The Electric Vehicle Price Plunge: A Growing Concern for Dealerships
As the world shifts towards a more sustainable future, electric vehicles (EVs) have become increasingly popular. However, a worrying trend has emerged: plummeting EV prices are leaving drivers in negative equity, causing headaches for dealerships.
A Perfect Storm of Depreciation
The steep drop in EV values is largely fueled by manufacturers’ aggressive discounting to meet government targets. This, combined with supply constraints and subsequent price hikes two to three years ago, has resulted in a significant depreciation of EVs. According to Rob Forrester, CEO of Vertu Motors, “Battery electric vehicles have depreciated at a significant rate, creating negative equity.”
The Consequences of Negative Equity
In most car finance deals, drivers can simply hand back the keys and walk away if their vehicle’s value drops below the loan amount. However, dealerships often allow customers to roll over positive or negative equity into new financing deals to retain repeat business. This is where the problem lies. With EVs depreciating at an alarming rate, dealerships are left to absorb the financial hit.
A Warning from Fleet Operators
Last month, fleet operators, such as car leasing firms and rental companies, sounded the alarm about the exceptional depreciation of EVs. The British Vehicle Rental and Leasing Association (BVRLA) reported that the average residual value of EVs had plummeted from 60% to 35% over the past two years. This means a car worth £50,000 new would drop to £17,500 in value over three years, instead of £30,000.
The Impact on Dealerships
Vertu Motors has warned that rising instances of negative equity could hurt forecourt profits. The company’s CEO, Rob Forrester, expressed concerns about the growing number of drivers stuck in negative equity, saying, “We’re seeing a significant increase in negative equity, which will ultimately affect dealerships’ bottom lines.”
A Shift in Priorities
As car manufacturers prioritize electric models over petrol and diesel cars, dealerships are feeling the squeeze. Vertu Motors reported that EV sales had increased 10% in the six months to August, while private sales of EVs dropped 7% industry-wide. Despite this, the company’s profits slumped from £37.8m to £23.5m.
The Road Ahead
As the electric vehicle market continues to evolve, dealerships must adapt to the changing landscape. With negative equity on the rise, it’s crucial for dealerships to reassess their financing strategies and find innovative ways to retain customers. One thing is certain: the electric vehicle price plunge is a trend that won’t be slowing down anytime soon.
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