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In the resale market, EVs are doing better. But that's only half the story
Summary
- The Tata Nexon EV, a popular choice among Indian consumers, has seen its depreciation rate drop from about 51% in 2020 to 26% in 2023. Low resale value, range anxiety and inadequate charging infra have slowed the EV advance, despite a policy push towards clean mobility globally
New Delhi: Electric car buyers have long nursed a grievance: Poor resale value of zero-emission vehicles, compared to their combustion-engine cousins. However, while electric vehicles (EVs) worldwide are seen to lose half their value within a year, the Indian market is flashing signs of promise, potentially encouraging more buyers to go electric in the days to come.
A low resale value is one of the reasons—apart from range anxiety and inadequate charging infrastructure—why EVs haven't been able to make deeper inroads despite a policy push to clean mobility globally.
New data accessed by Mint shows that the depreciation rate—the rate at which a product loses value—of electric vehicles entering the used-car market is slowing down, with some models holding onto their value better than expected. The Tata Nexon EV, a popular choice among Indian consumers, has seen its depreciation rate drop significantly—from about 51% in 2020 to 26% in 2023, according to data sourced from auto intelligence firm JATO Dynamics. The Nexon EV is Tata's first electric car, and was launched only in 2020, which means the resale market for these vehicles, compared to the legacy internal combustion engine (ICE) vehicles, is relatively nascent.
Resale values are critical to car buyers because they directly impact the long-term cost of ownership, offering a cushion against depreciation losses and making the initial investment in a vehicle more financially viable.
Tata's Nexon EV accounts for the largest share of the used EV market in India (not including fleet models).
The devil's in the detail: EV resale values still lagging ICE vehicles
Despite a decelerating depreciation, there is a crucial caveat that customers perhaps need to be wary of. EVs in India are still depreciating faster—twice as fast—than their ICE counterparts. While the depreciation rate for Nexon EV fell considerably in 2023, it still remains nearly double that of its petrol and diesel siblings. Compared to a value-erosion rate of 26% for the Nexon EV, its petrol variant depreciates by 13.84% a year and diesel version by 14.86%.
“The used EV market is likely to closely mirror the new EV market with a lag of 3-4 years, as early adopters upgrade to longer-range and more advanced EVs," a Tata Motors spokesperson said. “We expect to see increasing volumes of used EVs in India over the next 2-3 years developing their own customer base. Used EVs will continue to have a strong value proposition for those who would prefer to try a lower-cost EV to experiment and understand their use case benefits better before buying a new EV. Budget-constrained customers with high running use cases will also opt for them for their inherent low running cost and assurance of the residual powertrain warranty period. As more people start installing solar rooftop panels, owning an EV will become even more beneficial," the spokesperson said.
Nexon EV starts at ₹14.49 lakh, while its petrol variant starts at ₹8 lakh.
“Right now, the secondary market for EVs is still developing. With the limited data available, we see higher depreciation in EVs compared to their ICE counterparts. The residual value (resale price as a percentage of the original invoice value) is 70% to 80% of similar ICE models after three years. The main reasons are nascent technology and the drop in EV prices relative to ICE vehicles," Mohammad Turra, CEO of Mahindra First Choice, the Mahindra Group's used-car business, said.
Also read: Tata Motors aims to match ICE rivals’ prices to revitalize its EV sales with new Curvv SUV
“However, as the EV market matures and more used EVs become available, along with better financial offerings, we expect this gap to narrow," he told Mint.
Ravi Bhatia, president of Jato Dynamics India, agreed.
“As more EVs enter the used-car space, it could make electric mobility accessible to a broader range of consumers who may have been priced out of the new EV market. Additionally, stronger resale values could encourage more consumers to consider EVs for their next vehicle purchase, knowing that their investment may hold its value better than previously thought," Bhatia said.
Opportunity for fleet buyers?
Even though EVs in India are better able to retain their resale value, the global scenario is far from encouraging.
A prime example is Hertz, an American car rental giant, which had invested $4.2 billion in purchasing 100,000 Teslas in 2021. When Tesla dropped the prices of its EVs by $2,000 in a single day, Hertz found itself saddled with massive depreciation losses. The Florida-based company reported a $706 million increase in vehicle depreciation in the second quarter of 2024, sending its shares lower.
In India, however, the slowing depreciation is creating profitable opportunities for fleet owners. Anmol Jaggi, co-founder of BluSmart, which operates India’s largest all-electric cab service, highlights the potential in the resale market: “We leased our Tata Xpres-T cars at a 10% residual value assumption, but we’re now fetching close to 26% in the resale market. This allows us to pay off the residual value to the leasing company and even make a profit on the resale of the cabs, which are mostly sold to tier-2 and tier-3 towns," he told Mint.
It is worth noting, though, that lessors pay a higher rent on their lease if the depreciation value of EVs is assumed to be as low as 10%.
Also read: Lenders feel the heat of slowing car sales
Stronger residual values could lure more buyers into the EV fold, especially those looking for affordable alternatives in smaller cities and towns where the used-car market is more robust.
Rapid technology advances
One of the biggest factors driving the rapid depreciation of EVs is the relentless pace of technological advancement. Newer models with superior technology and extended ranges make older EVs less attractive, pushing their prices down. This phenomenon is exacerbated by occasional price drops for new EVs, which further erode the value of used ones—mirroring a pattern seen with Tesla.
“Recent sales data show fluctuating prices and increasing discounts for the Nexon EV, indicating potential market challenges. The slowing of new EV sales suggests that consumer adoption may be facing headwinds. The used EV market may offer opportunities, but the risks remain higher. Factors like charging infrastructure and range anxiety continue to impact EV adoption, and while the market is evolving, it's premature to claim it has fully matured or overcome all obstacles to widespread adoption in India," Bhatia said.
