Price cuts are great for new car buyers, but the same can’t be said for those selling the same models on the used market, which is why the spate of recent EV price cuts might be hurting fleet operators.
Fluctuations in new car pricing became commonplace during the turbulent COVID-19 period, largely due to material shortages, supply chain disruptions and labour shortages, but despite supply now stable the up-and-down pricing appears to be here to stay – especially for electric vehicles.
Tesla prices seesawed throughout the COVID-19 period, with constant increases, decreases and not much in the way of stabilisation until late last year. Now the firm has begun slashing prices again, reducing them by between $1000 and $8500 on April 4, and then taking a further $3000 off the sticker price of most models just a few weeks later.
Whether Tesla dragged rival brands down with them, as it consistently dropped its prices, is difficult to determine, but it may well have kicked off the price-slashing trend we are now seeing across EV brands in Australia.
MG recently decided to reduce pricing across its MG4 and ZS EV ranges in Australia, offering both entry-level models for $39,990 drive-away, taking the fight to the BYD Dolphin and GWM Ora as the three brands battle for the title of ‘cheapest EV’.
Speaking with Fleet EV News, MG Motor Australia confirmed that fleet pricing is in line with general consumer, and is unlikely to dip any lower.
“There are fleet discounts for volume purchases but we’ve brought every MG vehicle in at the lowest price we can, so with that in mind, we can’t really go any lower than what we are offering private and volume fleet purchasers,” the MG Motor Australia spokesperson said.
MG also suggested that a strong warranty offering helps protect the resale value of vehicles, when quizzed about the effect of price cuts on residual values.
“When there is such a transformation in the auto industry as is the case with EV right now, companies need to ensure the customer is looked after with pricing, taking into account warranty which greatly affects the resale,” the spokesperson said.
“Our EV range has fleet covered with our comprehensive 7-year or 160,000 km warranty (whichever occurs first) and 7-year service activated roadside assist guarantee across the entire MG range for fleet.
“This offers a positive trajectory for the EV market’s future as fleet customers usually turn over their cars within 4 years. This also offers buyers and sellers great value with a hefty share of warranty leftover.”
Of course, BYD and GWM have responded with similar pricing moves, in a race to the top – or bottom – of the sub-$40,000 EV market.
A fortnight ago, Peugeot dramatically slashed the price of its E-2008 compact SUV model by more than $20,000, reducing it from $59,990 before on-road costs to, you guessed it, $39,990 drive-away.
The Peugeot pricing cut was likely a ‘runout’ special as it prepares to welcome its new E-2008 model in Q1 next year, because representatives at the company told Fleet EV News that the model has since sold out in Australia.
Last week, Nissan suddenly took more than $10,000 off the sticker price of its longstanding Nissan Leaf models, reducing the entry-level option from $50,990 before on-road costs to $39,990.
Admittedly, the Leaf is being phased out from 2025, with a replacement model due shortly after but, with more than 2000 sales since it launched in Australia back in 2012, the price cuts certainly won’t favour those planning to sell.
Then this week, Polestar reduced its 2 range by as much as $15,000 until 9 June, taking the fight to Tesla by undercutting its base-spec Model 3. Seeing the trend here?
The battle of the budget EVs rages on and it’s hitting circa-$60k and sub-$40k categories the hardest, which is right in the meat of what fleets are spending on zero-emission vehicles.
Fleet operators will invariably be the first to bear the brunt of price changes, too, with average fleets holding vehicles for between three and five years, using a depreciation curve that starts with the new vehicle value.
To put that into perspective, fleet vehicles travelling 20,000km per year are traditionally worth around 30 per cent of the new vehicle value after three years. With price reductions as high as 40 per cent, in the case of the Peugeot E-2008, fleet operators could face depreciation of up to 70 per cent after just three years.
On the flip side, while these price cuts will impact early adopters, fleet operators biding their time as they wait for prices to come down in line with technology improvements and model options will now have access to EVs closer in price to their ICE counterparts.
Director of Fleet at Institute of Public Works Engineering Australasia (IPWEA), Marc Sibbald, says the price slashing is likely to continue and urges fleets to closely monitor changes.
“Several factors influence the future value of all used fleet vehicles and Fleet Managers need to monitor the market and adjust their Whole of Life Cost assumptions regularly,” Mr Sibbald said.
“The pricing volatility on new electric cars is expected to continue as manufacturers adjust their product lines, react to new competitors, and chase sales volume.
“Organisations that own their fleets, rather than leasing, will have more flexibility to react to the price signals by extending asset ownership periods, or turning over their EVs quickly.
“If they follow best practice fleet management by regularly reviewing Whole of Life Cost, they will be able to pick the optimum replacement time depending on market movements to reduce the impact of new car price changes.”
The residual values of EVs sit below ICE and even hybrid vehicles, explains Corporate Affairs Manager at Cox Automotive, Mike Costello, but between 2019 and 2024 their resale appeal has improved significantly.
“We are not yet seeing many used EVs in the market yet since most are with their first owner,” Mr Costello said.
“While EV resale values aren’t as high as hybrid or ICE vehicles at this stage, the average transaction price of used EVs is still up 16.7% over December 2019 on our Price Index.
“For context, the overall market-wide Price Index is up 36.5% over the same 2019-24 period.”
The longer term effects of price cuts, Mr Costello says, are unknown but Cox Automotive expects the influx of EVs set to enter the used market will stabilise resale values.
“There will be some safety in numbers, as the used EV market matures,” he said.
“The overwhelming majority of EVs remain with their first owners, meaning we will see tens of thousands enter the used market over the coming few years.
“We suspect this will stabilise the market somewhat, especially once there are more confident prospective buyers ready to embrace the technology.”
Cox Automotive, who also owns auction house Manheim, urges fleet buyers to take advantage of all available incentives and to consider running a mixed fleet of EVs to spread the resale risk.
“Our main advice to prospective fleet buyers is to leverage all available purchase incentives, factor in cheaper running costs into the total cost of ownership equation, and potentially diversify their fleet to hedge against brand-specific depreciation,” Mr Costello said.
“From our perspective, Manheim is working hard to ensure its wholesale auctions, which are a key asset disposal channel for fleets, are EV-ready.
“We are already broadening our buyer base, and getting closer to launching battery state-of-health tests and digital EV-specific auctions.”
