Regular readers of this column may remember that I have said in the past that the market for electric cars would probably have two separate take-off points ñ one, a surge in demand as large numbers of buyers start to understand the advantages of electric power and the cars become more practical, the second a ramping up of production to meet that demand.
The problem with having two take-offs is that it was always very unlikely that they could be synchronised. In particular, it was clear that any big increase in the production of electric cars was probably going to lag significantly behind demand. Making more electric cars depends on large new investments in areas such as battery production that take years to implement, and manufacturers and their suppliers were always going to be reluctant to spend that money until they could see clear evidence that any increase in demand was here to stay. The result was always likely to be a period of tight supply and firm prices as the manufacturers caught up.
And now, it is clear, we are beginning to see how the two-take-off scenario unfolds. Over the last year or so, there have been reports of supply shortages and waiting lists for several electric models, including the Volkswagen e-Golf, the Jaguar I-Pace and the Hyundai Kona, which has really taken the market by storm with its larger 64kWh battery option.
The manufacturers have responded, of course. A year ago, Volkswagen set in train plans to double its output of e-Golfs, while Tesla has been ramping up production of its entry-level Model 3
in an attempt to munch through its huge backlog of orders ñ but so far these moves donít seem to be enough to keep demand and supply in balance. This all raises a couple of questions. The most obvious of these is whether there is any point in the government continuing to provide an up-front grant of £3,500 to encourage people to buy a car like the 64kWh Kona that costs over £35,000 and is already selling like hot cakes. Surely all that does is make the waiting list longer?
Another interesting aspect of the tight supply for new models is the impact on the values of used electric cars. Early on, electric vehicles did depreciate faster than petrols and diesels, probably because car buyers are a conservative lot, and were slow to embrace a new unproven technology. Back in 2010, one of the tradeís residual value guides was prophesying that the first electric cars could be almost worthless second hand if sold without special warranty cover or a separate battery lease, because the battery packs would only last eight years and cost £8,000 to replace. A five-year-old Nissan Leaf without such warranty support was forecast to be worth just £3,000.
As we now know, that was an over-gloomy forecast, but used electric Nissans and Renaults experienced years of soft prices as the market went through its early growing pains. But the residual values on these early electric cars do now seem to be firmer than they were a year or two ago, and itís interesting to consider why this may be the case.
My previous expectation was that the arrival of newer electric models with improved range would cause buyers to shun the earliest cars, and that their values would fall further. In fact, I suspect the opposite is happening. It looks as if a rising level of interest in electrification may be starting to benefit the values of these older cars as well. With a long wait for a new £35,000-plus 64kWh Kona, a used £7,000 Leaf or Zoe thatís available right now is an attractive low-risk interim buy for anyone interested in giving electric a go. I think there is also likely to be a much stronger floor in future, as more buyers begin to understand the attractive operating economics. Electricity is much cheaper than petrol or diesel, and servicing costs are less too. Throw in zero Vehicle Excise Duty and even low-mileage drivers could be looking at an annual cost advantage of £1,000 or more. That saving is bound to be capitalised on in the asking prices for second-hand EVs as awareness grows.
The long and the short of it is this: donít expect new electric cars to get much cheaper in the immediate future ñ and donít expect any remaining used bargains to hang around for much longer either.