategy has been particularly influential. Dramatic drops in used electric vehicle values have largely been driven by aggressive price cuts by Tesla amid a broader price war in the EV market. When the market leader repeatedly cuts new vehicle prices, used vehicle values inevitably follow.

Battery Anxiety and Replacement Fears

Perhaps no factor influences EV resale values more than concerns about battery longevity and replacement costs. The $22,500 estimate to replace a 2013 Tesla Model S battery was so prohibitive that one Finnish owner strapped 66 pounds of dynamite to his car and blew it up on YouTube, highlighting the dramatic impact battery replacement costs can have on vehicle economics.

While such extreme examples are rare, they underscore legitimate concerns about battery degradation over time. Tesla claims its batteries will retain at least 70% of charge over eight years, but a report from battery-data firm Recurrent studying real-world driving found that Tesla batteries degraded on average to 64% of their EPA-rated capacity over three years.

Government Incentive Complications

The complex landscape of EV incentives creates additional depreciation pressure. Electric cars are subject to different incentives like government grants which in some cases can persuade people to simply buy new, therefore lowering the demand for used EVs. When new EVs are heavily subsidized, used vehicles lose their competitive advantage.

For example, in some countries, a Tesla Model 3 is up to €8,524 cheaper than a Toyota Corolla due to subsidies, while in others, it can be as much as €6,590 more expensive. These varying incentive structures across markets create unpredictable impacts on resale values.

The Light at the End of the Tunnel

Rapidly Falling Battery Costs

The most promising development for future EV resale values is the dramatic decline in battery costs. Since 2012, battery prices have fallen from over $400/kWh to $111/kWh by the end of 2024. Goldman Sachs predicts prices will continue dropping to $80 per kWh by 2026—almost 50% lower than 2023.

This trend has profound implications for battery replacement economics. Recurrent predicts that plummeting new-battery prices will make replacing a battery pack cheaper than repairing a gasoline engine by the end of the decade. Estimates suggest that cell prices could reach $35 per kWh by 2030, bringing the replacement cost of a 100 kWh battery to $4,500–$5,000.

Improving Battery Longevity

Real-world data is proving that EV batteries last longer than initially feared. A survey of 20,000 EV owners found that only 2.5% of batteries had been replaced outside of manufacturer recalls. This suggests that battery degradation concerns may be overstated, potentially improving future resale confidence.

Market Maturation Effects

As the EV market matures, some brands are beginning to show better residual value performance. Premium brands like Mercedes-Benz, BMW and Tesla boast strong residual values. The Mercedes-Benz EQC holds around 65% of its value after three years, while the Tesla Model S Performance retains 60%. The Porsche Taycan leads the pack, expected to hold onto 77% of its value.

The Silver Lining for Buyers

The Used EV Opportunity

While depreciation creates challenges for new EV buyers, it represents unprecedented opportunities for used car shoppers. Previously, EV buyers had to decide between new EV tax credits or somewhat lower used market prices. Today, the savings from used EVs exceed even the most generous new EV incentives.

A search of Edmunds.com finds numerous 2021 Model Y Long Range models ($50K when new) with 70,000-80,000 miles for the same $25K price as a new 2024 Chevy Trailblazer. This price convergence makes premium electric vehicles accessible to mainstream buyers.

The Leasing Alternative

High depreciation rates make leasing particularly attractive for EVs. Lease rates for battery electric vehicles jumped from 36% in Q1 2024 to nearly 50% for the next three quarters, with non-Tesla EVs reaching nearly 70%. Leasing transfers depreciation risk to manufacturers and allows consumers to experience the latest technology without long-term ownership concerns.

Looking Ahead: The Resale Value Future

Upcoming Supply Wave

The used EV market is about to experience a dramatic expansion. In 2025, roughly 123,000 leased EVs will return to the second-hand market. In 2026, that volume will more than double to 329,000 EVs—14% of all off-lease vehicles. This influx will likely continue pressure on used EV prices in the near term.

Technology Stabilization

As EV technology begins to mature, the rapid obsolescence that currently drives depreciation may slow. Battery technology improvements, while continuing, are becoming more incremental rather than revolutionary. Range increases are reaching the point of diminishing returns for most drivers, potentially stabilizing technology-driven depreciation.

Infrastructure and Acceptance

Growing charging infrastructure and mainstream acceptance should improve used EV demand over time. As more buyers become comfortable with electric vehicles, the market for used EVs should broaden beyond early adopters.

Strategic Implications for Buyers and Sellers

For New EV Buyers

Current new EV buyers face significant depreciation risk and should consider:

• Leasing instead of buying to transfer depreciation risk
• Focusing on brands with stronger residual value performance
• Planning shorter ownership periods to minimize depreciation exposure

For Used EV Buyers

The current environment presents exceptional opportunities:

• Premium EVs are available at mainstream prices
• Battery replacement costs are trending downward
• Many used EVs retain most of their practical utility despite depreciation

For the Industry

Manufacturers must address the resale value challenge to maintain long-term market growth. As more new car shoppers become aware of the massive drop in EV values, they will be less interested in buying new EVs. This could necessitate new warranty programs, battery upgrade paths, or alternative ownership models.

Conclusion

The electric vehicle resale value puzzle reflects the tension between rapid technological advancement and traditional automotive economics. While current depreciation rates are concerning for new vehicle buyers, they’re creating unprecedented opportunities for used car shoppers and driving innovations in ownership models.

The future likely holds better news for EV resale values as battery costs plummet, technology stabilizes, and markets mature. However, the transition period will continue to challenge traditional assumptions about vehicle ownership and depreciation. Understanding these dynamics is crucial for anyone considering electric vehicle ownership in this rapidly evolving landscape.

The puzzle may not have a simple solution, but it’s clear that electric vehicles are reshaping fundamental assumptions about automotive value retention—for better and worse.