Why increased pre-owned EVs could impact next year

By Cliff Deller

There’s been little change in used vehicle values since I last wrote in the November issue of Auto Retail Profit. Volumes are still very manageable – demand remains reasonably healthy despite the recent concerns around the budget and its implications for the wider economy. Consumer confidence, albeit a little dented, remains positive particularly for the time of year. Vehicle searches and enquiries, while not at the levels of recent months, remain healthy.

What we all know so well is it’s the supply and demand dynamic that really regulates the effect on the market and, while these are at a tandem with one another, the market remains stable. It is when one of these factors is completely misaligned that the degree of instability is seriously affected. Of course, stability is crucial for both owners of inventory looking to bring their vehicles to market, as well as those looking to buy – and subsequently resell – those vehicles, in a timely manner. Keeping margins high and stocking costs to a minimum is vital for reducing the risks of any major depreciation costs.

Although, what a fantastic contrast to Q4 2023, when most values appeared to be in freefall and EV product was the curse of the automotive industry, from the point of view of buyers, sellers and retailers. Fast forward 12 months and it feels like the market is worlds away from the doom and gloom surrounding EV residual and vehicle values, in general, of 2023.

Feeling the effects

Having said all that, many owners of EV fleets are still reeling from the effects of last year’s depreciation. The majority are now looking for alternative strategies to remarket their EVs, as the traditional channels may not always provide the best return for these vehicles. It really is a case of thinking outside the box to come up with ingenious alternatives that can deliver superior returns to mitigate any of those losses, while, most importantly, demonstrate to their stakeholders their proactivity in managing a difficult situation.

What’s interesting is when you think back a few years how the market has transitioned from being hugely dominated by diesel vehicles, (c.50-60% of all registrations, followed by petrol variants) to where we are today. The variety of propulsion systems available to consumers to choose from today is quite astounding by comparison.

This industry landscape reinforced when I was recently looking at new car market data in terms of ICE and AFV (alternative fuel vehicle) registrations for October 2024 and YTD. It was striking that YTD AFVs made up 40% of new car registrations, compared with 36% in 2023. Diesel now only accounts for just over 6%, which is down 12.8%, or 15,600 fewer registrations compared with the same period. While petrol vehicles still dominate the registration tables, they too are on a gradual decline. The statistics are a clear indication of exactly where the market is going and, importantly, gives clear visibility of what vehicle fuel types will be coming back to the market, not just next year but every year going forward.

EVs at 18% of the new car market will inevitability continue to increase their share, especially when you take into account the plethora of consumer offers and incentives that are available.

A clear road ahead?

Fortunately, consumers are also finding they have much more information available to them now regarding new energy vehicles (EVs), which is helping to allay their fears around range, public charging availability and charging costs. What we absolutely don’t need is any more confusion caused by suggestions of ZEV mandates and other deadlines being pushed back because this will just create and rekindle consumer confusion, doubt and anxieties again.

A fly in the ointment that’s not been mentioned much yet is the increase in VED on EVs coming into effect in April 2025. The DVLA has sent out an urgent warning about upcoming car tax changes that will see motorists paying an additional £600 a year.

Drivers of electric vehicles have been notified by the DVLA as they will now be required to pay VED, like petrol and diesel vehicle owners. Advocates for electric vehicles (particularly OEMs) are urging the government to rethink the imposition of this fee, highlighting that approximately two-thirds of electric models sold in the UK (such as the popular Tesla Model Y) would incur the new charge.

The official government website clarifies: “From April 1, 2025, drivers of electric and low emission cars, vans and motorcycles will need to pay vehicle tax in the same way as drivers of petrol and diesel vehicles. This change will apply to both new and existing vehicles”.

The introduction of this policy effectively eliminates the current band A of the VED system, which incurs no cost. Vehicles previously categorised under this band will be transitioned to the first taxable band. This extra £410 tax, currently levied on petrol and diesel vehicles costing over £40,000 in the first five years after registration, could result in some electric vehicle owners paying an annual fee of £600.The DVLA has notified owners of the upcoming car tax changes that will see over a million UK drivers affected by the substantial VED revisions.

There has been much talk about pre-registrations by manufacturers who want to clear out either non-compliant or old model stock before year end. Rather surprisingly, this issue is, by no means, an industry-wide phenomenon, certainly not in October anyway. Nissan reported pre-registering 1212 vehicles in October, vs Volkswagen’s 47 and Renault’s 19. These stats do prompt one to question whether all OEMs are correctly declaring their pre-registration activity…

Back to the future

December will, of course, be a quiet month for both retail sales and wholesale activity. Although it is expected, the supermarkets will, as usual, be looking to top up on their November buying activity to ensure forecourts are fully ready for the traditional post-Christmas boost in consumer activity.

Those retailers that must stick to very strict year-end working capital targets could find themselves struggling to find stock in January. The remarketing and logistics industry usually closes around Christmas Eve or before and doesn’t reopen until 6th January. Therefore, there’s no fresh vehicles being delivered into the auctions, or remarketing sectors. It’s probably going to be towards the end of January before those fresh vehicles are available. Of course, by this time all retailers will be looking to replenish their stocks which will inevitability keep prices high and conversions very strong.

As we move from January into February, stock will be even thinner on the ground as it is pre-plate change month – as very few cars are sold new in this period it follows that there will be a lot less cars coming back into the market. The key action point here is to ensure you have sufficient stock levels to take you into the year end and new year. It really is a false economy to run inventory levels right down, while having to go into the market the same time as everyone else and join the mad scramble for stock.

On a more positive note – and adding more confidence for the industry – values are predicted to hold steady for the next few months, with no specific shocks on the horizon.