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Electric vehicles, hailed as the future of sustainable mobility, are steadily gaining ground in today's automobile market. However, the rise of EVs hasn't been without its challenges.
One of the pressing issues is the consistent decline in used EV prices, fueled by a concoction of factors from aggressive pricing strategies by market disruptors to technological leaps and the understandable apprehension regarding battery longevity.
But as the market evolves, so do its solutions.
Enter car subscription services – a potential antidote to the growing concern surrounding used EV valuations.
The Puzzle of Plummeting Prices
The electric vehicle market is evolving at a breakneck pace, and with evolution comes unpredictability. Few have felt this more acutely than fleet owners, who have been caught in the crossfire of sudden price shifts by major players in the EV industry.
Tesla, with its groundbreaking models, and BYD, known for its innovative prowess, have ushered in a new era of competitive pricing. As these giants continue to roll out new models with advanced features at lower price points, the shadow of depreciation looms large on older EVs.
While this dynamism has often been hailed for making electric vehicles more accessible to the masses, it has also brought with it unforeseen consequences for fleet owners.
Companies such as Onto and Autonomy, who invested significantly in Tesla vehicles, found themselves in turbulent waters when the value of their fleet plummeted almost overnight due to unexpected price cuts from Tesla.
Such rapid depreciation not only affects the resale value of the fleet but also puts immense strain on the financial stability of these businesses. For these fleet operators, a volatile pricing strategy can be the difference between profit and peril.
In stark contrast to the whirlwind pricing strategies of disruptors like Tesla, established automakers like Hyundai have taken a more measured approach.
Hyundai Europe's CEO, Michael Cole, made it clear at the Automotive News Europe Congress that the brand would not take a "knee-jerk reaction" in response to Tesla's price cuts.
"We have to give customers and financial partners consistency in pricing. That, in turn, enhances the residual value of the vehicle." said Cole.
The Subscription Model: A Silver Lining
In the midst of this predicament, the car subscription business model has begun to shine as a potential remedy.
Historically, in the automobile industry, the age of a vehicle has been directly proportional to its depreciation. However, when it comes to subscription models, this correlation seems to waver.
The Loopit VSU index unveils an intriguing trend: over 70% of vehicles utilized in car subscription services are two years or older. This indicates a refreshing change in subscriber sentiment.
Instead of seeking the latest models, car subscribers are showing a penchant for mildly used vehicles. The concern about having the newest vehicle with the latest technology takes a backseat, hinting at a major shift in consumer behavior.
For fleet operators, particularly those eyeing the expansive possibilities of EVs, this changing paradigm can be a game changer.
Octopus Electric Vehicles is now offering drivers access to second-hand EVs via salary sacrifice, cutting the cost of going electric by up to half.
“Used cars make up more than four out of five car sales in the UK, and so to reach net zero transport, we need to build a strong second-hand market for electric cars. As with all tech, the early models are expensive but with a growing fleet of second-hand cars, you can now run one of these high-tech, green, fun cars for half the price of an old school gas guzzler.” said Fiona Howarth, CEO at Octopus Electric Vehicles.
While the EV market grapples with the challenges of rapidly changing technology and residual value concerns, the car subscription model emerges as a beacon of hope.
By offering consumers flexibility, addressing battery life concerns, and promoting a sustainable approach to vehicle utilization, this model might just be the cushion the industry needs against the pressure of declining used EV prices.
