China loves a used Tesla as much as it loves a brand-new one.
Five years after the market for new electric vehicles took off in China, a fledgling used-car market is forming around the close to 3.5 million EV cars (link in Chinese) already sold, and Tesla looks set to rule it.
A Tesla’s residual value—basically the future value of a car after a certain amount of use—at one year is more than 70% of its original price, far higher than the value of any Chinese EV model at the same mark, according to an August report from a Chinese automobile industry group studying leasing and resales.
“Except for a Tesla, we won’t take any other pure battery car,” a Beijing-based second-hand dealer told auto blog gasgoo in August.
That’s a worrying sign for China, where government subsidies have created a slew of domestic EV giants (Quartz member exclusive), some of which are now looking to go overseas amid a slowing car market. The Chinese EV with the highest value at one year was a sports utility vehicle from Roewe, a subsidiary under state-run SAIC Motor, while for many popular brands it’s under 35%.
While the second-hand EV market is just starting in China, like in the US and Australia, it’s an important step for electric vehicles—signaling growing buyer confidence in their reliability. Prices for used cars can affect the first-hand market, since people are more likely to buy cars that hold on to their value. Due to the lack of transaction volume, it’s hard to track used EV sales, but the numbers are likely small and hybrids are probably preferred. On Youxin, one of the biggest second-hand car websites in China, there are no pure-electric EVs offered at the moment, while a search on online used car site Guazi found 81 EVs out of thousands of cars.
At present, a three-year-old 480 km (300 miles) Model S which has logged more than 38,000 kilometers (about 24,000 miles) is listed for 475,300 yuan ($66,908) on Tesla’s own Chinese site, or nearly 60% of the price of the current Model S with a range of 660 km. Meanwhile on Guazi, BYD’s popular compact SUV, Song, is listed for 119,800 yuan ($16,903), or 40% of its original price in 2017.
While Tesla’s far higher prices in China because of import duties might have put off some buyers to begin with, the cheaper Model 3’s expected by the end of year from the California firm’s new Gigafactory in Shanghai, coupled with their higher resale value, could make the brand more competitive in China.
The residual value of EVs drops far more quickly than a gasoline car’s, which can stay at about 60% to 75% even after three years. The typical profit for a dealer is also far lower, or below 3,000 yuan ($423), a Beijing-based EV dealer told the Economic View, a Chinese financial publication. That’s due to the more limited range of the first generations of EVs, and the perception of high risk due to consumer reports of frequent repairs with their new EVs and spotty after-sales service. Most of the second-hand EVs on sale in China are about two to three years old, according to online searches, which means they typically have a battery range of just 200 km (124 miles)—or about two-thirds of typical ranges for a new car today. In addition, warranties on those cars have often expired (link in Chinese).
Because the market isn’t mature yet, there’s no set standard on how to assess the resale price of a used battery, which makes up 40% to 50% of an EV’s price. “The key here is that you need to have a good comparison,” said Toliver Ma, an equity analyst at Hong Kong-based Guotai Junan Securities.
Ma said Tesla stands out in the second-hand market for this very reason, because it has developed a clear standard for pricing and inspecting its used cars, which are often still covered by warranties (link in Chinese).
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