Insight September 2021: future used EV and hybrid car values

by | Sep 7, 2021 | UK Car Valuations

A recent exercise comparing new car registration data from the German and UK car markets was thought-provoking on the subject of future used car supply and future used car values.

In July 2021, 236,400 new passenger cars were registered in Germany: 25% fewer than in July 2020. While this was the first monthly fall in Germany after four consecutive months of growth, the YTD total was still up 7%, with c. 1.6 million cars registered. That said, the 2021 total is still down 25% compared to the first seven months of 2019 – the year before corona.

UK new car registrations for July fell by 29.5% to 123,296 units, according to the Society of Motor Manufacturers and Traders (SMMT). The decline is artificially lessened in comparison with July 2020, when registrations rose dramatically as showrooms enjoyed a full month’s operation following the first 2020 lockdown.

However, July’s performance was down over 22% on the average recorded over the past decade, as the ongoing semiconductor shortage and the ‘pingdemic’ impacted on both supply and demand. Consequently, this was the weakest July for new car registrations since 1998, prior to the introduction of the two-plate system.

Most sales were lost in fleet which, at 61,140 units, was almost 30% lower than the average recorded over the past decade. Private registrations fell by a lesser extent vs average: down 11% to 59,841 units. A decline in fleet business for July did not match the YTD trend, which is still up almost 30% year-on-year, but then it is only up thanks to woeful 2020 numbers.

The YTD total for all sectors was 1,033,269: a 24.7% increase on the same period last year. So, while fleet registrations have kept pace with general market performance thus far through 2021, anyone with an eye on the economy and changing work trends will acknowledge the risks to the fleet sector. August was another poor month, with 12,627 fewer fleet cars registered: a fall of more than 27% vs August 2020.

While new cars sales are down for several reasons, including the chip shortage and the pandemic, this fall in registrations and changing market patterns could hurt future used car buyers in several ways.

Firstly, supply of used cars in two to three years is going to be lower than we have become familiar with, so if you’re used to buying your main car at three or four years old with 60% of depreciation behind it, that may be different next time around. It is also worth bearing in mind the fall in private sales over recent years; it is getting harder to buy a three- or four-year-old car privately these days. Thank you, We Buy Any Car.

Secondly, national used vehicle stock may be made of up fewer fleet cars and more private cars. Many private buyers do not spend as much as fleet buyers and are drawn to cheaper brands. Private buyers in the prestige sector are often on lease and PCP plans and are encouraged by manufacturers to take cars from UK stock, so reducing the level of new car personalisation. This could lead to fewer interesting and high spec examples in the future and a further rise in value for well optioned cars. This will need to be reflected in insurance payouts.

Thirdly, surging demand for the latest battery electric, hybrid and plug-in hybrid vehicles has led to their registrations rising 32%, 46% and 72% respectively. Demand for plug-in hybrid has outpaced battery electric in five of the last six months since changes to the Plug-in Car Grant were introduced in March. There are now some 130 plug-in models on the market and the numbers are growing. All electric vehicles are expensive and have likely been written up by finance and lease companies at strong future values/final payments, but these numbers will still be well below the cost and potential extended lead times to replace these cars with newer models when the contract period expires.

It may be reasonable to imagine that, with the high standard spec now seen on so many new cars unlikely to be rendered significantly obsolete for quite some time, and with a three- or four-year-old car facing slower depreciation, many private buyers on HP, PCP or personal lease agreements may opt to keep their cars when the contract expires rather than hand it back and start again with another expensive purchase. This would be another issue for supply of used electric vehicles – exactly what most used car buyers are likely to be looking for in 2025 and beyond.

So, if you’re a private buyer who’s been looking at the electric market and planning to jump in circa 2024/2025 when the technology is a little more proven, it may be worth considering your options in the face of low new cars sales through 2020 and 2021 and what this could mean for you as a buyer in what is likely to be quite a strong market (assuming no economic disasters). Electric vehicle demand is unlikely to slow down any time soon, while supply of the most desirable models will be limited and prices will be high as a result.

While I have not crunched the numbers as yet – there may be no numbers worth crunching until this situation plays out a bit further – current trends suggest that depreciation on the most desirable EVs over 36 to 48 months could be very low. This might be particularly true for prestige brands including BMW, as the UK’s entrenched badge obsession is unlikely to change. Despite the big push around electric vehicles, if the likely supply of good used examples does not improve, then we may all end up driving internal combustion vehicles for many more years than is currently imagined.