The electric vehicle segment in India has been evolving fast. In the past few years, several new electric vehicles have been launched here. Adoption has also gone up. Even today, there are major challenges that EV owners face here. A famous Chartered Accountant (CA) from Gurgaon has now taken to LinkedIn explaining why many are still hesitant to buy EVs despite them offering massive cost savings. Interestingly, it isn’t the inconvenience caused by the current charging infrastructure that he’s talking about. The CA talks about the higher depreciation of electric vehicles.
Sarthak Ahuja, the famous chartered accountant and CFO from Gurgaon, shared the post on his LinkedIn profile. He is possibly the youngest Indian to have completed the CA, CS and CMA degrees at the age of 23 years.
In the post, he says that a big problem with buying an EV is its poor resale value and high depreciation. He calls the resale value ‘horrible’. He then gives some numbers to back his claim.
According to the CA, the value of a petrol or diesel car may go down by 20% in the first two years. The depreciation on EVs during the same period is estimated to be around 42%. The resale value of these would thus be much less than that of the ICE (Internal Combustion Engine) versions.
He then explains two possible reasons for the faster depreciation. The battery pack is the most important part of any electric vehicle. It is also one of the most expensive parts. In many cases, the battery constitutes 30-40 percent of the total vehicle cost. Replacements will thus be expensive.
In the pre-owned car market, he says, many buyers do not have trust in the battery of the EV that they are about to buy. This is due to the fact that there is no standard measure to independently evaluate the health of an EV battery at the time of writing. Electric vehicle models from various brands run their own individual software to evaluate the respective battery health levels.
Another reason, according to the CA, is the rapid rate of technological advancement in the EV sector. EVs are now evolving so fast that major boosts in range and other relevant metrics are had in new products or updates launching every 2-3 years.
If you buy an EV now, it is highly likely that you may see a new product launch in the next two years that claims a much higher range and comes for almost the same price as what you paid for your own EV. Due to their faster obsolescence, people prefer buying brand-new electric cars over used ones, translating to poor resale value. This is a trend that we have seen with gadgets like smartphones and tablets.
The post then talks about the various types of EV battery warranties. Concerns around the battery pack can be addressed to a certain extent with proper warranty coverage. Many manufacturers now offer extensive warranty covers for EV batteries.
Up to 10-15 years can be had on some models. In many cases, this warranty is valid only for the first owner of the EV. Anyone sourcing it from the used car market will not qualify for this.
The State of Health (SoH) of an EV battery defines its range and performance. On a brand-new EV, it will be 100%. It decreases with age, charging patterns, and driver behaviour. 80% SoH is often seen as an end-of-life state.
In his closing remarks, the CA says that there shouldn’t ideally be a decline of over 2% over two years, in the ideal case. We, however, think that finding a loss of up to 5% is still acceptable, as batteries in many cases record up to 2% yearly decline in SoH.