Residual values of pure electric vehicles in the UK. Subscribe to Electric Vehicle News Bitesize Podcast for FREE to hear more!
The UK used car market returned to seasonal normalcy in January as demand increased. Despite a slow start to the month, wholesale activity picked up as the month progressed. Glass’s valuation team observed an auction conversion rate approaching 80%, which is unusual in 2022.
With the exception of BEV, demand was strong in January for most fuel types. According to Autovista Group’s monthly market update for January, there appears to be a sharp increase in the number of pre-owned BEVs. The Active Market Volume Index, which monitors retail auto sales, showed a 41.7% increase compared to December 2022. Compared to January 2022, that’s a staggering 700% increase.
It is no surprise that more and more BEVs are entering the wholesale channel. The pace of growth has been rapid and has coincided with attractive benefit-in-kind rates, prompting many corporate car drivers to switch to electric vehicles.
Registrations of all-electric vehicles rose again last year despite a controversial parts shortage that has caused significant delays in new car production. Manufacturers continue to prioritize production of their electric models because it helps them meet stringent and potentially costly emissions targets.
The used car wholesale market has seen a large number of BEVs that were registered in late 2019 and 2020 and are coming off lease. In 2020, BEV registrations increased by approximately 186% compared to the previous year. This rapid growth continues, meaning BEV Residual Values could come under additional pressure if demand for used Residual Values fails to keep up with supply.
The Residual Value performance of BEVs has already suffered in January due to the recent increase in sales. The last quarter of 2022 was also bad, so values have fallen sharply in recent weeks. The average price of a three-year-old BEV in January was 59% of its original new price, down 6.6% from December.
BEV values are fairly high throughout 2022. BEVs are benefiting from increased interest from private customers and companies looking to avoid the year-long wait for new models. Values started to increase significantly, although they have been on a steady upward trend since February 2021.
BEV values may be about to be corrected, but as a percentage of new prices they are only slightly below average. At three years old, the value was 4.9 percent higher than in January last year.
Looking ahead to 2023, the outlook for the UK economy is worrisome given the general performance of Residual Values. Consumer confidence seems certain to be affected by the ongoing cost of living crisis and the Bank of England’s recent 0.5% rate hike. That makes the tax rate 4%, which will be an unwelcome development for many.
However, March marked the third anniversary of the start of the COVID-19 lockdown measures in the UK, which marked the beginning of a major disruption in new car registrations and severe shortages in supply. In 2020 alone, there are about 680,000 fewer cars registered than in the year before the pandemic. The knock-on effect for the used-car market this year will be that fewer models enter the wholesale channel when three-year contracts expire.
Glass expects that while lower consumer confidence could hurt demand, used car restrictions could make supply and demand dynamics fairly balanced, providing some protection for value. However, used car prices remain firm, with the average value of a three-year-old car rising about 30% in 2021 and falling just 2.5% in 2022. Glass’s expects the average value of a three-year-old car to drop by around 5% by 2023, so prices are still relatively high. However, the BEV value may drop further.
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