Cleantech Market Intelligence
The Plug-in Vehicle Residual Value Conundrum
This week BMW announced lease pricing on small fleet of new ActiveE cars being field tested with selected customers. While $499 per month with $2,250 down payment is less than the $600 per month lease of the Mini-E, it is substantially higher than the BMW 1 Series on which the vehicle is based. Currently, BMW offers lease rates on the gasoline powered 1 Series of between $399 and $329 per month with $1,000 down. Interestingly, while this pricing is obviously for a very limited test fleet of vehicles, it gives us an indication of where we might expect to see lease pricing for a BMW electric vehicle.
Lease rates are generally calculated based on four key figures: the price of the vehicle, the residual value of the vehicle (how much the vehicle is guaranteed to be worth when the lease ends), the money factor (sort of like an interest rate), and the down payment. Using these figures, the monthly lease payment is determined. In most cases, the price and the residual value of the car have the greatest impact on the overall lease rates calculated. The residual values for plug-in electric vehicles (PEVs) have been widely speculated on by bloggers and commentators, but overall it seems likely that the initial residual values are going to be relatively low. Industry average after a three year lease is roughly 54% to 55%.
The low residual value is driven by the new technology and operation costs. There is a lot of concern with how much value is left in the batteries after a three year lease (though both Nissan and Chevrolet will tell you that there is five years of value left). These residual values will likely climb as resale values are more accurately calculated in 2012 or later. Although, the residual values may falter if the price of new PEV batteries drops quickly due to advances in technology and increased manufacturing volumes, which would render current technology out of date or overly expensive. The leading leasing agency in Europe has found that the residual value for the only battery electric vehicle widely available for three years, the Tesla Roadster, is so far impossible to calculate due to “uncertainty surrounds charging systems, overall running costs and especially the battery, generally the most expensive chunk of upcoming electric vehicles.”
To cover their exposure for these vehicles, the companies calculating residuals (banks, insurance groups, and valuation companies) seem likely to set residual values lower than market average. It is then up to BMW, GM, and Nissan to decide what value they want to put on the vehicles, which could potentially cost them significant money if the resale values are below their estimated values. It seems likely that to match the Leaf’s lease rate, GM is betting the Volt’s residual value will be closer to that of the Cruze at 52%.
So, what can we expect to see for residual values and lease rates for a BMW i3 electric car? We can assume that BMW will not price their electric car below that of the BMW 1 Series, so I am expecting that the i3 will likely land near or slightly higher than $40,000. With residual values likely close to 50%, I would not be surprised to see a lease rate of about $400/month with a couple thousand down.
Other newer brands, like Fisker, Think, and even Tesla’s Model S, seem unlikely to garner residual values as high as mainstream brands because in their case, not only is the technology unproven, but the companies themselves and their vehicle resale values are unproven.
How long will the suppressed residual values for PEVs last? My best guess is that we will see them creep up slightly every year that there are no major problems with batteries and gasoline prices continue to rise. Within three to five years, I would expect them to be on par if not better than traditional ICE residual rates. The caveat being that if we see batteries and motor technology falling victim to recalls or higher than expected failure rates, then the residuals will stay right where they are.
As the initial vehicles start to come off their three year leases and as purchased and financed vehicles start coming to the used market, the ultimate proof will be in the resale values and what prices the used vehicle market will support for PEVs.