Building a resale value for EVs will improve consumer confidence

India’s electric cars and two-wheelers have recorded growth rates of well over 100% year-on-year and predictions are that the country will have close to 5 crore EVs on road by 2030. This implies that since the average owner in India switches vehicles in about five years, soon the country will have a growing market for used EVs as well. India’s second hand vehicle market is expected to double over the next 5 years, and is already valued at $23 billion in FY 2021-22. Given the difference in technology from ICE vehicles, will used EVs find a place in this resale market? This is an important concern for consumers buying electric vehicles today, as most vehicle users in India prefer to sell their vehicles in second hand markets over scrapping them at end of life.

Factors that affect a vehicle’s resale value

Several data studies shows that the resale value of conventional vehicles is influenced by:

  • Make or brand - luxury vehicles from top-tier manufacturers naturally command a higher price.
  • Reliability - the easier the vehicle is to own, the more valuable it is and hence it commands a higher resale price.
  • Availability of spare parts - this ties in to reliability in the sense that reliable vehicles do not need to be repaired often, but can be when needed. Also, affordable and readily available spare parts make a used vehicle an easier asset to own.
  • Fuel efficiency - this is an important factor for practical customers who value the daily cost of ownership of a vehicle more than its brand value or creature comforts.
  • Ergonomics and comfort - the more comfortable a vehicle is to drive for an extended period, the higher its appeal to a potential buyer.
  • Depreciation rate - this is the rate at which insurance firms decide the actual value of a used vehicle and it depends upon the rate of wear and tear decided for each mechanical and plastic component. Vehicles with poor build quality wear faster and are appraised for much less than their competitors. The insurance premium for a vehicle is also a factor in its resale value and it depends on the cost of repairing a vehicle/component.

This is why vehicles built by Maruti Suzuki, Hyundai, Honda and Toyota in India tend to retain 70-85% of their value even after four years. They are fuel-efficient, (generally) well-built, comfortable to own and have easily-available spare parts.

A key difference with EVs at the moment is that, because their volume of sales are under 5% of India’s annual auto sales, insurers are reportedly uncertain on how to calculate their depreciation. The battery alone accounts for 50-60% of the vehicles’ value — which earns a flat 50% depreciation — and since they do not have many moving parts, their mechanical wear and tear is much less. So even though the vehicle itself may be roadworthy, a written-off battery pack may completely de-value an EV.

What manufacturers need to do to improve resale value of EVs

Yet, the above is more for the insurers. For customers themselves, what’s important is the ability to live comfortably with the vehicle. Thus, auto manufacturers must ensure that their EVs meet and exceed the customers’ expectations on the following when compared to ICE vehicles:

Battery life and safety
Auto manufacturers must ensure that the cost of EV batteries is lowered, and their safety record is impeccable. Batteries tend to account for up to 50% - 60% of an EV’s cost and most lose their capacity to hold charge (@ ~2.3% every year), which means that after around five years, the battery’s capacity is degraded by around 10%. This can be a deterrent for some used EV buyers, unless the cost of retrofitting the vehicle with a new battery pack can be lowered significantly. An alternative is battery swapping, but that will only become mainstream when the form factor for batteries is standardised across manufacturers.

India’s high ambient temperatures and stop-and-start traffic also demand that the batteries are cooled effectively. The country’s string of EV fires in 2021 and 2022 mean that EV batteries must be protected by on-board cooling systems under all operating conditions. The negativity that EVs have attracted over the fire incidents certainly are a cause for concern and the manufacturers must ensure that any repeats are avoided.

Access to chargers
The density of India’s EV charging stations is sparse, which tends to be a concern for those affected by range anxiety. At the end of 2022 the country had a mere 2,700 public EV chargers, compared to 50,000 in the US, 340,000 in the European Union and 1.8 million in China. This reflects in the country’s EV resale numbers too as a search for used EVs (e-cars) on — one of India’s most popular used car websites — only returns 85 results across India, vs. around 10,000 for ICE cars.

Interestingly, the majority of the e-cars listed are 2-3 years old, which may indicate that the owners are comfortable with either the vehicle's performance or its ownership. The country’s charger density is a clear area of opportunity for DISCOMS, governments and even the auto manufacturers to collaborate on, as making charging points as ubiquitous as petrol pumps will eliminate range anxiety.

After-sales support
India’s after-market support for EVs, in the form of independent garages that have the expertise to work on high-voltage li-ion batteries, battery management systems and induction motors is yet to go mainstream. This is a critical component as once a vehicle is past its manufacturer warranty, servicing and repairs tend to be expensive at authorised dealerships.

The ICE vehicle ecosystem has an inexhaustible supply of independent garages that are popular alternatives, despite several of them employing unskilled technicians. So it’s important for EV manufacturers to invest in skilling programs that build India’s capacity for after-market EV services.

Growing interest in EVs

Despite all shortcomings EVs now account for nearly 17% of new vehicle sales in Delhi. Clearly, there is a significant shift in the customers’ minds and the cost-parity for e2Ws may be reached as soon as 2025. Combined with the vehicles’ low total cost of ownership, the access to used vehicles that retain 90% of their battery capacity will spark a change in EVs’ resale values.

Until that happens, though, it’s best for the Centre and the states to keep EV subsidy schemes alive and for the manufacturers to focus on delivering safer vehicles that drive longer distances. A final approach for the latter may be to offer free ownership of used EVs to select customers for 3-6 months and document their experiences for the wider audience. Positive ownership reviews from actual customers within the community would likely be a game-changer for the yet undecided buyer.