Guest Contributor: Creditplus, An e-zoomed Partner
Alternatively-fuelled vehicles, such as plug-in hybrid electric vehicles (PHEVs) and battery-electric-vehicles (BEVs), are well on their way to holding 10% share of the UK fleet market. More remarkably, BEVs saw a 158% year-on-year increase in July, whilst diesel sales suffered a 22% decrease. With infrastructure growing to keep electric vehicles on the road for further and longer, demand is unlikely to slow down, but if you’re looking to make the transition to zero-emission driving, when and how might be questions worth answering.
Residual values of electric cars
It’s a truth of life that new cars depreciate exponentially within the first year, often loosing 20% of their value. When the car reaches five years old, it could be worth half what it cost to drive it offthe forecourt. Despite the marketing sheen, electric cars are no different – and some say the evolving technology is causing EV’s to depreciate faster than internal combustion engines (ICE).
Whilst residual values are based upon a variety of factors – from popularity of the brand, how old the model is, known mechanical issues and maintenance costs – electric cars also have to contend with a lack of public knowledge about how they work in day-to-day life and the misnomer of battery degradation.
Since both electric and hybrid models started gaining traction in 2013/14, there has been a vast escalation in government and private sector attention. There are now more charging locations than petrol station pumps, and models will comfortably do over 150 miles on a single charge.
Battery life causes uneasiness in even the most seasoned car buyer, and with only a few years of data to provide meaningful analysis, there is no shortage of speculation on battery degradation. In a bid to curtail anxiety, manufacturers offer strong warranties on the battery, from 60,000 miles/5 years for a Nissan Leaf to an 8 year/unlimited mileage pledge from Tesla.
In one New Zealand study, researchers found that the Nissan Leaf battery had 80% capacity remaining after 5 years of regular use – meaning the 168 miles of range when new would now be 134 miles.
Demand for alternatively-fuelled vehicles is outstripping supply and with it increasing the used car price by up to 10%. As mentioned, the value of most cars will reach 50% by the fifth year, but popular EV’s such as Tesla Model 3 and Jaguar I-Pace are over indexing by several percentage points, especially compared to their diesel competitors. To some, this creates a catch-22 situation; despite electric cars showing strong residual values after 3, 4 and 5 years, the barrier to entry for consumers is higher than ever, but a slash in prices would slash demand as depreciation woes put buyers off. However, with an array of financing options for used and new vehicles, a greener driving experience might not be out of reach.
Financing the future
Let’s take the Nissan Leaf as an example – seeing as 38,000 of them were sold in Europe last year alone. A 2017 24kWh Acenta model is currently available for around £12,000 on classified listing sites, with mileage under 15,000.
In the last decade, PCP, or Personal Contract Purchase, has ascended to be the most popular method of buying cars. Instead of paying for the whole vehicle over a set length, you pay for the depreciation of the vehicle over the time you’re driving it. At the end of the agreement, you either pay the Minimum Future Value (set by the finance company at the start), hand back the keys, or part-exchange towards another vehicle. The popularity of PCP could be attributed to its low monthly payments which allow drivers to get behind newer, or nicer, cars for less and the flexibility at the end of the agreement compared to other methods of finance.
Our example Nissan Leaf has a cash price of £11,700. With a £1,000 deposit, the 48 monthly payments could be £189.56 (at 8.9% Representative APR and 10,000 miles a year). At the end of the 48 months however, there would be a balloon payment of £4,433.78 if you wished to keep the Nissan.
Alternatively, car leasing can provide a similar scenario, where monthly payments make buying a new car easier to plan and budget for. Leasing companies also regularly offer maintenance packages which can further reduce the burden of running a car and at the end of the agreement you simply return the car with nothing left to pay (providing the car is returned in an acceptable condition and you have not exceeded your mileage limit).
A brand-new Nissan Leaf, on a lease i.e. Personal Contract Hire, is available from £361.62 per month with a £1084.87 deposit and 10,000 miles a year limit. Over the 48 months, maintenance is also included, effectively covering everything except insurance and fuel.
Some car buyers favor a simpler product, which gives you ownership of the vehicle at the end of the agreement. Hire Purchase splits the cost of the whole vehicle across several years with fixed interest rates – which is available to a range of credit backgrounds. There is no mileage limits or wear-and-tear policies as the car is yours after the final payment is made. This arrangement is good for buyers who know they are going to keep the car for longer than the finance term, or who drive above-average miles which would otherwise impact depreciation.
Buying the 2017 Nissan Leaf on a hire purchase agreement (with a £1,000 deposit and 8.9% Representative APR) could cost £264.02 a month for 48 months, with no mileage limits and after the 4 years the car is yours to keep.