It’s Tricky Setting Used BEV Residual Values

Auto dealers know they’ll eventually sell more used battery-electric vehicles.

The question is less about how many they will have to sell – a good estimate of that number can be calculated from how many new BEVs are selling now.  In a few years, many of those will take a place on dealership used-car lots.

Rather, the question the industry grapples with today is what residual values – and associated sticker prices – tomorrow’s used EVs will carry.

It’s sometimes tricky for automakers to forecast residual values on purchased and leased vehicles in particular. Forecasting a residual value two or three years out on a leased BEV comes close to daunting in some cases.

“It’s the only question that keeps me up at night,” says Tommy Moore Jr., CEO of Stellantis Financial Services. “There’s no history to rely on, no crystal ball. BEVs themselves don’t concern me. Setting residuals on them does.”

Challenges include setting residuals in uncharted territory, he says at a recent American Financial Services Assn. automotive conference.

Stellantis just unveiled its first fully electric Jeep, the 2004 Wagoneer S. It’s priced at $71,995 and slated to go on sale later this year.

Some of the residual uncertainty is “political,” Moore says, referring to how the market can change because of potential revisions in government environmental mandates intended to spur automakers to build more BEVs.

“What if the pendulum swings?” he says, referring to the possibility of altered government carbon-emission standards.

Because of uncertainties, electric-vehicle residual setting “will be like a rodeo for three or four years,” Moore adds.

Americans are buying more BEVs. About 1 million such vehicles were sold last year. But the market isn’t growing as fast as anticipated.

That’s caused some automakers to cut back on BEV production, delay launches and cut prices.

It’s also caused unmoved inventory issues on some dealership lots. That can hurt residuals.

Some experts, such as those at Consumer Reports, recommend that shoppers on the fence about getting a BEV should consider leasing, rather than buying.

Residual forecasting – determining what a vehicle will be worth when it comes off-lease – is a key component of putting together a lease deal. But BEVs’ rapidly changing technology and fluctuating prices make it difficult to predict what today’s BEV will be worth in tomorrow’s world.           

“There are a lot of unknowns,” says AFSA conference participant George Fussell, CEO of SAFCO, a lender specializing in servicing dealers and consumers with nontraditional credit profiles.  

Automotive residual-setters and lenders are keeping an eye on the trajectory of used EV values, says Betty Jotanovic, president of Chrysler Capital and Relationships for lender Santander Consumer USA.

“We’ll have to monitor residuals,” she says at the conference. “How do we balance them in portfolios? How do we handle them in the used-car market?”

She adds: “We’ve got to think about collateral issues,” noting that batteries are the most expensive part of BEVs.

In that regard, auto auction chain Manheim now does “battery health” checks as part of a condition report’s value guide for BEV bidders.

Peter Vucurevic, president-financial services for American Honda Finance Corp., says, “We should look at residuals during the transition” from gasoline-engine cars to battery-powered EVs.

But unlike Stellanis’s Moore, BEV residual setting “doesn’t keep me up at night,” says Vucurevic. 

He welcomes the age of EVs. “I’m excited that electrification is coming.”