Buyers can get some great deals, but some say it is yet another sign that

demand is faltering.

Low resale value could also be a major deterrent to EV purchases

and EV adoption more broadly.

Others say it is just a blip and fears of an EV slowdown are

overblown. Studies show that used EV prices fell somewhere around

30% in September and October 2023, from the same period in

2022. Used vehicle prices overall saw declines in the mid single

digits for that time period.

The mainstream appeal of these cars is still not there.

They're still too expensive and they've got too many limitations in terms of how

you use them. People are broke, interest rates are high.

The demand for EVs is not the issue, it's the affordability.

Some research indicates what many EV supporters insist: EVs are

cheaper to own than gasoline burning cars.

You don't have to shell out for gas, and maintenance costs are lower, but a

car's residual or resale value is a big factor in determining the total cost of

owning it. The volatility in the used EV market shows how much isn't yet known

about EVs, including how to predict what one will be worth in a few years

. A single change to policy, battery technology, even a single manufacturer's

prices can upset the whole market.

These price drops come at a time when many other data points suggest EV demand

is stalling. New EVs are collecting dust on dealer lots.

Tesla, which controls nearly two thirds of the EV market, has been aggressively

cutting prices and its third quarter deliveries fell short of investor

expectations.

Let me give you this general thought that I hear from everybody in this

business, including people at Tesla.

This is still new.

CNBC looked at data and talked to insiders to determine whether used EV

prices are a sign of a larger slowdown in the EV market, or a bad investment

altogether.

One study showed that all used vehicles up to three years old lost

4.8% in value from September 2022 to September 2023,

but EVs specifically fell 29.5%.

Another show that from October 22nd to October 23rd, the

average price for 1 to 5 year old used EVs dropped

33.7%. Meanwhile, used car prices only fell

5.1% in the same period.

A third showed they had fallen about 32% from September 22nd to

September 23rd.

That study said the average EV price as of October 18th was

$27,863, roughly the same as what it was in early

2021. Some research indicates EVs have the worst depreciation

rates of any vehicle type, including, by a narrow margin, big value

losers like luxury vehicles.

Hybrids are doing extremely well in holding their value and EVs are doing

extremely poor.

Why is that?

Because when you buy a hybrid, what do you get?

You get much higher fuel efficiency and a higher fuel price.

World we live in and zero range anxiety.

That's a powerful, desirable combination.

The trouble is not limited to the used market.

In January 2023, new car dealers had about 52 days worth of

EVs and internal combustion cars, but internal combustion

inventory held pretty steady between 52 days and 58 days throughout the year,

while EV inventory soared to 111 days in early July,

then settled at 97 days by October.

These numbers have fueled concerns that demand for EVs is waning, but not

everyone agrees.

There has been a fierce debate over what's actually happening.

There's been this wave of what I would call pretty misleading headlines over

the last few weeks, like you would think that EVs were dead and buried if

you paid attention just to what the news headlines were.

Scott Case is CEO of Recurrent, which creates vehicle history reports

specifically designed to measure EV battery life.

It also publishes the Recurrent Price Index, which tracks used EV sales.

That index is among those showing prices have fallen dramatically.

If you wanted to say what's the single biggest cause of used EV price

drops, it's Elon Musk.

Tesla controls about 60% of the new EV car market, and in

2023, the company started a price war that drove a lot of

customers who would buy used EVs toward new ones, especially Teslas.

It also forced a lot of other manufacturers to lower their prices as

well, and the timing corresponds pretty tightly with the Tesla price drops.

Many of the 2022 models were current tracks depreciated 20 to 40%

over 2023.

Nobody's going to pay the same for a used car as they would for the new

alternative. So you saw an immediate drop in used Tesla

prices, which then was followed by a like a time delayed

drop in the used prices for Tesla competitors.

In other words, plummeting EV values don't reflect some kind of inherent

problem with EVs, just the fact that consumers who might otherwise buy used

are opting for new Teslas instead.

In addition, 2023 is the three year anniversary of the Tesla Model Y,

which in the third quarter of the year was the best selling EV in the US.

Three-year-old cars are a kind of benchmark in the used market.

Leased vehicles are often held for a period of three years, and a large share

of the cars on the used market are vehicles coming off lease.

Recurrent has found that on average, new EV owners hold on to their cars

for about 3 to 4 years before selling.

That means a lot of 2020 Model Y's are entering the used market.

Driving up inventory.

2018, 2019 was just an incredible step up in new EV

production in the US.

Tesla, but other manufacturers as well.

And so that's what we're now seeing, kind of come on to the used market at

scale.

Used EV sales now outpace the sales of all new EV models except the

model Y, and dwarf the sales of most of them.

They do, however, make up only a tiny share of total used sales, about

1%. Finally, new federal tax credits kicked in in 2023.

These replaced the EV credits that had been in place since 2009.

The original plan offered buyers a $7,500 credit for each of the first

200,000 EVs a manufacturer sold.

The new credits offered the same amount of money, but introduced a few new

conditions centering on the price of the vehicle, the buyer's income, battery

capacity, and where the car is assembled, among other things.

January 1st of 2023.

The $7,500 tax credit appeared on the scene for new

cars, so the immediate impact was essentially dollar for dollar

$7,500 decreases in used prices like right at January

1st for any car that was sort of getting eligibility for this new

credit.

In April 2021, there were about 11,000 used vehicles on US dealer

lots and on dealer or manufacturer websites.

That doesn't include private sellers.

By October 2023, there were three times that.

Two concepts to keep in mind.

Residual value is what a car is expected to be worth at the end of some

term a lease, financing period, subscription rental, or something

else. It is often based on the price the car would be expected to fetch on a

wholesale market like a dealer auction resale value is what a car is

likely to be worth once you sell it on the retail market.

Used EV prices matter because residual value and resale value

are factors in determining the total cost of owning a vehicle.

Tesla has long argued that its cars have a lower cost of ownership than

comparably priced internal combustion vehicles.

When you include gas prices, which EV owners don't have to worry about, and

maintenance costs, which tend to be lower as EVs have fewer moving parts.

Calculating cost to own is complex and varies tremendously depending on

insurance costs, gasoline prices, and electricity rates, among other things.

In its 2023 five year cost to own rankings, Kelley Blue Book said the

Tesla model three had the lowest cost of ownership in the luxury car category.

The also electric Polestar two came in second.

What matters is that this idea that we're going to all be driving electric

vehicles in a relatively short timeframe: 3, 4 or 6 years, this

latest six months, and what's gone on with electric cars really puts that

into question. In my mind.

The reality is that EV sales growth, both on the new and the used side, is

vastly outstripping combustion engine sales growth.

Case cites several statistics from September 2022 to September

2023. New US vehicle sales on the combustion side rose 13%,

new US EV sales rose almost 60%.

Sales of used EVs were up 40%, used combustion cars

fell 2%.

But skeptics say that doesn't cover the full story.

Remember, there are three types of lies lies, damned lies, and statistics.

On the one hand, sales are growing, but in the new market it is taking longer to

sell an EV than a gasoline car.

And in the used market, prices are falling more dramatically.

Elon wanted to hit a certain sales each of his quarters this past year, and he

was dropping his prices to do that, and he still didn't hit his sales.

What do falling prices and not hitting your sales goals mean?

They mean people are not buying the cars at the rate that you thought they

would.

EV sales are not growing uniformly across the country.

Some evidence suggests that states with the highest share of EVs like

California, Oregon and Washington are also the slowest growing markets.

Brauer says there might be a kind of natural ceiling for EV demand somewhere

between 7 to 10% of the market, but other data suggest EV sales are still

growing steadily, In many of these places.

EVs tend to cost more than gasoline counterparts, even with Tesla's price

cuts and EV subsidies for at least some models, new EVs often have higher

sticker prices.

Public charging is something that people worry about.

If I don't have a Tesla, where am I going to charge it?

La la la. Well, you know something?

Somewhere between 70 and 75% of people just charge at home.

Most of the time.

I think people and the government need to embrace the

reality that electric cars have some advantages, and they can serve a role

in personal transportation.

They cannot be the solution and serve the role in personal transportation

until some big problems are solved.

In 2024, what is now a tax credit needs to be filed on a tax return will

become a point of sale rebate, $7,500 on a new EV and

$4,000 on a used EV.

I wouldn't be at all surprised to see a coming surge in both categories

starting in January, when someone can basically get cash in their pocket right

at point of sale rather than having to wait.

You know what essentially would be 18 months to file their taxes and have a

reduction in their tax liability.

But for people who have bought a new EV in 2023, there might be another hitch to

pay attention to. Three years down the road, the terms for the $7,500 tax

credit on new EVs in 2023 were tightened considerably.

If you're buying an EV, you would have to fit certain eligibility requirements.

For example, the car has to be below a certain sticker price and assembled in

the US, among other things.

However, there was a workaround a manufacturer could still offer the

credit if the buyer leased the vehicle.

The lease rates on those cars have just absolutely skyrocketed this year,

which is the interesting sort of knock on effect in the used market, is that

means that three years from now, a ton of them start showing up

in the used market.

Skeptics like Karl Brauer think that more will really need to change before

the used car market looks more like its internal combustion counterpart.

So they need to cost as much as combustion engines.

They need to travel as far as combustion engines, and they need to

refuel as quickly as combustion engines.

When EVs can do those three things, why would you not buy an EV?

In addition, larger economic factors like high interest rates would need to

change.

The factors that are in place, which is a budding oversupply of

new EVs, which is making them less valuable and pushing their prices down,

and economic concerns and high interest rates.

I don't see any of those changing in the next few months, so there's no

reason to believe in the near term at least, that you would suddenly see a

reverse in used EV pricing.

A spike in gas prices could also spur demand, but under certain conditions,

interest in hybrids and EVs tends to rise when gas prices are rising, but

level off when prices settle, even if the price is high.

Understanding the used EV market and EV depreciation presents serious

challenges. First, the dataset is small.