Why the used car market holds the key to EV adoption

By Rupert Pontin

It is always interesting to review the progress of new initiatives and it is fair to say that for the first time in 130 years the method of propulsion of passenger vehicles is embracing a fundamental change. We are in the process of moving away from the internal combustion engine to electric motors, the majority of which are powered by batteries charged by electricity.

	Rupert Pontin, head of valuations at Glass’s, takes an in-depth look at what’s going on in the UK used car market

This change is driven in part by environmental concerns. In Europe, agreed legislation dictates that the UK will cut CO2 emissions of the average car to 95g/km by 2020. This is a significant reduction, given that the figure was 128.3g/km in 2013, leaving just seven years to hit the target. The emissions reduction over the previous seven years was 22.2%, which means we need to move the new technology into the retail and business markets as soon as possible if we stand a chance of hitting the further 26% reduction required by 2020.

On a positive note, the registration volumes for EV and hybrid technology are on the up. The chart below shows a breakdown of the registrations of alternative fuel vehicles over the past five years. Not only did 2014 show significant growth overall, but electric vehicles showed the greatest percentage increase.

However, total registrations in this sector still only account for 2.1% of the total market and it is here that the real scale of the task becomes clear. Recording a 58% year-on-year increase in registrations is all very well, but maintaining this level of momentum is critical to achieve the target set.

To do this means a greater acceptance among customers of the technology available, and the UK motor trade is not as adept at getting this message across as it needs to be. From enquiry to sale, the process of putting a retail or business customer into an electric vehicle is fraught with misunderstanding and there is a real danger that the customer will find themselves with a product that does not suit their transportation needs, which causes more harm than good.

Alternatively fuelled vehicle breakdown

Qualifying the customer properly and selling them the right vehicle for their circumstances is even more important in the  business sector of the market, which is key to the real success of EV technology and its market-wide acceptance. Not only must vehicles be fit for purpose, but the future value of each must be accurately and efficiently identified and produced, to allow seamless entry to the used car market at the end of term. It must also make financial sense when compared with a traditionally powered vehicle.This market has only recently begun to find itself becoming competitive and the forecast residual values of key models in this sector of the market have only recently become steady as shown in the table, right.

Forecast residual values

The chart shows the Nissan Leaf, Vauxhall Ampera and BMW i3 are close to traditional diesel combustion engines in forecast residual value terms and this is where the usable range is only about 80 to 120 miles. It is also evident that where Tesla offers a realistic 220-mile range, the residual value forecast is in line with traditional diesels.While range and therefore usability is the primary reason for this, the reliability of the technology and specifically the longevity of the batteries is a close second to making this type of propulsion relevant and competitive.

What is clear is that electric propulsion is finally moving to a position of being a truly viable option and the biggest hurdles may well have been overcome. Ensuring that business and retail buyers understand the relevance of the models on offer is the next hurdle that will bring these vehicles to the mainstream market and there are definite signs of commitment from manufacturers and certain franchised dealers to do this.