With the advent of EV and other new technologies, the automotive industry is experiencing a radical era of change. The first quarter of 2023 brought with it a turbulent period for the fledgling EV sector, as Tesla’s succession of price reduction announcements created waves within the market. Tesla’s actions (which it says is to “make their cars more accessible”) are still reverberating across the BEV industry, as an EV price war gains momentum. It is having an affect on new and used EV prices, especially those in the mid-range category.
And then there are new brands entering UK and European markets for the first time, bringing high standard specs and innovative EV technology with alluring retail prices. Chinese brands such as BYD, Ora/Giant Wall and NIO are just a few of the names that are poised to be serious disruptors in the EV space, this year and beyond. It is making the maturing EV sector more competitive, that’s for sure.
There are further factors too, that are making the EV industry have a stutter. While new technology is often exciting, it can also be unnerving. Naturally there is a degree of uncertainty surrounding EV technology. (Let’s not forget that hydrogen is being explored too as an alternative option, but is lagging at the moment. Toyota produced the first hydrogen car in 2014, and BMW and Honda have made it public knowledge that they are also actively exploring hydrogen fuel cell cars.) But getting back to BEVs, battery technology is still in its infancy, raising questions about longevity and reliability. Also, the EV charging infrastructure is evolving too slowly for many motorists, which is why hybrid (PHEV) is a popular compromise. And then, there’s the price of new electric vehicles, when compared to their conventional ICE counterparts, which have been prohibitive for some buyers.
This uncertain landscape is making electric car valuation more challenging than a traditional ICE vehicle, especially when it comes to forecasting depreciation and residual values.
Brego, using the most advanced AI and machine learning technology to ‘see into the future’, is taking a high-tech approach to current and future electric car valuations, with a data modelling solution that is making impressive headway in accuracy. Brego’s technology can even help value cars that don’t exist, without any historical data, supporting manufacturers during the concept car phase.
“The Platform our team has developed is truly unique in its ability to provide accurate valuations, real-time retail and auction data as well as technical, in-depth analysis into the market when looking at a vehicle valuation. We’ve aimed to solve this problem of vehicle valuations and analytics with a technology-first approach. We're all car lovers but at Brego’s core, it’s a tech company with some of the most advanced artificial intelligence the industry has to offer. Lenders, dealers, insurers and automotive businesses massively benefit from the more accurate valuations and vehicle data that Brego has to offer. This means more customers for our lenders, lower risk for our insurers and overall, more insights to allow customers to make informed decisions based on real-world valuations and not a finger-in-the-air guess.”
Let us look at the broader picture.
The Road to Net Zero
On the road to ‘Net Zero’, the clock is ticking for manufacturers and their suppliers, with demand continuing to grow as more motorists make the transition to either hybrid or all-electric vehicles. While many are making the switch for environmental reasons, other factors such as the cost-of-living crisis and fuel prices, as well as ultra-low emission zones are driving change. Benefit-in-Kind tax concessions (for company car drivers) and currently zero, or lower road tax, have proved powerful incentives too.
Currently, the UK government has its sights on banning the sale of new petrol and diesel cars in 2030, and hybrids in 2035. While agreeing with the sentiment, there is some controversy in the industry, and within different European countries (who have their own targets) whether this can be practically met. Germany has stated that it would not be setting such an early target for ICE vehicles. It raises the question whether other countries in Europe will follow suit. That said, car manufacturers have been set mandatory targets by the Government, and these include the percentage of how many zero-emission vehicles (ZEV) they sell from 2024 onwards, increasing up to 2030. ZEV mandates are in force around the world.
The dynamics of the automotive industry are certainly changing, which involves a new way of thinking, including the use of new recyclable materials, and new components; the latter rippling out to the supply chain. New concepts, new technology and autonomous driving are opening up new supply opportunities as they car manufacturers deviate from traditional components, requiring employees with different skillsets too, who have specialist training. And this is going to take time, but it is widely expected that Europe will be the global leader in EV adoption.
The Impact of New EV Brands Entering the UK Market
No longer is the automotive an arena exclusively for the established global brands, as new names come to the fore. Cars, with their new technologies, have presented opportunities for a plethora of new start-ups in the UK and worldwide.
While new EV manufacturing start-ups are scarce in the UK (they require substantial financial backing, although there are names such as London-based Arrival who are making headway in the electric van and bus market, and LEVC for London black cabs) there are many progressive companies within the supply chain, such as those involved with batteries and electric powertrain development and other related components. And then there are many more new names involved with charging infrastructure. We shouldn’t forget hydrogen. Riversimple is a UK based company seeking crowdfunding, describing itself as “pioneering the next generation of zero emission vehicles that use hydrogen, not batteries and emit nothing but water.” You can add your name to the Riversimple Waiting List if you want one!
There are of course names entering the UK EV market that many consumers will not be familiar with, but have been around for a while, many being Chinese brands. BYD is a good example, a hugely successful global organisation, who enters the UK market with “pioneering battery technology” as they launch their all-electric BYD ATTO 3 C-Segment SUV to British consumers, with an enticing entry price. Other Chinese brands include Giant Wall’s Ora Funky Cat which made its UK debut in 2022, and NIO poised to enter the UK in 2023. And then there are many new sub-brands of well-known manufacturers, such as Polestar and Lynk & Co (part of Geeley, sharing the same family as Volvo and Lotus) and Genesis, who have committed to being fully electric by 2025; while being a standalone company, Genesis is a brand of Hyundai. Vietnamese auto maker, VinFast, is also gaining recognition, as well as the hotly anticipated launch of America’s Lucid Motors, deemed a rival for Tesla. There are many more in the electric truck and commercial van market; Rivian, Canoo being just two examples.
So, how is the car valuations industry adapting to these new brands, and new vehicles with very little, if any, historic data?
“Brego approaches the valuations problem very differently to our competitors. We look at the entire automotive market and take over 100 factors into each valuation, rather than looking at one individual car. So we can value these new brands as they come to the UK because we take every aspect of what makes up a new vehicle and model it with extremely powerful AI. ”
Electric Car Registrations in the Last 2 Years
While 2021 and 2022 brought a tidal wave of electric car registrations for UK motorists, the market appears to have decelerated (slightly) in the first quarter of 2023. The Society of Motor Manufacturers and Traders (SMMT) states that there were more electric cars registered in 2021 than in the previous five years combined. Electric cars accounted for 16.1% of all new car registrations in 2022.
Tesla’s Model Y (the SUV) was the best-selling electric car in the UK in 2022. The next 12 months will be interesting. Tesla cut its prices in 2023 by up to 20%, starting with the entry level Tesla Model 3 and the Model Y, which was reduced by up to £8000.
“Tesla dropping their prices was a shock and probably not what new Tesla owners expected to see. We saw Tesla’s in the used market take a drop in value following the announcement, the Model 3 dropped by over £9,000 in the space of 45 days; figures we don’t even see in the luxury car market where prices are significantly higher and the depreciation is expected to be more. This move from Tesla will impact the wider EV market as there’ll be more ‘affordable’ EVs for sale, but it shouldn’t cause a massive stir any more than the new manufacturers joining the scene will.”
Following Tesla Models Y and 3, the other ‘top 10’ best-selling electric cars in 2022 included the Kia e-Nero, the Volkswagen ID3, the Nissan Leaf, the MINI Electric, the Polestar 2, the MG5, the BMW i4, and the Audi Q4 eTron. (Source: SMMT)
Forecasting the most accurate residual values is an imperative requirement for the trade and car finance providers, where balloon payments at the end of PCPs come into play. Brego believes it offers one of the most advanced solutions, in terms of accuracy and scope of data.
“Our closest competitor states that “60% of the time, they’re within 10% of the value”. We conducted the same test, as close as we possibly can to replicating it and found that 84% of the time, we’re within 10% of the value. This is increasing every week as our AI learns more about the market with an expanding dataset.”
So, which electric cars have depreciated the most over the last 12 months?
Brego reports that the BMW iX took the largest percentage hit in depreciation from 2022 to 2023, with 29% of the value being knocked off in 12 months, followed closely by the Vauxhall Vivaro and Jaguar I-Pace at 22% and 21% respectively.
The new BMW iX, Jaguar I-Pace and Audi E-Tron and Lexus RZ are due to depreciate by a significant amount in the next 3 years - this is likely due to the supply of these vehicles - as we recover from the chip shortage, more and more EVs are being built and the large manufacturers have the capacity to create a lot of these models.
This obviously impacts used EV prices too, which continue to drop.
Brego says, “Buying a used EV can make economical sense, with the right reassurance about battery life, mileage, vehicle condition. Batteries have a finite lifespan and replacing an EV battery is an expensive outlay. But, the percentage of depreciation during ownership will generally be less than buying an EV from new.”
There are some EVs that are depreciating to a lesser extent. Brego sourced data indicates that electric cars such as Ford Mustang Mach-e and Porsche Tycan continue to hold better residual values.
For anyone considering an electric vehicle, there are different options that remove some of the uncertainties associated with ownership. Many in the industry would advise on leasing, contract rental or even car subscription over buying an EV outright.
Brego’s data-driven car valuation platform with AI is available as a web-based subscription service. It is used by car finance providers, car dealerships, motor insurance companies, and automotive manufacturers. To find out more, or request a free demo, please contact: