As part of the investment research at Marcellus, we rely on a lot of field work, including meeting customers, preferably at the point of sale, to understand buying behaviour. For the auto sector it invariably involves a visit to a few dealerships. And we come across two recurring drivers of the preference for one brand over others – the mileage and the resale value. But how will these, especially the resale value, change once electric vehicles become the mainstay of auto sales? We can look to China for some early trends. In this piece for Rest of World, Indranil Ghosh reports from the world’s largest second-hand EV market.
China now has 44 million EVs on its roads. “This makes it the first country where EVs are aging in large numbers.” A three-year-old EV there now resells for about 45% of its original price, down from almost 55% in 2023. And the car hits a wall at year five: “About four out of five used car dealers in China refuse to accept a fully electric vehicle older than five years, over worries about battery life and replacement costs,”according to the International Energy Agency. This is not China’s problem alone. “The countries that have imported Chinese EVs will face the same valuation problem as the cars turn five.” As Bill Russo of the advisory firm Automobility puts it, “Exporting the car is the easy part. Building the ecosystem that supports its second and third owner is much harder.”
Why do EVs fall so fast? Partly vanity: they drop quicker in the lease and loan maths “because new buyers pay extra for the latest technology and for the statement the car makes about them – as much as they would for a luxury badge,” and “Used car shoppers are much more value-oriented,” says Karl Brauer of iSeeCars. Partly warranty: makers typically cover the battery for eight years or 160,000 km, and a replacement can cost a third of a new car, so every year eaten off that cover spooks the next buyer. “Customer interest drops significantly after the fifth year,” says Harsh Chaturvedi, an automotive consultant. “The fifth year therefore becomes an important psychological and commercial point in the used EV market.”
The deeper oddity is that dealers cannot reliably price these cars at all. “Two vehicles of the same age and mileage can potentially have very different battery health depending on how they were driven and charged,” says Mr Chaturvedi. “The market does not always have a simple way to reflect this difference in price.” His sharper point: “The biggest issue, in my view, is not simply whether an EV battery degrades. It is that the used car market currently has limited visibility on the actual condition of that battery.”
However, it does not look like all gloom, because the batteries themselves are holding up well. “An average EV loses just over 2% of its capacity every year, slow enough to leave most of the battery intact after a decade,” Geotab found in a January study of 22,700 cars; fast charging roughly doubles that. The horror cases are genuine outliers. Chaturvedi’s fleet of taxis from Indian carmaker Tata Motors, “driven up to 80,000 kilometres a year and fast-charged constantly,” lost “up to 8% of their capacity annually and half their value within 12 months.” Crucially, the fix is not exotic: “Checking a battery’s health is easy – any modern EV can report it through a standard diagnostic port, and third-party services now certify the result,” but “Used car dealers rarely ask for those readings.” The value is collapsing less because batteries are dying than because nobody insists on proving they are alive.
China, having recognised the problem first, has started to respond. Buyers increasingly ask for inspection reports before committing, and dealerships are investing in the equipment to run the tests. Abhimanyu Girotra, a Tesla owner in Dubai, already knows his own plan for the day his warranty expires – run the battery test, and if the number disappoints, sell. “Battery is everything for these cars,” he says.
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Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
