Historically, the average electric vehicle (EV) has experienced a steeper rate of depreciation compared to its gasoline-powered counterpart. This trend is largely due to factors unique to the EV market, which create uncertainty for used-car buyers. However, the market is maturing, and newer models with longer ranges and more advanced technology are beginning to close this depreciation gap. Understanding the specific dynamics of EV value retention is important for calculating the true cost of ownership.
The Current Reality of EV Depreciation
Depreciation represents the largest cost of vehicle ownership for both electric and internal combustion engine (ICE) vehicles. For EVs, this cost factor is particularly pronounced, accounting for approximately 52% of the total ownership cost over five years, compared to 44% for ICE vehicles.
An analysis of five-year-old vehicles found that the average EV depreciated by about 49% of its original value. This contrasts with the average ICE vehicle, which lost approximately 39% of its value over the same period. While the depreciation curve for EVs is steeper at the start, the rate of value loss tends to slow down significantly after the first year.
The depreciation gap is narrowing, and certain popular EV models are now demonstrating value retention comparable to traditional vehicles. Models with high demand, strong brand reputation, and superior range tend to perform better in the resale market. This segmentation rewards models that successfully address buyer concerns about range and technology.
Unique Factors Driving EV Value Loss
The primary driver of accelerated EV depreciation is the battery, which is the most expensive component, often representing 30% to 40% of the vehicle’s total manufacturing cost. Used-car buyers are concerned about battery degradation, which directly reduces the vehicle’s driving range and utility. While modern lithium-ion batteries typically lose only 1% to 2% of their capacity per year, the lack of a standardized, easily verifiable “State of Health” (SOH) metric creates buyer hesitation.
Rapid technological advancement also plays a role in devaluing older models, similar to the effect seen in consumer electronics. New EVs are consistently introduced with better range, faster charging speeds, and more sophisticated software features. This rapid pace of innovation can quickly make a three-year-old model feel obsolete, driving down its resale price compared to a new vehicle.
Government incentives further complicate the used EV market by artificially depressing resale values. New EV purchases often qualify for a federal tax credit of up to $7,500, which effectively lowers the initial purchase price for the first owner. Since used EVs qualify for a smaller credit of up to $4,000, and only under strict price and income limits, the used vehicle must compete with a new, subsidized model. This competition forces the price of the used EV down to remain competitive.
Strategies for Maximizing EV Resale Value
Prospective buyers can mitigate depreciation risk by prioritizing models known for strong value retention and long initial range. Models with a range exceeding 250 miles are generally more appealing to used buyers, as the vehicle retains more utility even after years of battery degradation. Choosing popular models from established brands that have demonstrated consistent demand also helps ensure a larger pool of interested buyers when selling.
Current owners can take specific actions to protect battery health, which is directly tied to resale value. Mindful charging habits, such as avoiding routine charging to 100% or letting the battery drop below 20%, help minimize degradation. Owners should also avoid exposing the vehicle to extreme temperatures for extended periods, as this can accelerate capacity loss.
Maintaining detailed service records and documenting the battery’s health is another strategy for maximizing the sale price. A comprehensive service history builds buyer confidence. Using third-party services to generate a battery health report can offer the objective State of Health (SOH) data that used buyers seek. Holding the vehicle for a longer period, such as five years or more, allows the owner to spread the initial steep depreciation over a greater length of time, making the annual cost of ownership more favorable.