Put simply, depreciation is the difference between the value of a car when you buy and sell it. Different cars depreciate at different rates, with the biggest loss of value felt in the first year and subsequent two years. In fact, the value of a car could fall by as much as a third the instant you drive it off the forecourt. It may sound scary, but here we take a closer look at car depreciation and how you can avoid it.
How much do cars depreciate per year in the UK?
Typically, cars depreciate by between 15% and 35% in the first year. The AA states the average new car loses around 60% of its value after three years, based on a mileage of 10,000 miles per annum.
This means the residual value is just 40%, so if you buy a new car for £20,000, it’ll only be worth £8,000 after three years. If you only plan to keep the car for three years, you’re spending £4,000 per year on depreciation, making it the single biggest running cost alongside petrol. The numbers only get more frightening when you buy a more expensive car.
There are different factors which come into play, including the desirability of the model and things like condition, but such high depreciation is something that most of us want to avoid. Thankfully, electric vehicles (EVs) can be a neat solution to the difficulties of depreciation.
Depreciation of electric vehicles
Initially, residual values on EVs were poor. This is because there wasn’t a big market for people wanting to buy them, especially as used vehicles. Now, however, the market has exploded and with a large demand for used electric cars, they are retaining their value a lot better. Premium brands like Mercedes and Tesla boast astonishing residual values, helped by increasing ultra-low emission zones and rising congestion charges and fuel prices.
In fact, Driving Electric calculate the Mercedes EQC holds around 65% of its value after three years or 36,000 miles, while the Tesla Model S Performance Ludicrous holds 60%. Top of the pile when it comes to electric car depreciation is the Porsche Taycan, which is expected to hold on to a massive 77% of its value.
EV depreciation compared to petrol, diesel and hybrids
The depreciation of electric vehicles stacks up well compared to petrol cars, which usually depreciate the fastest. Diesels have also seen higher depreciation in recent years, in part due to the controversy surrounding the diesel emissions scandal.
Car buyers are also becoming increasingly aware of the time limit internal combustion cars now have, with the UK set to ban the sale of new petrol and diesel models in 2035. This date has already been brought forward by five years and could come forward further still with a deadline of around 2030 desired by Transport Secretary Grant Shapps.
What’s more, buyers are increasingly aware of the environmental benefits of EVs compared to petrol and diesel cars. EVs are also much better for the environment than hybrids for people who cover large distances on a daily basis, and therefore go well beyond a hybrid car’s electric range.
Hybrids are showing strong resale values at present though, while they’re much healthier for urban environments when running solely on renewable energy. The increasing availability of energy tariffs which offer renewable electricity for cheap off-peak prices, meanwhile, is also helping EV depreciation. The strong residual values we’re now seeing for electric cars compared to petrol and diesel models is great news for leasing, helping to bring down monthly payments.
Depreciation and leasing
When you take out a contract hire lease on a car, including an EV, the amount you pay is based on the projected rate of depreciation. In the case of electric cars, as well as enjoying lower monthly payments, EV leasing is also a safe way to protect yourself against new technology in the field. From key issues like battery performance and range to the increasingly wide choice between models, EVs are almost certain to be more advanced at the end of a two, three or four-year lease.
Leasing an electric car means you’re not at risk of unforeseen depreciation like you would be if you bought the car outright. At the end of your contract, you simply hand the car back and take out a new lease on a brand new EV which has the latest tech.
Risk-free, cheaper to run and better for the environment – get in touch with us today and we can help you pick out a great new EV, while answering any of the questions you may have about going electric.