Many countries are shifting to making and using electric vehicles in a global automotive landscape. According to current news, EV startups in China, like Xpeng, are soaring significantly, and countries like Europe have banned the sale of cars using internal combustion engines (ICE) from 2035.
It reflects the importance and need to shift to electric vehicles. However, amidst this transformation, an important consideration arises, i.e., the cost of depreciation on electric cars.
It is also one of the essential factors to consider when calculating IDV in car insurance and comparing car insurance premiums. In this article, let us learn — what are some factors that influence depreciation cost and which type of car depreciates more – electric or petrol?
Factors Influencing Depreciation Value: Electric Vs. Petrol Cars?
Initial Purchase Price
The initial purchase value is inversely proportional to the depreciation cost. It means the vehicle with a higher initial value has a lower depreciation rate.
- Electric vehicles have a higher initial purchase price, leading to a lower depreciation rate.
- Petrol cars generally have a lower initial price, leading to higher depreciation costs.
Fuel Efficiency and Operating Costs
Cars with better fuel efficiency and lower operational costs tend to have slower depreciation rates.
- Electric cars are generally more fuel-efficient and have lower operating costs, leading to a slower depreciation rate for EVs, as they offer long-term savings to owners.
- Petrol cars are less fuel-efficient than EVs, leading to higher depreciation costs.
Some brands have great reputations in the market, and they are known for their robust engines with better lifespans and great after-sales services, leading to lower depreciation costs or vice versa.
- EVs or petrol cars designed by reliable brands have lower automobile depreciation rates and higher residual value.
Technology and Innovation
Cars with new technology, advancement and innovation led to lower depreciation on cars and vice versa.
- Due to the popularity and demand for EVs, they are continuously being equipped with the latest technology and advancements, which can lead to slower depreciation and higher perceived value.
- Due to evolving automotive technology and model updates, traditional internal combustion engines might experience faster depreciation.
Type of Engine and Emission
The type of engine and battery directly affects the emissions, degradation and depreciation cost.
- EVs are more eco-friendly and emit far less fuel, leading to lower and slower depreciation.
- Petrol cars tend to emit high gas emissions into the air, which leads to faster depreciation.
Government Policies and Incentives
Due to environmental factors, governments have encouraged the use of electric vehicles instead of cars with internal combustion engines (ICE). The government started giving subsidies and tax credits to adopt electric vehicles.
- Government subsidies and incentives for EVs can positively impact their resale value and depreciation rate.
- The lack of similar incentives for petrol cars might affect their depreciation, especially in regions with strong EV support.
What Kind of Cars Have the Highest Depreciation Rate?
|Category||Examples of Cars|
|Luxury Cars||BMW 7 Series, Mercedes-Benz S-Class, Audi A8|
|Electric Vehicles||Early Tesla Models, Nissan Leaf|
|Exotic Sports Cars||Ferrari 458 Italia, Lamborghini Huracán, McLaren 720S|
|Large Luxury SUVs||Cadillac Escalade, Land Rover Range Rover|
|Non-Popular Models||Fiat 500L, Mitsubishi Mirage|
Comparing Depreciation Rates: Petrol vs. EV Car Depreciation
Comparing the depreciation rate of electric vehicles and petrol cars is challenging as it is influenced by the rapid changes in the automotive industry.
Early electric cars experienced a higher depreciation rate due to their speed of getting obsolete at a faster rate. However, with the increase in demand and technological advancement, electric vehicles are evolving their battery that increases lifespan. The evolution of EVs is contributing to lower depreciation rates over the long term.
Depreciation of traditional petrol cars is influenced by their residual value, such as the initial value, mileage, reliability of the brand and more.
Thus, insurance companies are still struggling to find the exact depreciation cost of electric vehicles compared to fuel vehicles when calculating the depreciation cost of purchasing a car insurance policy and its claim. As a result, the depreciation cost of electric vehicles is the same as petrol vehicles.
[Note: Availability of parts and services is a crucial factor that determines the depreciation of any car.]
The right answer to the question, i.e. “Which type of car depreciates more — electric or petrol?” is still elusive, as many factors influence the depreciation cost. The advancement of the automotive industry will likely shift the dynamics of evaluating depreciation.
However, potential car buyers should consider other factors that offer them more benefits, like longer lifespan, higher fuel or battery efficiency, cost, brand reliability, etc. However, do not forget to stay updated with the latest car depreciation cost trends to find a more accurate answer to this question.