Used EV Sales Face Challenges, But Better Times Ahead

Electric vehicle (EV) sales are booming worldwide and in the U.S. During the first half of 2022, global EV sales rose 62% to 4.3 million units. The global EV market share of total new-car sales rose to 11.3% compared with a 6.3% increase year over year.

But if the EV market is finally reaching the toddler stage, one might describe the used-EV market as a virtual newborn. In this largely uncharted landscape, it remains to be seen whether used EVs will follow the path of their internal-combustion-engine (ICE) cousins or blaze their own trail. But the current market does give us hints of what the future might hold.

For one thing, we know very well how used EVs are “born.” They begin their lives as new vehicles. Further, we know EVs are enjoying record sales. In fact, for the past several years, production and sales of EVs have done nothing but rise. This, in turn, increases the pool of available used EVs.

At the same time, sales of used EVs are influenced by factors that don’t affect sales of conventional used vehicles. First, there is the newness factor. Many consumers still regard EVs as a new technology with which they are unfamiliar. And, in this case, unfamiliarity can breed contempt – or at least cause buyers to move cautiously. Further, EVs are, on average, more costly than equivalent ICE vehicles, and this can weigh heavily on used-vehicle buyers who are typically more cash-strapped than new-vehicle purchasers. In addition, EVs are available in relatively few market segments, limiting their appeal. Then there are the effects of federal, state and local incentives that muddy the water even further. Is it cheaper for someone to purchase a new electric vehicle or a two-year-old used EV? Sometimes it is difficult for shoppers to tell.

Total Used Sales Down, Used EV Sales Up

Electric vehicles are still so new to the market that sales of new EVs outpace sales of used EVs. In contrast, used ICE vehicles are estimated to outsell new vehicles by at least a 3-to-1 margin. As newer EVs are sold, this will change because those vehicles will return to the market as used vehicles in a few years. At the same time, the relatively few used EVs coming into the market are finding ready buyers.

J.D. Power found that total used-vehicle sales through franchised dealerships were down 5% in 2022 from 2021. During that same period, used EVs sold through the same channels experienced a massive 35% increase. That has carried over to this year, with used EV retail sales through franchised dealerships up 15%.

Further, all current signs indicate that sales of new EVs will continue to increase at a pace faster than the overall sales rate of the industry. EVs had a record year in 2022, even though supply chain issues, economic contractions and war in Eastern Europe caused a global decline in total vehicle sales by about 3%.

But in the face of these gale-force headwinds, EV sales on a global level surged more than 50%. In the U.S., EV sales jumped nearly 60% in 2022 from 2021. The consensus at J.D. Power is this trend will continue in the coming years.

Challenges Remain

While the overall outlook for used-EV sales in coming years is encouraging, other signs suggest caution is in order. Electric vehicles are now starting to behave more like their ICE counterparts in terms of value retention, but up to now their retained value has been spotty.

That’s a cause for concern, and so is the fact that used EVs take longer to turn than their conventional counterparts. Currently, a conventional used vehicle takes approximately 40 days on a franchise dealer lot to sell. That includes reconditioning, certified pre-owned inspections and other prep to get the vehicle ready for sale and the marketing/sales process. Before the pandemic, that number was in the low 50s, so used ICE vehicles are now selling lightning fast. But used EVs are not selling nearly as quickly. The most recent number is 53 days to turn, so it takes them approximately 13 days longer to sell on the franchise dealer lots.

Using the days-to-turn metric as an indicator of demand, there’s substantially more demand for conventional vehicles than EVs on the used market. That’s not to say EV demand is not improving. But they are not selling as quickly as their ICE counterparts.

This fact is reinforced by viewing EVs’ gross margin versus the total market’s gross margin. Through the first four months of this year, used-vehicle gross for EVs was approximately $1,150. Looking at the total market, the gross margin was $1,750. Franchise dealerships are making less on EVs than on conventional ICE vehicles.

Compounding this is the fact that EVs seem harder to sell on the sales floor than conventional vehicles. Average consumers seem a little nervous about buying a vehicle with an unfamiliar propulsion system. Many have heard of range anxiety and stories of battery degradation. With these things in the back of the shopper’s mind, selling a used EV is a bigger hurdle to overcome than a used ICE vehicle.

David Paris 2021 (002)_3

Most indications are the current issues plaguing sales of used EVs are transitory. As the technology becomes more widely understood, salespeople will face fewer objections to an EV. And as EVs approach parity with ICE vehicles in price, range, capability and recharge/refuel time, the used-EV market will benefit as much as the new-EV market. At this point, the used-EV market is a newborn baby that needs to be nurtured day to day. But as time passes, it will grow to be a big and burly member of this ever-changing industry.

David Paris (pictured, above left) is senior manager of market insights at J.D. Power Valuation Services.