For the automotive industry, the first few years of the 2020s were a time of unprecedented chaos. With a chip shortage, skyrocketing used car prices, and the shaky implementation of the Inflation Reduction Act's electric vehicle tax credits, uncertainty ruled over the automotive sector. Today, those levels of uncertainty appear to be dropping, but a sense of pre-2020 normalcy hasn’t quite arrived. In 2024, most of the markups and crazy used prices are a thing of the past, but some weirdness still lingers.
Today, more electric vehicle models are emerging in availability, meaning more fresh-faced cars are hitting the second-hand market. Moreover, as relatively new EVs like the 2021 Polestar 2 and Volkswagen ID.4 are beginning to reach the end of their original lease periods, used ones should become far more abundant. Plus, with the availability of point-of-sale tax credits, new and used buyers will have very different buying experiences from last year.
To explain what’s going on and where things are headed in the EV market, InsideEVs spoke with Cars and Bids' founder, YouTube star and used car kingpin Doug DeMuro.
Just What The Heck Is Happening?
Used electric car prices plummeted last year. Prices vary depending on the specific make and model, but used luxury EVs have been particularly bad. For instance, in 2021, some Mercedes-Benz dealers were charging up to $50,000 over MSRP on top of the EQS 580's already steep $119,110 tag. Today, used EQS 580s can be found for as low as $65,000. Similar stories can be said for other expensive EVs.
"We sold the first crop of [Hummer EVs] for maybe the first four months, all for over $200,000, some went for $235,000, $215,000, you know, it started to trend downward," DeMuro told InsideEVs. "And boy is it trending downward now."
"The last Hummer EV truck we sold, which was 60 days ago, sold for $111,000. So the person who paid $260,000, which was in April of 22, not even that long ago, in 18 months has lost $150,000 to depreciation," DeMuro said. "But that's what happens when you want to be an early adopter. I wouldn't necessarily look at this as an example of a failure of the Hummer EV; I would look at it as like people were just crazy in those early days to be the first guy on their block to have one. And so some people just paid stupid money for them, and the same was true with Rivians, and the same will be true with the first Cybertruck to transact."
With the stock market posting record wins in 2021, some wealthy car enthusiasts probably didn't mind spending an obscene amount of money to get behind the wheel of a cool new EV. Used Hummer EVs still run for six figures, so their prices only affect a small demographic of car market consumers. But one mainstream electric automaker has seen some big depreciation hits recently: Tesla.
Is Tesla Partly Responsible For The Used EV Price Collapse?
In late 2022, the Tesla Model Y Long Range started at $67,440. Today, the same electric crossover runs for $50,630 or $43,130 with the now point-of-sale tax credit (certain retail locations offer the Model Y Long Range for $45,730 or $38,230 with the credit). For the consumer, the exact same Tesla Model Y is 36 percent cheaper than a little over a year ago.
While Tesla's prices have significantly dropped, new car transaction prices only slid 2.4% from December 2022 to 2023. But the overarching question is, did Tesla's price drops affect the entire used EV market?
"[Tesla's] price reductions have had an effect of lowering the entry price of the car, but at the same time, that's not that different from a regular automaker providing incentives that also have a similar effect," DeMuro told InsideEVs. DeMuro points out that despite Tesla's price cuts, it's more so a flaw of its direct-to-consumer business model. "Probably, [Tesla has] actually reacted the slowest [compared to legacy automakers] because the dealers are the ones who are setting the prices for regular automakers, and dealers react really fast. And by really fast, I mean, that day.
"If [dealers] are a little behind on sales numbers that afternoon, they're like, 'Yeah, all right, send it out the door for 500 less than the last one.' Tesla doesn't have that luxury, so they are only changing prices every quarter or every few months, which is technically slower," DeMuro said. "Automakers, of course, set an MSRP and stick to it for the lifecycle of a car, but it's the dealers who are really coming up with the selling prices, and they're the most reactive to market conditions of almost any business in the entire economy."
MSRPs may vary slightly from year to year, but DeMuro is largely right: Except for a few weird exceptions, especially in the EV space lately, most car models will not see large price changes throughout their life cycle unless new trims or features are added.
Even if the manufacturer wants to discount a car, they’ll usually do so in the form of an incentive: Hyundai recently introduced a $7,500 bonus cash special on its 2024 Ioniq 6 sedan and a $4,100 price reduction for the base trim. That's even more significant than the Tesla Model 3 price cut from $48,400 in 2022 to $40,630 in 2024. Another example is Audi's current RS e-tron GT special: $30,000 off MSRP. Perhaps we've taken these discounts for granted when viewing Tesla's price cuts. But in terms of pricing, things this year are about to change for car buyers big time.
Point-Of-Sale Credits
For the first time in recent American history, the federal government has enabled the EV tax credit to be applied at the point of sale. Effectively, if you're looking at a $40,000 qualifying EV, the dealership can sell it to you for $32,500, and then the IRS will repay the dealership the credit's value. For the few fully electric cars that qualify for the full tax credit (Chevrolet Bolt and Bolt EUV, Ford F-150 Lightning, Tesla Model Y and Tesla Model X), this can mean massive savings at the time of purchase.
DeMuro sees the point of sale credit as beneficial for the applicable brands, but there is some weirdness, specifically within Tesla's lineup. "It'll be interesting to see how it shakes out, but the fact that it's at the point of sale is a huge deal. Why would anyone get a Model 3 if you could get a Y with the $7,500 [credit for less money]?," DeMuro questioned. "I mean, it's not that much more expensive to begin with, and now it's probably going to be cheaper. Like, what would be the point of even getting a 3?"
A new Model 3 RWD runs $40,630 and doesn't qualify for the tax credit due to battery sourcing. The Model Y RWD starts at $45,630. However, with the point of sale incentive, the Model Y is $38,130, a full $2,500 less than the 3. Granted, the Model 3 refresh is now available with new amenities the Y doesn't have, like ambient lighting, ventilated seats, and improved sound deadening. But it’s still a compact sedan, and when you can buy a more spacious crossover for the same brand for less, the Model 3 is going to be a tough sell.
Why Are EVs Depreciating A Lot?
Despite the uptick in EV sales, DeMuro thinks there's still a hurdle to purchasing an electric car.
"EVs, right now, is I hate to say it, but it's kind of a technology for the wealthy. Like you almost have to have a single-family home or a charging situation that is beneficial," DeMuro told InsideEVs. If you're an apartment dweller who lives close to a DC fast charger, an EV could still work, but it will be less convenient.
"Electric cars have to become a lot cheaper in order for some other adopters, non-wealthy people, to stick their hand in and say, 'You know what, I can't ignore a Model 3 Performance at $25,000.' But those people can kind of ignore a Model 3 Performance at $40,000," DeMuro said. "In large part they did and so I think that's a big reason why electric vehicles dropped fast: They're just not that desirable used cars for typical used car shoppers."
But it isn't only price. There's still an education barrier that hasn't been fully addressed with a large swath of car market buyers. In a report by Yahoo and Ipsos, 70 percent of EV ownership hesitancy stemmed from range anxiety. A separate survey in 2022 stated that 52 percent of consumers not planning on buying an EV are concerned about costs, including maintenance. "My view is people are worried about electric car reliability, but of course, the great hilarious component of all this is that EVs are probably more reliable than gas cars," DeMuro said.
While there are plenty of examples of high-mileage EVs holding up just fine, age is still something that hasn't been fully addressed. The oldest mainstream plug-ins on the road (Model S, Volt and Leaf) are not even fifteen years old yet. This just means there are fewer points to collect reliability data.
But with all EVs having at least an eight-year and 100,000-mile battery warranty, buyers shouldn't be overly concerned. "There are so many fewer things that could break and go catastrophically wrong {in an EV}. And I think it's more of a fear of the unknown."
The EV Market Of 2024
As prices continue to trend down in the market, 2024 might shape up to be a great year to purchase an EV, whether new or used. DeMuro told InsideEVs that he's specifically keeping an eye out for Model 3 Performance and Rivian R1T prices. "I would love to get a R1T, I think that would be cool as hell. Mark my words, if you can wait 12 months, they'll be under 50," the Cars and Bids boss said.
"I think a lot of people who don't have EVs could probably fit them into their lifestyle better than they realize. But I also think those people who want to spend 30 grand on a car, on a used car for 25 grand, they're not going to necessarily stretch for an EV unless it really gets into their budget and really has a lot of appealing characteristics. And only then are they going to say, 'yeah, I think this is like something I'm maybe interested in trying out.'"
Now with more appealing used EVs encroaching upon the $25,000 mark—like the Audi e-tron, Hyundai Ioniq 5, Kia EV6, Volkswagen ID.4, and Ford Mustang Mach-E—buyers now have access to impressive EVs that are within the average used car listing price. A few years ago, the only decent affordable used EVs were the BMW i3 and Chevrolet Bolt hatchbacks. Today, you can get a midsize crossover with plenty of range, good charging, and a spacious interior.
But beyond the specific options, the availability of the point of sale tax credit, while under the radar to some, is a huge incentive to buy a car with a plug. Whether it's $7,500 off the price of a Tesla Model Y or $4,000 off a used Bolt, the barrier to purchasing an EV is lower than ever.
